One of the genius effects of Ronald Reagan back in the 1980s was that he turned Democrats into deficit hawks, which was an unfamiliar place for the Keynes-drunk party that exists to spend more. It was an existential crisis for Democrats. Reagan’s tax cuts and unprecedented (at that time) budget deficits not only forced Democrats into becoming tax increase advocates, but put the brakes on any extravagant new spending programs. No wonder they kept losing in landslides. (I still like Reagan’s insouciant answers when pressed on the deficits. “Do you take any of the blame for deficits, sir?” Sam Donaldson asked. “Yes,” the Gipper replied, “because for a long time I was a Democrat.” Also: “I don’t worry about the deficit too much. It’s big enough to take care of itself.”)
Well, Democrats have gotten over it. They know that the punitive taxes they wish to impose on the super rich won’t generate anywhere close to the revenue needed for their Green New Medicare-for-All Free College and Puppies-for-Everyone Deal, but no problem! We can just print all the money we need!
No, seriously, that’s their plan. The left has not only forgotten about the failure of socialism (okay, yes, yes, they never knew that in the first place, but still); they have apparently forgotten about inflation from monetary indiscipline, too. It’s called “Modern Monetary Theory,” and it says that sovereign debt is good, and that the United States is especially blessed with super-borrowing capacity because the dollar reigns supreme. So we should borrow like there’s no tomorrow. Of course, since we’re reliably informed that we only have 12 years lefty to solve climate change, why not?
This idea is not really “modern” at all, and you’d be right to think it is just a new term for Keynesian deficit spending, just as the left’s favorite epithet of the moment, “Neoliberalism,” is just a new term for “Capitalism.” Some people are calling MMT “the Laffer Curve of the Left.” But keep your eye on this. It’s going to be a cornerstone of the Democrats’ socialist economic policy to come. (To be sure, Vice President Cheney is reported to have said that “Reagan proved deficits don’t matter,” but that infamous quote was taken out of context and distorted. He didn’t mean permanent structural deficits for consumption, though the Bush Administration was plenty guilty of that especially with Medicare Part D; he meant temporary deficits for things like wars, infrastructure, etc.)
MMT is getting some backup from mainstream economists. The incoming president of the American Economics Association, Olivier Blanchard, argued in his presidential address that the costs of public debt might have lower welfare costs than previously thought, which you can bet will be cited by the Krugmanites of the world on behalf of a massive spending spree (though Blanchard is more circumspect about extrapolating in this way).
It occurred to me recently that everything has gone wrong since Milton Friedman died in 2006.
Chaser, for old time’s sake:
UPDATE—I’ve found an explainer for MMT: