“Results are mixed.” A refrain often heard in academia regarding widely debated theories. Is the stock market efficient, is the capital asset pricing model accurate, and what are the leading economic indicators? The answers to all these, perhaps with the exception of the CAPM, is “results are mixed.”
Now we can add the question, “is modern monetary theory correct?”, to the list of mixed result theories.
Perhaps MMT is another opportunity to apply dialectical reasoning:
Thesis: Modern monetary theory is correct.
Anti-thesis: Modern monetary theory is not correct.
Synthesis: modern monetary theory is not perfect but some aspects can be useful in guiding decisions for policymakers and investors.
The idea that deficit spending can continue unhindered without causing problems doesn’t sit well with me. In fact there is a book titled “This time is different eight centuries of financial folly ” that states every financial crisis was preceded by excessive levels of debt. The excessive debt, as referenced in that book with historical evidence, can be (has been) government debt corporate debt, and consumer debt.
So here we are today, in the United States cutting taxes but not necessarily cutting services to the same degree (which may be a good thing because the services may be needed), widening budget deficits, and increasing debt. Now, are we at the point of “excessive debt“? I don’t know but I hope that policy makers, corporations, and consumers proceed with caution.
Paul McCulley Sees Value in MMT; Larry Fink Calls It ‘Garbage’