Modern monetary theory has a pandemic trial. Inflation is now testing it.


The problem is that the alternative to a Fed response is not obvious right now. The Biden administration’s attempts to contain price hikes — longer port times, release of strategic oil reserves, calls for corporate price-gouging — have largely been tinkering with the fringes of the problem.

However, MMT economists would recommend such precise steps to combat inflation. Ms Kelton laid out other suggestions made by MMT economists in a recent blog post. Among them: Medicare for All, the Pentagon budget cut, the removal of some tariffs and the opening of the ports.

Not exactly “easy peasy,” to borrow her phrase.

“MMT was pretty marginal,” said Jason Furman, a Harvard economist, noting that in his view most policymakers and prominent academics were already ignoring it. Even if politics in the pandemic effectively espoused the idea that you don’t have to pay for your expenses, he said that idea was also Keynesian.

And the MMT crowd, while dismissing the Fed’s role, has failed to come up with a clear and obviously viable idea on how to contain inflation, he argued, adding: “If you were open-minded, it would discredit you even further.”

In Washington, the set of ideas has clearly suffered a setback. The deficit worries have returned. Mr. Biden’s far-reaching policy agenda was not passed because Senator Joseph Manchin, a West Virginia Democrat and a member of his own party, opposed it over concerns about the national debt and inflation.

Despite this, some of the proponents of MMT still sound solemn.

“We won the debate on an intellectual level – there are no flaws,” Mr Wray said.

Defects or not, there are questions.

Questions like, “Has Congress ‘experimented’ with MMT, and does the rise in inflation mean MMT ‘failed’?”


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