Life has me trying to pack 32 hours into 24 today, so I’ll leave you with this blast from the past, the famous post that gave us bikininomics. New stuff on Friday.
“Grab a brew. Don’t cost nothing.” – Animal House
The future economic expansion is so bright, she’s gotta shield her eyes with a hat.
So, today I’d like to talk about economics. No, wait, don’t leave! I promise pictures of girls in bikinis if you stay!
Today’s economic idea is a particularly stupid one. Just about as stupid as when the Ming Dynasty tried to disarm Japan by buying all their swords. This really happened around 1432 A.D. (according to some experts) but was less successful than the Ming projected: the Japanese just made more swords – at least 128,000. Today’s stupid idea is called, “Modern Monetary Theory.” Epsilon Theory had an article on it (LINK), and I did some research and thought I’d give you a rundown on this horrible, horrible idea which smells worse than Johnny Depp’s sweat socks after a night running through a farm ditch in Utah. Don’t ask.
Okay, John Wilder, I’ll humor you if you promise bikini pictures. What is Modern Monetary Theory (MMT)?
This poor person is deprived by a Marxist economy, so poor she cannot afford proper clothing and is weak enough from hunger that she’s forced to crawl along the beach.
Here’s a bikini picture to prove that these will be the sexiest graphs in the history of economics. Now pay attention and I’ll explain Modern Monetary Theory. MMT is simple:
The main idea of MMT is that since government creates money there are exactly no limits to how much money government can create. Back when money was backed by gold (say, with one ounce of gold being worth $20) there was a physical limit – by definition you couldn’t have more $20 gold coins than you had ounces of gold. MMT says, “Hey, since Nixon took the world off of the gold standard, we’ve been making up this money stuff anyway. So let’s go all in.” This is not exactly like a drunken 21 year old with Mom and Dad’s credit card in Las Vegas. Not exactly. The credit card has a credit limit.
So, under MMT, there is no limit to how much money government can print. The genius idea (from Bill Mitchell, an Australian economist who came up with the name “Modern Monetary Theory”, and whose dog’s name is “Dog” and daughter’s name is “Girl”, and whose pet name for his wife is “That Woman On The Couch”) is that there is also no limit to the amount of money that government can spend. This is Alexandria Ocasio-Cortez’s high school prom fantasy where Justin Bieber picks her up in a pink helicopter and makes her all warm in her special place. Oh, and by special place I mean other people’s wallets: this is a family-friendly blog, get your mind out of the gutter. The implications are stunning. “Why not just pay for everything? The government can just print the money, right?”
Yes. She really said that. See, pure economic genius!
Yes, this is exactly the logic of a twenty-something girl who can’t figure out how to pay for an apartment, and wonders what fruit Froot Loops® are made of.
Bill Mitchell has a doctorate in economics, which shows you how easy it is to learn absolutely nothing while getting a doctorate, just as Ocasio-Cortez can demonstrate that an undergraduate degree in economics is essentially majoring in pure pre-barista. An analogy used on a website that promotes MMT is that football referees don’t have a limit to the number of points that can be awarded during a football game. There’s no requirement that they come from somewhere, and giving someone else a point doesn’t take a point away from you. Therefore points are infinite and don’t change the way the game is played.
Genius.
You can clearly see the equilibrium required in an economy consisting entirely of tequila shooters and cocoa butter.
Why not make every dollar worth, oh, say $10? That way everyone could just add a zero to their bank balance? Doesn’t cost anything, right? And why not pay for every person’s medical care? We’re just making up the dollars as we go. While we’re at it, there are unemployed people. Why not pay your average unemployed art major to make Xir’s (a gender-neutral pronoun) armpit-hair sculptures each and every day?
Don’t cost nothing.
This is an amazing idea! Government can have it all! There is no limit to the amount government can spend because Tom Brady can make all the touchdowns he wants during a game. Yay, tortured grade-school logic!
There’s a corollary to this – Dr. Mitchell thinks we can have all of this infinite money and low interest rates. There’s no need for inflation. Print the money. Prices won’t go up. MMT says we can spend ourselves into prosperity*.
*As long as you appropriately tax people to soak up excess money. Mitchell, in the fine print, says that we can spend up to the entire productive capacity of the nation on, well, whatever. When we get to that capacity, then we have to soak up the extra money with taxes. The taxes don’t really go to anything, we just use them to pull money out of circulation. Government still buys stuff with whatever money it prints. Taxes exist only as a sponge to soak up excess cash.
Two consecutive quarters of GDP contraction make a recession, and they’d also leave a nasty sunburn.
This puts the printing of money into the hands of the Federal Reserve Bank, and the spending and taxation into the hands of Congress. Sadly, Mitchell never postulated putting adults in charge. Regardless, Congress never ever spends too much money and certainly wouldn’t structure taxes to be punitive against groups they don’t like. So, sober people like Mitch McConnell and Nancy Pelosi would have infinite spending ability. I’m sure, like Goldilocks, they’d get the porridge “just right.”
MMT will be the next economic pied-piper of the political class in Washington, and will probably be the torch carried by the next Democratic presidential nominee. It has no downside! Spend today because deficits don’t matter. Interest rates are 100% controllable. Only have to pay a few taxes, and we’ll have free prosperity for all.
We’ll just print the money. “You just pay for it.”
And, no one will have to be a barista! We can guarantee a living wage to each and every artist so that the United States can be the undisputed leader in the creation of sculptures made out of armpit hair.
There’s no reason this can’t work. Why, The Boy, when he was in kindergarten, came up with a system that was very similar. For whatever reason, his class had made “feathers” by cutting out feather-shapes out of different colors of construction paper. The Boy got into his Gummi-bear® addled kindergartner brain that these construction paper feathers were actually worth real money. He even had an exchange rate in mind – each feather was worth three dollars. He had three feathers, so, he demanded nine dollars. I tried to negotiate, but it was useless – he drove a hard bargain, what with the laying on the floor and crying.
But he made the same mistake that Karl Marx and MMT make.
GDP is proportional to the height of the girl in the bikini. That’s a basic economic concept.
You see, Marx’s theory (as well as MMT) both incorporate a fascinating idea – that the value of an item is based on the inputs that it takes to make the item. So, from that standpoint, our armpit-hair artisan should be able to charge the cost of her Xir schooling (plus that summer in Europe with Marco!) and her Xir apartment and food cost for that armpit hair sculpture. It is that valuable.
Real world economics that don’t result in economic collapse and the starvation of millions of people would disagree. An armpit hair sculpture is worth only what someone is willing to pay for it, and not a penny more. It’s a market, and it’s based on free exchange. It’s that simple idea of the market setting the price that makes capitalist economies work. And it’s the brutality of the market that ensures that armpit-hair artists have to have a real job actually producing things that people want. Like coffee.
Ideas like MMT seem to be too good to be true because they are too good to be true. They always end in failure, poverty, and human suffering. Thankfully they can use that taxation sponge to soak up all the blood after the revolution.
But “infinite free stuff” is sure a great line when you’re running for office. Worked out great in Venezuela….
