Modern Monetary Theory is an enormous (and currently popular) temptation for anyone on the left who wants to spend a lot of money on climate and/or the social safety net, so I’m pretty impressed to see socialist magazine Jacobin publish an extremely thorough critique of it:
Though it might scandalize some liberals to say so, it’s dangerous to be sanguine about inflation. People find it destabilizing and it feeds a hunger for order. The rise in inflation through the 1970s that climaxed in that 15 percent record helped grease the way for Reagan. The extreme inflation of Weimar Germany in the 1920s contributed to the rise of Hitler. As a British diplomat stationed at the embassy in Berlin wrote to his bosses at home during the hyperinflation: “The population is ripe to accept any system of firmness or for any man who appears to know what he wants and issues commands in a loud, bold voice.”
The standard view of the Weimar inflation is that the German economy, severely damaged by World War I and forced to make huge reparations payments to the victors, wasn’t up to the task — it just didn’t have the productive capacity, and its citizens were both unwilling and unable to pay the necessary taxes. So instead the government just printed money and spent it, not only to pay its own bills, but to support bank lending to the private sector. (The printing presses were so overworked that they had trouble keeping up with the demand for fresh banknotes. At least keystroke money wouldn’t face this problem.) Inflation peaked at 29,500 percent in October 1923, meaning that prices doubled every four days. The value of the mark collapsed from 320 per US dollar in early 1922 to over 4 trillion per dollar in late 1923, meaning the mark lost 99.999999992 percent of its value in a year and a half. The value of the real wage, if it’s possible to measure amid such rapid inflation, fell by over 80 percent, as pay badly lagged price increases.
Wray’s explanation of the Weimar hyperinflation, one of the most dazzling of all time, is odd. The deficits, Wray explained in his book, were caused by the inflation, not the other way around. In the end, “Germany adopted a new currency, and while it was not legal tender, it was designated acceptable for tax payment. The hyperinflation ended.” Almost nothing about the printing press — he dismisses “printing money” explanations as “far too simple” — and nothing at all about the austerity program. No, there was just an unexplained monetary intervention somehow linked to tax payments. Weimar Germany may be an extreme case, but since it’s often brought up by critics of MMT — “won’t all that keystroking lead to inflation, like Argentina or Weimar?” — it’s one for which they need to have a good answer. Wray’s reluctance to face head-on the risks of printing money makes you wonder how confident he really is of his own theory.
https://jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping