MMT's Godfather Says the US Government Is Spending Like a Drunken Sailor
Odd Lots8 Juli 2024

MMT's Godfather Says the US Government Is Spending Like a Drunken Sailor

Modern Monetary Theory has gained prominence over the last several years by offering an alternative view on the constraints to fiscal policy. The basic gist is that the size of the deficit is not per se problematic. What matters are real resource constraints, and that if government spending gets too high — or is spent in unproductive ways — then inflation can materialize as too much money collides with insufficient supply. Another argument that some MMT adherents make is that the conventional path to fighting inflation (higher interest rates by the Federal Reserve) can actually be inflationary, because the coupon payments made by the government to Treasury holders constitute a form of government spending or fiscal expansion. In this episode of the Odd Lots podcast, we speak with Warren Mosler, the intellectual godfather of MMT, to explain the mechanisms at play and assess the current macro environment. Perhaps surprisingly, Mosler is concerned with the combination of high government debt loads, high deficits (which he characterizes as spending like a drunken sailor), and the orthodox approach the Fed is taking to fighting inflation. With debt as high as it is, the annual interest payments due to these rate hikes has gone up significantly, creating a situation that mainstream economists might call Fiscal Dominance. He explains how this environment is a recipe for consistently higher and sustained inflation in the years ahead.

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