Bidenomics, also known as MMT

Under MMT, the crisis never ends.
Under MMT, the crisis never ends.

Summary

The crazy economic theory that spending has no consequences.

Sometimes ideas that seem obviously silly catch on and cause serious destruction. In the late 2000s Australian economist Bill Mitchell coined the term “Modern Monetary Theory," or MMT, to describe what one might call Keynesianism on steroids. John Maynard Keynes (1883-1946) argued that government should stimulate the economy by spending and borrowing during a short-term shock like an economic crisis or a war, then pull back to a reasonable level of spending and debt once the crisis has passed.

Under MMT, the crisis never ends. Proponents posit that because the dollar is the world reserve currency and the Treasury can sell bonds at low interest rates, Uncle Sam can spend and borrow limitlessly with no economic risk. As Stephanie Kelton, an economist at Stony Brook University, put it: “Deficits can help us fight a myriad of problems that plague our economy—inequality, poverty and unemployment, climate change, housing, health care, and more."

Free-market economists scoffed. History is littered with nations that tried to spend and borrow their way to prosperity: ancient Rome, interwar Germany, Argentina, postwar Britain, and more recently Bolivia, Mexico, Zimbabwe, Greece and Venezuela.

But on the left, MMT caught on as an explanation for why Barack Obama’s nearly $800 billion stimulus plan in 2009 failed to yield anything like the promised 4% annual growth. They said the spending wasn’t enough.

In 2020 the Democratic Party fully embraced MMT. Ms. Kelton served as a top economic adviser to Sen. Bernie Sanders, runner-up for the party’s nomination, and later co-authored a report for the Biden campaign that served as a blueprint for its spending blowout. In 2021 MMT gave the administration and Democratic lawmakers an academic imprimatur for the avalanche of spending, four times as large as Mr. Obama’s stimulus 12 years earlier.

Donald Trump had already unwisely presided over a Covid-relief spending spree. Mr. Biden persuaded Congress to shovel $4 trillion into social-welfare programs, corporate-welfare grants, leftist environmental programs, college and healthcare subsidies and more. In a testament to MMT’s sway, 17 Nobel economics laureates signed a 2021 statement asserting that all this spending “will ease longer-term inflationary pressures."

Never mind that the economy was already bouncing back as businesses reopened. Mr. Biden and the MMT crowd thought they had invented a perpetual-motion machine. Instead, they unleashed the worst inflation in 40 years.

Average weekly earnings of employees rose 15% between January 2021 and May 2024. But that was a loss in real terms, since prices were up 19%. Even with trillions in handouts, working Americans have seen their average real annual income decline by more than $2,300 in today’s dollars. To our knowledge, not one of those Nobel economists has issued a retraction.

Mr. Laffer is the president of Laffer & Associates. Mr. Moore is a visiting senior fellow at the Heritage Foundation. They are co-founders of the Committee to Unleash Prosperity.

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