By J.D. ALT
It’s ironic that, at this moment, when the truthfulness and utility of modern money theory (MMT) is being publicly realized—(and even potentially implemented!)—that its singular vulnerability must emerge as a real concern: hyper-inflation.
The most recent thing I’ve written—Paying Ourselves to Save the Planet—addresses the issue of hyper-inflation as follows:
“Hyper-inflation” is a rate of inflation that happens so rapidly there’s no opportunity for people and businesses to adjust. Prices are, suddenly, noticeably higher—and then still higher tomorrow—and higher yet the day after. The money in my bank account suddenly can’t buy half of what it could last week. In a rush to keep the economy from collapsing, the currency-issuing government issues more and more money to enable consumers to continue buying—and ultimately must begin adding more and more zeroes to its paper dollars. This leads to economic and social chaos at every level.
It appears that hyper-inflation is caused by the government issuing too much money—and it’s for this reason that MMT is often attacked, by standard theory advocates, as a precursor to economic disaster. The issuing of too much hyper-inflationary money, however, is a reflexive, emergency government response to another underlying problem that caused the hyper-inflation to get started in the first place. To say that “printing money” causes hyper-inflation is like saying “flames” cause a fire.
The underlying problem that has caused every historical (and contemporary) instance of hyper-inflation is the same: the significant and general collapse of a nation’s production of goods and services. This happened in post-World-War-I Germany when the Weimar Republic shut down its manufacturing heartland as a refusal to acquiesce to unfair war reparations imposed by the Allies. It happened in Zimbabwe when Robert Mugabe evicted white landowners from their farms—which were the agricultural-financial foundation of the economy—and gave the land to new black owners without preparing them to operate the farms. The ensuing collapse of the Zimbabwean agricultural economy quickly led to one of the most infamous hyper-inflations recorded. This same general collapse of production is happening in Venezuela today, with the hyper-inflation being fueled further by a collapse in national income from oil exports—which had been used to import most of the goods on Venezuelan store-shelves. Result: empty shelves, but lots of bolivars in people’s pockets.
The book goes on to observe that none of the actions contemplated to “save the planet” from the climate-crisis would have the effect of causing “a significant and general collapse of a nation’s production of goods and services.” Quite the opposite, in fact, would be expected: The not-profit-making, public enterprise efforts would employ millions of people to produce a broad spectrum of goods and services—and that new employment, in turn, would support a broad spectrum of profit-making, private enterprise ventures. All along the lines that MMT has been arguing for years.
This is not, however, what is happening now with the fight against the Coronavirus—and the desperate effort by governments to put money in the pockets of people who can’t work and businesses who can’t open their doors to customers. So, while we’re discovering first hand and in real-time that, yes, sovereign currency issuing governments can, in fact, just create money so they can spend it—without having to collect it back in taxes, either now or in the future—we are also laying the groundwork for causing the hyperinflations described above: “A significant and general collapse” of our business and employment framework is happening before our eyes, while our government feverishly dishes out cash.
Not that the cash shouldn’t be dished out. But it must be accompanied by an intelligent, comprehensive, and aggressive effort to shorten the “collapse” and restart production and consumption of goods and services—and the public must know this effort is being undertaken. Nothing short of a full-blown mobilization for a “Manhattan Project” to defeat the virus will get the job done. This must include, as a start, 100% testing and a centrally coordinated, federally mandated, production and manufacturing ramp-up of medical supplies, equipment, and emergency facilities.
MMT, from my perspective, has never been about giving people money—its about paying people to produce not-profit-making goods and services which benefit collective society. It would be a tragedy if the sovereign spending efforts now being envisioned and enacted accomplished only the first, and left the second undone—setting the stage for a hyper-inflation that might ruin the promise of modern money theory for a generation to come.