On December 26th, 2020, I finished “The Deficit Myth”, by Stephanie Kelton. Professor Kelton describes in her book the pillars of Modern Monetary Theory, “MMT”. After closing the book, I checked the Bitcoin price, it had hit $27K for the first time, thus far a record high.
Modern Monetary Theory is gaining a lot of attention recently, not surprising in a world in which government debt is rapidly rising. However, according to MMT, there is nothing to worry, the government does not operate under a budget constraint, and it can create as much (sovereign) money it wants to buy as much debt it wishes in order to spend and invest to generate jobs for everyone. First condition: the government must have debt only in the currency that it has control, its own currency (the history is over for emerging economies, like my home country Brazil).
Being honest with the MMT and avoiding the simplicity to condemn the theory at first glance, MMT supporters believe that the main goal of the government should be to address unemployment. The government must spend as much as needed to achieve full employment because, according to the theory, the financing directed to accomplish that goal is not a constraint. Who pays for it? The government creates money (the owner of the printing press). In this scenario, taxes are not the answer to finance the spending, taxes in the MMT serve other purposes such as redistribution of income and wealth and to create an obligation to people to use the currency issued by the government. You must own the currency to pay taxes that are payable only in that specific currency.
Supporters don’t believe this practice will create inflation, even if the history tells them opposite.
In the U.S., the annual inflation rate is calculated using 12-month selections of the Consumer Price Index, which is published monthly by the Labor Department’s Bureau of Labor Statistics (“BLS”). The annual inflation rate for the United States is 1.2% for the 12 months ended November 2020, published on December 10, 2020 by the BLS. 1.2% is a very low number, well below the actual target of 2%. However, it is not the feeling in the most populated urban centers. According to The Chapwood Index, the true cost-of living in spiking up in America. For the first half of 2020 cities like Los Angeles and New York experienced increases above 12% yoy. It is hard to believe that it is not correlated with the total public debt as percentage of GDP, ski rocking ~130% (USA-Q32020)
But let’s do a short exercise, even if the government doesn’t face budget constraints and inflation is absent, it will be the government decision to spend where it wants and how it wants and I would be happy to believe that the politician’s main purpose is not to stay in power.
MMT in the end evokes and embraces an activist fiscal policy, financed by a state-controlled central bank. The theory is a virtuous road paved with beautiful promises that the government should create jobs for everyone, and unemployment is brutal and should not exist. Seems like this “macroeconomic” discourse is following the actual debates in our society, mainly about gender and race and creating dangerous dichotomy. Compromise, complexity and even compassion for the counterpoint are impossible in this context, because any issue, by definition, will be defined by a dichotomy between two positions, one virtuous and correct and one sinful and wrong, the latter which often either is, or has been, the prevailing oppressive paradigm.
Is BTC the alternative? Hard to say yes, but it is harder to ignore.