Eleven years ago, the 2008 financial crisis transformed politics, creating the conditions for a new crop of national-profile candidates who are throwing the old rules away, from Donald J. Trump to Alexandria Ocasio-Cortez. Now, insurgent academics have come forward with a seemingly elegant theory to revolutionize economics, underpinning the profligate spending impulses of many of these newly minted politicians. This framework, “Modern Monetary Theory” or “Modern Money Theory,” has a simple premise: the U.S. and other Western countries can offer government-funded, good-paying jobs to anyone who wants one and pursue any other public-policy objective as well, through vastly increased spending. The outlays for such ambitious efforts, the theory holds, won't result in high deficits, high interest rates, or inflation—the bugaboos, typically associated with runaway spending, that haunted Western policymaking on both sides of the aisle from the 1970s to the early 2000s. Those risks are exaggerated, MMT maintains, and can be mitigated through prudent government action.
Extravagant as they sound, MMT's prescriptions resemble how the U.S. and other Western governments have approached economic and monetary policy in the years leading up to and following the financial crisis. That's hardly a comforting feature of MMT, though. This upside-down theory matches reality only because reality is upside-down. Western governments have used their power over the past decade to inject trillions of dollars' worth of government distortions into a supposedly free-market financial system, where the values of stocks, bonds, and real estate have become increasingly hallucinatory. Expanding the MMT model would drive the West only further from reality. MMT promises not a free lunch but a lifetime engorging feast, assuming that because the normal rules of economics don't apply now, they will never apply. That's a perilous assumption.
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