Our inflation woes continue.
New data indicate that the Federal Reserve’s preferred price index rose 5.8% from a year ago, the largest increase in nearly 40 years. But as economics commentators, business leaders, and policymakers sound the alarm, one group has surprisingly little to say. Modern monetary theorists loudly defended printing-press finance when inflation was low. But now they claim surging prices are beyond our control.
Modern monetary theory turns public finance on its head. Advocates of MMT care little about the national debt. Governments that borrow in their own currency can’t default, they note. Hence Uncle Sam faces a resource constraint but not a fiscal constraint. Nothing prevents the public sector from massively expanding to combat the blight of idle resources, including unemployment. Furthermore, MMT proponents urge, government outlays should be funded by money creation. After Congress decides how much to spend based on social and political priorities, the Fed should buy up all the bonds necessary to finance this new spending.
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