Modern Monetary Theory (MMT), which claims that a country issuing debt denominated in its own currency can finance a large amount of government spending by issuing debt or printing money without worrying much about a debt crisis or high inflation rates, has grown in popularity on the political left in recent years. But it has failed to gain much support in the economics profession. That is largely due, in my view, to problems with the theory. But the poor defense routinely offered by its more prominent advocates also contributes. James K. Galbraith’s recent article serves to illustrate.
“As anyone who has ever been responsible for legislative oversight of central bankers knows,” Galbraith begins, “they do not like to have their authority challenged. Most of all, they will defend their mystique – that magical aura that hovers over their words, shrouding a slushy mix of banality and baloney in a mist of power and jargon.” Their negative reactions to MMT can be dismissed, he implies, as self-serving efforts to maintain control. After all, MMT represents what central bankers fear: a “popular, accessible, and democratic” theory.