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Hamilton Beats MMT

Ultra-low interest rates have fueled growing support for Modern Monetary Theory, which holds that governments can simply print money and ignore rising public debt levels without having to face the consequences. It is a neat and tempting argument, as long as one ignores history and common sense.

SAN DIEGO – Was Alexander Hamilton a fool? Modern Monetary Theorists must think so. Hamilton, whose story is now sung by millions of schoolchildren, persuaded the young United States to absorb state debt, pay it back, and build a trustworthy reputation. “If we assume the debts,” goes a lyric from the musical Hamilton, “the union gets a new line of credit, a financial diuretic. How do you not get it?”

Should Hamilton have simply torn up the states’ Revolutionary War debt? MMTers seem to believe so, arguing that countries can often print money and ignore debt with little pain. I wish I could believe that government debt doesn’t matter (or that Elvis is still alive). But debt matters a great deal, and we should be thankful that US President-elect Joe Biden’s presumptive treasury secretary, Janet Yellen, is not an MMT acolyte.

Nonetheless, MMTers have been picking up ever more support. Ultra-low interest rates have fueled a growing temptation to keep printing money and ignoring debt until the very moment inflation flares up. Whenever that moment comes, MMTers assure us that the government will simply cut spending to cool off the economy. They present a neat argument if you ignore history and common sense by trusting politicians to do precisely what they are most averse to doing.