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Modern Monetary Disasters

The experience of Latin America should serve as a clear warning for today’s Modern Monetary Theory enthusiasts. In a variety of countries, and at different times, fiscal expansions that were financed by printing money spun catastrophically out of control.

LOS ANGELES – Modern Monetary Theory (MMT), a seemingly new approach to economic policy, has become a hot topic, gaining support from leading US progressives such as presidential candidate Bernie Sanders and Democratic Representative Alexandria Ocasio-Cortez. But MMT enthusiasts should heed lessons learned in Latin America, where policies based on similar ideas inevitably ended in economic catastrophe.

According to MMT’s supporters, the US Federal Reserve should print large amounts of money to finance massive public infrastructure projects, along with a “job guarantee” program aimed at ensuring full employment. A major increase in public-sector debt, MMT backers claim, does not represent a danger for a country that can borrow in its own currency, as the United States can.

This unconventional view has been criticized by Keynesians and monetarists alike. Many respected academic economists, including Paul Krugman, Kenneth Rogoff, and Larry Summers, say that MMT makes little sense.

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