The populist model, embraced by some on the American left, resembles policy that helped torpedo some smaller economies
The economic meltdowns UCLA Anderson’s Sebastian Edwards recounts are horrendous affairs, the unintended consequences of government jobs programs gone very wrong. The Latin American countries he spotlights suffer crippling inflation, devastating currency devaluations and living conditions generally more miserable at the end of the experiments than when they began.
Five years ago, Edwards’ analysis might have been only theoretically relevant to U.S. policymakers. No American authority then suggested the U.S. take on the sort of debt and monetary policies that preceded doom in his examples.
Today, however, U.S. policymakers appear much more comfortable with large debts. And an economic theory that would employ debt, and the central bank, in ways similar to those failed Latin American countries is drawing unexpected support. Edwards considers his findings, published as a working paper by the Hoover Institution, “cautionary tales” to address those trends.
The paper takes aim at Modern Monetary Theory, or MMT, a once-obscure philosophy that embraces large government spending, expansionary monetary policies and eternal sovereign debt. MMT gained wider attention in 2019 after Alexandria Ocasio-Cortez, the liberal U.S. representative from New York, said it belonged in the national economic debate. And it has drawn support from a small but influential group of economists, other politicians and Wall Street types. The vast majority of U.S. economists, however, disparage its tenets.
MMT challenges the assumption that central banks inevitably spark dangerous inflation when they print money to pay for government spending. Large programs to achieve public goals, such as full employment, universal health care and infrastructure improvement, are necessary to allow government, rather than a central bank, to regulate the economy, according to the theory.