Will Hillary Clinton Name a Crazed Money Printer to Her Economic Team?

By Robert Wenzel

Jeff Spross in the most recent issue of The Week has identified eight economists that he would like to see as part of  a Hillary Clinton administration.

The entire lot is a very scary group but, even in this, crew one name stands out above the others. It is the first name on the Spross list. He writes:

1. Stephanie Kelton is an economics professor at the University of Missouri-Kansas City. She has served as the chief economist for the Democrats on the Senate Budget Committee, and as an advisor to Bernie Sanders.

Kelton is probably best known for her central work on what's called Modern Monetary Theory (MMT). It emphasizes that debt issued by the federal government really doesn't operate like any other form of debt, because the government (which includes the central bank) can ultimately create all the money it wants. So it can't suffer a debt crisis, but can only create too-high inflation. And finally, that the amount of money the government puts into the economy via spending, versus the amount it takes out via taxes, is a key part of the overall ecology that determines the supply of jobs. And few people have done as much to game out the economic and policy consequences of those simple points as Kelton.

Here is the short explanation of MMT via Wikipedia (my bold):

According to MMT, "monetarily sovereign government is the monopoly supplier of its currency and can issue currency of any denomination in physical or non-physical forms. As such the government has an unlimited capacity to pay for the things it wishes to purchase and to fulfill promised future payments, and has an unlimited ability to provide funds to the other sectors. Thus, insolvency and bankruptcy of this government is not possible. It can always pay"...

MMT claims that the word "borrowing" is a misnomer when it comes to a sovereign government's fiscal operations, because what the government is doing is accepting back its own IOUs, and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to the private sector. "Private debt is debt, but government debt is financial wealth to the private sector."

In this theory, sovereign government is not financially constrained in its ability to spend; it is argued that the government can afford to buy anything that is for sale in currency that it issues (there may be political constraints, like a debt ceiling law). The only constraint is that excessive spending by any sector of the economy (whether households, firms or public) has the potential to cause inflationary pressures.

Bottom line; MMT holds the absurd view that government debt is the creation of wealth. It further holds that there should be no restraints on such debt creation other than when it causes price inflation because the government can pay off the debt by printing more money.

Thus, it ignores the fact that such government spending crowds out private sector spending. It is a theory that justifies a massive debt fueled expansion of  non-productive government bureaucracies. Think government cafeterias versus private sector dining options.

Such theory implemented would suffocate the economy and cause the American standard of living to crash. And, at the same time, it would grow central planning.

Let's hope the Spross list is just that and that Kealton is nowhere on a Hillary list.

Robert Wenzel is Editor & Publisher of  EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics and on LinkedIn.