Specifically, deficit spending is constrained by inflation risks—plan spending would cause entrenched hyperinflation, which collapses economic wellbeing and perceptual resiliency.

As shown below, MMT’s macroeconomic policy assertions follow from its oversimplified and incomplete Keynesian analysis. The lack of a dynamic economic model with behavioral content is a glaring professional failure. Unfortunately, instead of addressing that failure, MMT proponents have responded by claiming critics either do not understand it or have misrepresented it. The difficulty of confronting MMT about those failings is compounded by its practice of walking back its positions and adopting those of its critics without acknowledgment. Examples include replacing the full employment threshold model of inflation (Wray, 1998) with the Keynesian Phillips curve model, and also recognizing that capital controls may be needed to contain international economic forces that can potentially disrupt fiscal policy. Recently, Kelton (2019) has slipped in another longstanding Keynesian argument that stability of the debt-GDP ratio requires that the nominal interest rate be less than the nominal rate of growth (i < g). In doing so, she tacitly admits another financial constraint on government and continues the walking back process. On one hand, the walking back process is reasonable: on the other hand, it dissolves MMT’s claims regarding government being financially unconstrained. 3.2 Macroeconomic constraints and adverse policy feedbacks The second column in Figure 2 concerns macroeconomic constraints and adverse policy feedbacks which MMT ignores and which undermine its claim that government is financially unconstrained. Though government has the formal technical ability to finance all spending by creating money, that technical ability is a will-o-the-wisp because government is constrained by the reality of potentially high economic costs of doing so. Using the “printing press” to finance spending can create subsequent problems that leave government worse off measured in terms of its objective function. In the real world, economic policy and policy outcomes are subject to multiple economic concerns and constraints. Those include concerns about government bond rates, private credit market long-term interest rates, financial market stability, the balance of payments and the exchange rate, the inflation constraint imposed via the Phillips curve, and policy implementation and policy credibility constraints. Those various concerns and constraints impact the economic costs and effectiveness of deficit financed fiscal policy. However, they are all absent in MMT’s over-simplified theoretical framework. In particular, MMT’s framework is static and has little to say about how policy affects expectations of the future, and how expectations of the future have important immediate consequences. 3.2.a Financial markets, the complex of interest rates, and asset prices Government is likely to face significant financial market blowback if financial markets believe it is engaging in excessive money issue. In particular, long-term interest rates will tend to rise if financial market participants anticipate risks of future financial turmoil or higher future inflation. Current financial market conditions are affected by 15 expectations about the future, which means the future is always already here and in the present. Consequently, inflationary bias in MMT’s reliance on money financed deficits will creep into present financial market conditions long before full employment.