MMT causes massive inflation – collapses heg.

MMT proponents argue that central banks can print money without triggering dangerous levels of inflation. This claim not only overlooks the theoretical considerations outlined above, it also ignores the dark history of debt monetization leading to hyperinflation. As Thomas Sargent famously documented in his 1982 classic, The Ends of Four Big Inflations, printing money and monetizing debt — even when that debt was partly denominated in local currency — led to devastating inflation in Austria, Hungary, Poland, and Weimar Germany during the first half of the 20th century.

Austria and Hungary — two states formed through the dissolution of the Austro-Hungarian Empire — found themselves greatly diminished in both size and power following WWI. Since Austria-Hungary was deemed an aggressor of the war, its successor states owed the Allies substantial amounts in war reparations. To pay off the reparations while alleviating large-scale food shortages and unemployment, the Austrian government ran significant deficits — which it financed by selling treasury bills to the Austrian section of the liquidated Austro-Hungarian bank. At the same time in Hungary, political turmoil led to considerable budget shortfalls, which the government financed by borrowing heavily from the Hungarian section of the bank and increasing the volume of low-interest loans issued to private entities. As a result, both the Austrian crown and the Hungarian krone depreciated rapidly while domestic prices rose. This led to flight from each currency by domestic actors and foreign investors alike and, ultimately, to hyperinflation in both countries.

Poland, meanwhile, emerged from WWI as an independent nation after over a century of foreign rule. Cobbled together from portions of Austria-Hungary, Germany, and Russia, Poland inherited inflated currencies from these three partitioning powers — each of which had financed their respective participation in WWI through the printing press — and an empty treasury. The fighting in Poland did not end in 1918, either, as the nation found itself in a second war with Soviet Russia that lasted until the fall of 1920. In order to settle this and other border disputes, and to rebuild after the devastating WWI occupation, Poland amassed substantial debt. Like both Austria and Hungary, Poland financed its deficit spending by printing massive amounts of currency. In 1918, one U.S. dollar was equivalent to nine Polish marks; by the end of 1923, that same dollar was worth 6,375,000 Polish marks.

Of the four post-WWI cases of hyperinflation Sargent covers, none looms larger in the historical imagination than that of Weimar Germany. Germany had financed its war effort through deficit spending and suspension of the gold standard, believing that it would be able to achieve a swift, decisive victory and pay off its debt by annexing wealthier territories and imposing reparations on its defeated enemies. What occurred was very much the opposite: Over four long years of fighting, Germany accumulated considerable war debt while significantly devaluing its currency, the German mark. And since Germany was on the losing side of the war, instead of being paid reparations, it owed staggering levels of reparations to the Allies at the war's end.

Making matters worse, the Reparations Commission demanded Germany pay 132 billion gold marks as part of the London Payment Plan. The German government responded by printing more German marks to pay what it owed, which only devalued its currency further. In 1922, Germany failed to pay an installment it owed to France, which prompted the French occupation of Germany's primary industrial region to ensure repayment. The German government responded by calling for what amounted to a strike, then offered the workers financial support — again, financed by printing more currency and issuing loans at interest rates far below the rate of inflation. By 1923, German currency was worthless: One U.S. dollar at the time was equivalent to 4,210,500,000,000 German marks.

But hyperinflation is not just a phenomenon of the distant past. In fact, instances of hyperinflation have occurred over recent decades in countries like Brazil, Zimbabwe, and Venezuela.

Brazil experienced hyperinflation in the final decades of the 20th century. This resulted from its decision to pay down high external debt but avoid raising taxes. Instead, the country turned to printing money. By 1990, inflation reached a monthly rate as high as 82.4%. Hyperinflation in Brazil was only resolved when it created a separate unit of account, the Unidade Real de Valor, or URV, to exist parallel to its existing currency, the cruzeiro. Ultimately, this new unit of account became the Brazilian real, replacing the cruzeiro and quashing the inflationary spiral.

For Zimbabwe, the trouble began in the late 1990s, when the government adopted several spending plans — including the compulsory government purchase of white-owned commercial farms and generous pension plans for veterans of the country's war of independence — without budgeting for them. This triggered panic among foreign investors, who pulled capital from the Zimbabwean markets, thereby causing a crash of the country's currency.

Subsequent unwise military ventures drove Zimbabwe further into debt. Meanwhile, the forced seizure of farmland and resulting violence nearly halted all agricultural production. Since the Zimbabwean economy was too fragile to grow its way out of debt, and imposing new taxes to raise revenue was a political non-starter, monetary and fiscal authorities began to monetize the country's debt by printing more money. This ultimately led to hyperinflation so extreme — at an estimated 79,000,000,000% per month in November 2008 — that Zimbabwe was effectively forced to substitute its own currency with the U.S. dollar shortly thereafter through a process economists call "dollarization."

The seeds of Venezuela's ongoing struggles with hyperinflation were sown in the early 2000s, when the nation's economy and the value of its currency, the bolívar, became heavily dependent on revenues from oil exports. The rise in oil prices that largely coincided with President Hugo Chávez's term in office — from 1998 until his death in 2013 — ensured a steady stream of foreign revenue into government coffers. This allowed the Chávez regime to increase deficit spending in pursuit of its socialist policy agenda.

Then in 2014 — a year after Chávez's successor, Nicolás Maduro, took office — the global price of oil collapsed, leading to a steep decline in government revenues. Foreign demand for the bolívar to purchase Venezuelan oil fell, contributing to a decline in the currency's value. The Venezuelan economy was already in recession at the time, but instead of pulling back on Chávez's generous social-welfare programs or increasing taxes, Maduro's regime responded by ramping up deficit spending and printing more currency to finance the government's debts. By 2016, hyperinflation had set in. At the end of 2018, inflation rates in Venezuela reached an estimated 80,000% per year.

As these examples demonstrate, the correlation between currency printing and hyperinflation is undeniable, the causal relationship intuitive. Yet MMT proponents continue to contest it. In their canonical MMT textbook Macroeconomics, William Mitchell, L. Randall Wray, and Martin Watts state that "[n]o simple proportionate relationship exists between rises in the money supply and rises in the general price level." Wray, a Bard College professor and one of MMT's key proponents in academia, has gone on to say "there is no empirical evidence to support the belief that raising interest rates fights inflation." Stephanie Kelton, author of The Deficit Myth and former advisor to Senator Bernie Sanders's presidential campaign, argues that inflation is the result, not of monetary policy, but of "overspending" — spending beyond what it takes for an economy to reach "full employment" (which she defines not according to the mainstream economic concept of "natural rate of unemployment," but as the 0% unemployment rate that would occur under a government jobs guarantee). Such claims fly in the face of both historical evidence and traditional macroeconomic theory. And it's worth remembering, too, that hyperinflation often hurts the poor the most, since consumption makes up a greater fraction of their incomes.

ECONOMIC THEORY OR POLITICAL MOVEMENT?

Since MMT was first developed, mainstream economists have repeatedly pointed out its flaws. A recent Chicago Booth IGM Forum survey of 50 of the most respected academic economists found that not a single respondent agreed with the central claims of MMT regarding deficits, currency production, or inflation. Even left-leaning Keynesian economists like Summers and Krugman have loudly denounced MMT claims as "dangerous" and "obviously indefensible," respectively.

Perhaps the strangest feature of MMT, then, is the simple fact that it has managed to develop the following it currently enjoys. Economics professors, billionaire thought leaders, and several members of Congress (including, most notably, Representative Alexandria Ocasio-Cortez) have heaped lavish praise on MMT as the economic theory of the future.

So how does MMT live on? To start, many MMT economists have found financial support from billionaire backers like the late Leon Levy, who helped establish the Levy Economics Institute of Bard College that employs MMT economists to this day. More recently, Warren Mosler, a former hedge-fund manager and one of MMT's intellectual architects, co-founded and provided financial support for the Center for Full Employment and Price Stability at the University of Missouri-Kansas City, which also employs MMT economists. Yet with no serious mainstream economists stepping up to do anything other than attack MMT, how does this theory of economics continue to cultivate a base of high-profile supporters?

An answer to this question may have to do with the peculiar nature of MMT, which, upon closer inspection, appears to have more in common with a political or moral ideological movement than it does with a theory of economics. Like other ideologues, MMT advocates begin with the assertion that their policy goals — providing jobs for all, paying for college for all, etc. — are correct. From there, they assume that the means to achieve these ends must exist. This is not a falsifiable scientific theory; it is rather a political and moral statement by those who believe in the righteousness — and affordability — of unlimited government spending to achieve progressive ends. In this regard, MMT advocates have come to resemble mid-20th-century communists who argued that the Soviet Union could not possibly be a true socialist regime because a true socialist regime could only generate positive outcomes.

Beyond the mere absence of substantive arguments for their position, MMT advocates often obfuscate and redirect criticism rather than directly addressing it. Krugman has come to refer to attempts to engage MMT advocates as a game of "Calvinball" — a reference to the game played in the Calvin and Hobbes comic series in which the players constantly change the rules in transparently self-serving ways. Any time outsiders attempt to disparage or critically engage MMT, they are met not with a detailed rebuttal using empirical evidence or quantitative reasoning, but by MMT's advocates insisting the critics simply don't understand the theory. Krugman is not alone in his frustration: Mercatus Center economist Scott Sumner has said, "MMT has constructed such a bizarre, illogical, convoluted way of thinking about macro[economics] that it's almost impervious to attack."

This may sound like an unreasonable assessment of a theory that has found support among academics, entrepreneurs, and federal legislators. But the agendas of the annual MMT conferences held in New York serve as powerful evidence for its truth. Given all the criticism MMT has received from the economic establishment, one would think the conference would, like any other academic conference, be devoted to presenting empirical and theoretical studies, furthering research, and prompting serious scholarly debate. Instead, almost all MMT conference sessions have been based on political activism, with session titles such as "the future of jobs-guarantee advocacy," "building the jobs guarantee coalition," "MMT as an international movement," and "community strategy and institutional buildout." This makes MMT conferences look less like academic conferences and more like political conventions.