UBI/Federal Jobs Guarantee result in massive inflation --- MMT strategies fail.

A state, MMT argues, finances its spending by creating money, not from taxes or borrowing. As nations cannot go bankrupt when they can print their own currency, deficits and debt don’t matter. Accordingly, governments should spend to ensure full employment, guaranteeing a job for everyone willing to work. Alternatively, though not formally part of MMT, governments can fund universal basic income (UBI) schemes, providing every individual an unconditional flat-rate payment irrespective of circumstances.

While no government or central bank overtly advocates MMT, since the 2008 global financial crisis and, more recently, the pandemic, policymakers have adopted many of its tenets by stealth. Popular one-off payments and increased welfare entitlements, which could become permanent, increasingly support economic activity. As the graph below highlights, central banks now buy a high percentage of new government debt, effectively financing this additional spending by money creation.

MMT is actually a melange of old ideas: Keynesian deficit spending; the post gold standard ability of nations to create money at will; and quantitative easing (central bank financed government spending) pioneered by Japan. However, there are several concerns about MMT.

First, the source of useful, well-compensated work is unclear. While MMT suggests taxes can be used to direct production, government influence over businesses that create jobs is limited. The impact of labour-reducing technology and competitive global supply chains is glossed over. Getting one person to dig a hole and another to fill it in creates employment, but it is of doubtful economic and social value. The woeful record of postwar centrally planned economies, where people pretended to work and the government pretended to pay them, highlights the issues.

Second, excess government spending and large deficits financed by money creation risk creating inflation. MMT argues that this is a risk only where the economy is at full employment or there is no excess capacity, and can be managed by fine-tuning intervention.

Third, MMT may weaken the currency. Roughly half of Australia’s government and significant amounts of state, bank and business debt is held by foreigners. Devaluation and loss of investor confidence in the stability of the exchange rate would affect the ability to and cost of borrowing overseas and importing goods. The expense of servicing foreign currency debt would rise.