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Should Governments Just Print More Money?

Podcasts Sep 10, 2019 Stephanie Kelton and Elmira Bayrasli

Supporters of Modern Monetary Theory say that some governments can easily cover the cost of large social programs such as health care for all and free college tuition by jettisoning conventional thinking about the role of debt and taxes in our economies. But is it really that simple?

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Stephanie Kelton

Stephanie Kelton is a professor of economics and public policy at Stony Brook University. She is a leading expert on Modern Monetary Theory and a former Chief Economist on the US Senate Budget Committee (Democratic staff).

Elmira Bayrasli

Writing for PS since 2016
3 Commentaries

Elmira Bayrasli is the co-founder and CEO of Foreign Policy Interrupted and the author of From The Other Side of The World: Extraordinary Entrepreneurs, Unlikely Places.

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Paul Daley Sep 12, 2019

Modern monetary theory could be an improvement over what we have today, where central bank purchases of government bonds in secondary markets does little more than inflate asset prices. Under MMT, new issues of government bonds, even to their own central banks, would at least support the production of new goods and services so long as there was slack in the economy. But can governments be relied upon to act in a timely fashion in response to both economic slack and rising inflation in goods and service markets? Recent history isn't encouraging.

That is why it makes more sense to open channels through which central banks can use QE programs to directly support goods and service purchases during times of economic slack. Central banks are more nimble than democratic governments, but they have never been given the latitude or the means to provide incremental income support or product demand in the absence of expanding fiscal deficits. That is what needs to change. So long as central banks are obliged to wait on prior government action before providing support to goods and service markets, but are allowed to act in asset markets immediately, they are going to take the latter course, inflating asset prices and waiting on wealth effects to produce some meager increase in goods and services demand.

In short, we don't need a new theory to deal with current problems. We need new practices at our central banks. Those central banks have to act more like real banks, lending against income while trading in assets. Only at that point will central banks be in a position to support a balanced expansion that ties asset prices to income flows.
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