Liberal Economics invade D.C.: Something new that should scare the hell out of all of us!

I don’t scare easily.  This scares me!

In case you missed it, and there’s no reason you wouldn’t, Stephanie Kelton, an economics professor at the University of Missouri, Kansas City, was appointed chief economist for the Democratic staff of the Senate Budget Committee.   Why should you care?  Well, Ms. Kelton is the cover girl for Modern Monetary Theory (MMT),  an economic theory that, in short, postulates that the government can print money without recourse, and it should.

At the heart of MMT  (liberal economics)is the belief that the government should spend any amount necessary to balance the economy without regard to balancing the budget.  According to MMT, because the US dollar is a fiat currency (its value is not backed by anything like gold) there is nothing that the government cannot afford.  Like a true Liberal she believes that everything revolves around the government and that government spending is what really drives the economy and creates prosperity.  In a 2013 interview on the podcast Virtually Speaking (listen here) she attempted to make the point that government surplus is bad, the business sector cannot be in surplus unless the government is in deficit, and that we can eliminate market forces by just printing more greenbacks.  This is the person the Democrats have turned to for advice?  Scared yet?

Once upon a time, economists were academics that tried to explain how economic forces impacted the market and economy.  They published theories that took decades or more to prove or disprove.  Today, politicians are turning to economists with theories that are complimentary to their views of what the economy should look like to help set policy.

Economics 101

What is lost on most politicians, and just about everybody else, is the fact that the economy, the markets, and just about everything else is cyclical.  The people who understand this have become very rich.  They run the companies that are selling when everyone else is buying and buying when everyone else is in a panic.  Instead of just trying to explain the cycles, economics today has become about attempting to control the cycles.  The economists and the government think that, by tinkering in the economy (like the Fed), they can eliminate the economic cycles and create an economic utopian society where the economic weather is always sunny and 75.  Wasn’t there a guy named Marx that tried that?  As I recall, it didn’t work out too well.

My problem with MMT and most other economic and financial theories du jour is that they have never been tested in the real world.  They are just theories that have not been put through the rigors of the scientific method (if you missed that blog read it here).  They come into vogue because the people who are touting them have become popular and their pet theory appeals to the masses – think redistribution of wealth.

Ms. Kelton has come to the forefront because of her success since 2012 speaking to various groups of financial advisors.  She has been described as a “rock star” on that circuit.  Having listened to some of her interviews I can say she is a very engaging speaker and gives a great presentation.  But just because you are a good speaker and can make a compelling argument to support your untested theory, doesn’t make it the gospel.  In true Liberal fashion, if you don’t understand or disagree with the theory, you’re labeled an idiot.  Sound familiar Ms. Pelosi?

History repeating itself?

The prospect of MMT somehow making it into the mainstream is terrifying.  We put a lot of faith in these economists because we think they know something we don’t.  In theory they may, in practice they’re just guessing.  Do you remember all the economists touting the New Economy during the dot-com boom as a way to explain that which only irrational investor behavior could really explain?  We all know how that ended.

History is littered with examples of the devastation that failed economic theories have brought down on the unsuspecting population who was told they were going to lead to their economic salvation, equality and/or prosperity.  Just look most recently at the redistribution of land (wealth) in Zimbabwe in 2008 that led to crushing hyperinflation.  I’m sure they thought their economic theory would bring prosperity to the people – it didn’t. Printing money without recourse leads to hyperinflation.  The history books are filled with examples.

A risk too big to take

As is often the case, the liberal, academic elite will argue that we are Americans, we are smarter, and we will make it work.  Even if history shows otherwise.  Sounds like the argument for Obamacare.  But what if they try?  What if  the Democrats get the opportunity in the future to roll out MMT on an unsuspecting American public?  A public who is more concerned with getting free stuff at others’ expense than the potential consequences of economic Armageddon.  Does anyone ever consider the consequences to the United States and the world if they’re wrong?

Printing money to support economic growth is an intriguing theory – but just a theory, an unproven theory.  Unfortunately, giving the government a blank check will inevitably lead to nothing but bigger government – and bigger debt, one of the few things the Obama administration has done well since they came into office.  If MMT had merits shouldn’t all this new debt have gotten us close to Utopia?  I can’t quite see it but if this is Utopia, I want my money back!

This is the way of politics today.  It’s not the most qualified that we get to set policy, it’s the most popular.  Populist rhetoric is a very powerful tool that the Democrats have turned into an art form at our expense.  Remember, just because you keep saying something and get everyone to believe you, doesn’t make it true.  Isn’t that right, Mr. Obama?