The Questionable Validity of Modern Monetary Theory in Economic Management

Man engages in work to make money. The wage for work is often associated with the amount of energy expended. For example, a line worker working 8 hours a day receives less pay compared to a CEO working 24 hours a day. This discrepancy in wages highlights the transformation of energy into wages in currency form, which can be seen as a constraint of physiological and physico-sociological laws governing human behavior.

Understanding Modern Monetary Theory

Modern Monetary Theory (MMT) proposes that governments have the capacity to create as much money as needed without the traditional constraints of economic theory. Critics argue that this contravenes the basic principles of the fungibility of money and the necessity of work to fulfill life needs. The theory suggests that since money can be printed without constraints, work is no longer essential for fulfilling life needs. This challenges the traditional incentive mechanisms of the economy.

Critique of MMT

MMT has been attempted in various countries, with catastrophic results. Countries like Greece, Germany, and Venezuela have all experimented with MMT, only to face severe economic downturns. These failures highlight the insurmountable challenges and risks associated with such policies. Critics argue that MMT is not a modern theory but rather a reincarnation of failed economic theories from the past.

Scientific Rigor in Economic Management

Attempting to teach a proven-failed theory to children is reprehensible. The idea that adhering to such theories can add value or be socially responsible is embarrassing. Economic management should be guided by scientific rigor and evidence-based principles. Theories like MMT, which are based on faulty foundational principles, can be dangerous and expensive. The cost to economies that adopt these theories can be measured in trillions of dollars, as seen in the global financial crises that followed past experiments with MMT.

Conclusion

The recurring failures of MMT in various countries underscore the need for a more realistic and evidence-based approach to economic management. Instead of relying on flawed theories, policymakers should focus on grounded economic principles that respect the underlying constraints of human behavior. The ongoing impact of MMT on global economies serves as a stark reminder of the importance of scientific rigor in economic decision-making.