“The pseudo-scientific ideas of Lysenkoism assumed the heritability of acquired characteristics. Lysenko's theory rejected Mendelian inheritance and the concept of the "gene;" it departed from Darwinian evolutionary theory by rejecting natural selection.
Proponents falsely claimed to have discovered, among many other things, how rye could transform into wheat and wheat into barley. How weeds could spontaneously transmute into food grains, and that "natural cooperation" was observed in nature as opposed to "natural selection."
Lysenkoism promised extraordinary advances in breeding and in agriculture that never came about.” (Wikipedia)
Nick, what in the world are you starting a weekly comment with something like this for?
For one simple reason: We are all going to be asked to believe in the financial equivalent of Lysenkoism leading up the 2020 US Presidential election.
Last week I said we would summarize and explore Modern Monetary Theory (MMT) in this comment, so here are the basics:
- MMT is a macroeconomic theory that contends that a country that operates with a sovereign currency has a degree of freedom in their fiscal and monetary policy which means government spending is never revenue constrained, but only by CAPACITY and INFLATION.
- MMT puts forward that every government sector debt is a public sector asset or credit.
- MMT maintains that paying off debt is BAD because it constrains the public sector.
- MMT theorizes that governments cannot go broke as long as they don’t borrow in another currency.
- MMT maintains governments can always make all their payments by printing more money.
- MMT maintains governments can build more hospitals, bridges, highways, offer a universal healthcare system and buy any asset.
- MMT maintains government can always hire more people and pay more/higher wages.
Is this not having your cake and eating it too?
MMT says that governments can spend indefinitely and infinitely.
It is actually better for everyone if they do. And…the worst idea a government can have is to try and pay off this pile of accumulating debt.
There are only two restraining factors to MMT.
- Rapidly increasing inflation.
- No slack left in the economy left to be utilized. (All workers and raw materials are already in use).
Actually, as one gets further into the idea of MMT, number two isn’t really a problem because labour and resources can be brought in from other parts of the world.
The key to how MMT is presented is since you can’t ever totally utilize all workers and raw materials, you will never reach an inflation problem.
Therefore, MMT is the eternal solution to all our financial, economic, and social problems.
Now let me ask you a question. Can you see how a politician running for office would absolutely love this stuff?
Let me list some of the ideas being bandied about in connection with MMT.
- $1 trillion in new infrastructure spending
- Universal healthcare paid for by government
- Forgiveness of student debt
- Space initiated defense program
- Inner-city work programs at higher than market wage levels
A politician can promise everything under the sun to the citizens and boastfully add they are actually improving the long term prospects of their nation!
What if someone asks them, “How do you intend to pay for all of this spending?”
Answer: Silly person, you are asking the wrong question. What you should be asking is do we have the economic capacity and resources to do this project? Since we do, it doesn’t really matter what it costs! It is my patriotic duty to do this project to make your life better and our overall country better.
Do you kind of see where this is going?
The past 10 years of huge debts have started to run into a wall. If the thought is they have to be paid back some day, then we are reaching some fiscal limits.
But what if the narrative changes?
What if the narrative becomes “paying off debt is bad and unpatriotic?”
Remember, one governments debt is another private sector person’s asset. As an elected official, I’d be doing all those future generations wrong if I don’t keep running up the debt.
I must admit, this is where I started thinking about George Orwell’s “1984,” which I just re-read last summer!
Anyway, that gives you a simple version of what Modern Monetary Theory (MMT) is all about.
So one more comment.
This stuff is gaining traction quickly with the US primaries for the 2020 election right around the corner.
The Democrats are already hitching their wagons to some of the proponents of this theory. If I have peaked your interest in this topic, please click here to read just how “sweet as honey” the MMT solution sounds when presented in political context.
But this gets even better!
Google Stephanie Kelton, one of America’s leading academics on MMT. She actually moves the needle to the level of saying Americans need “group therapy” to shed their fears of debt and do their “patriotic duty” for the betterment of generations to come by employ MMT.
Here is a link to a video that is an academic talk done by Stephanie Kelton in November. It is 50 minutes long but it really is one of the most important things I will post all year.
Here is a Tweet that Stephanie Kelton sent out after the US State of the Union address.
To finish this weekly comment off, please remember the Lysenkoism story we started the editorial with. It is interesting that Joseph Stalin was a huge believer in Lysenkoism. He believed it was so powerful that it would give the Russia a massive advantage over the other worlds nations.
When Lysenkoism failed to materialize as true theory, Russia actually found itself much further behind the rest of the world in agricultural advancement.
Could MMT prove to be our generations Lysenkoism?
Quantitative Easing (QE) and Negative Interest Rate Policy (NIRP) and other emergency central bank policy efforts were supposed to be temporary measures that would act like “economic triage to stabilize the patient” before returning to more normal economic times.
Now 10 years have passed us by and the emergency measures are still in place.
Why is the world not saying these types of measures failed to deliver what they promised? A return to normal.
Unfortunately, it appears this question is not going to get asked. If the MMT supporters get their chance to influence policy, we may be one step away from going much deeper down the proverbial “rabbit hole” of unconventional monetary policy.
Next week I will conclude this three part series with a look at what type of investment strategy might be worth considering given the growing popularity of MMT.