In this video Stephanie Kelton touches on MMT vs the Gold Standard. This can be extended to a loose, but important understanding of the differences between the US Federal Reserve vs the European Central Bank.
In this blog post I am taking the liberty to grossly oversimplify MMT, the Gold Standard as well as their relationship to the US Federal Reserve and the European Central Bank as a means of illustrating the this complex topic with simple to understand concepts.
MMT vs the Gold Standard explains the difference between being locked into a fixed amount of money vs being able to print money as needed and the consequences of those actions. This also explains deep differences between the Dollar vs the Euro or the US Federal Reserve vs the European Central Bank and why the Dollar can function as a international reserve currency and the Euro can’t.
MMT or Modern Money Theory basically says that an economy has X resources and the goal is to print just enough money to utilize those resources without causing excess inflation. If the US Federal Reserve “prints” too much money then they are bidding too much of the resources (i.e. workers wages) away from the private sector and if they “print” too little, then there is too much unemployment. This is akin to ignoring an economies internal speed limit: grow the money supply too fast and you get inflation, grow the money supply too slow and you get needless austerity. This is, of coarse, ignoring the amount that is siphoned off as “profits” (i.e. excess executive pay etc) and I am oversimplifying here.
The Gold Standard on the other hand is saying that we only have so much money, so we are just not going to pay people when we run out of it. Again an over simplification, but this is in fact what they are saying when there are unemployed people and unused resources that are just going to waste. The consequences of this is a very wasteful form of austerity.
One of the fundamental advantages of MMT over the Gold Standard is that MMT allows for a fuller use of an economies resources. The danger of the MMT is that if this is taken too far, i.e. the internal speed limit of the economy is ignored, then printing more money just causes inflation. MMT requires more planning, but the gains of that planning can be a much more efficient and faster growing economy. An economy locked in a “Gold Standard” has a very stunted growth potential.
The Euro is not on a “Gold Standard”, but the European Central Bank’s Euro bylaws do have some of the growth stunting aspects of a Gold Standard and the rising tension between Germany and Greece, Italy, Spain and Portugal is a consequence of these deep structural flaws. This is another interesting point Stephanie Kelton makes somewhat by omission in this video and it is another one of my pet peeves, and that is the structural problem with the Euro. The European Union is in grave danger of imploding because of obstructions placed in the European Banks bylaws regarding how the Euro is “printed” and its denial of MMT. Two books on this topic are Mark Blyth, Austerity: The History of a Dangerous Idea and Yanis Varoufakis, Adults in the Room.
In the video Stephanie Kelton lists countries that use “fiat” money and have MMT economic systems like England, Canada, Australia and of course, the USA. Looking at how the United States deals with something like our over bloated military budget verses how Europe deals with an economic problem like what Greece is experiencing is a good example of how MMT vs the Gold Standard work relative to each other. There is a reason England never joined the Euro and that is because England’s parliament was too smart to be locked into the defacto “Gold Standard” that is built into the European Banks Euro bylaws.
For a longer more through discussion of MMT by Professor Stephanie Kelton here is a great video.