Saturday, June 25, 2011

Perception vs Reality : Paul Ryan vs MMT

Continuing on from my last post where we looked at Warren Mosler's MMT (Modern Monetary Theory) and pondered its legitimacy. I find that I struggle reconciling what MMT says with the current debate over the debt, the deficit and Paul Ryan's budget. Paul Ryan is a hero and some circles, frightening in others. To some he is just plain wrong.

Ryan, (R-WI) the Chairman of the House Budget Committee, produced what some would say was a radical budget for 2012. The bill passed in the House and it failed in the Senate. Some praised Ryan for being a grownup by facing the debt problem with a solution instead of more rhetoric. It called for drastic cuts in Federal spending, restructuring some entitlement programs - Medicare in particular - and streamlining tax policy. Ryan along with many conservatives and centrists believes government spending is out of control and is absolutely dangerous to America's future. Yet according to MMT deficits don't matter at the Federal level, that the U.S. government cannot run out of money. Well, which is it? Is debt and deficits the death of us or are they no big thing?

The average person sees the U.S. government "spending money it doesn't have" and tries to relate it to their own lives. Obviously if we average Joes and Janes kept spending and spending well beyond our ability to even pay the interest let alone the loans themselves then we would soon be bankrupt and in the poorhouse. Can the U. S. government become bankrupt? MMT says no, Paul Ryan says it already is. Most of us see Paul Ryan's point of view because it's something we can related to. This is the perception we all live under right now.

What if MMT is right and theoretically the Feds can't really run out of money. In fact the Federal government doesn't have to actually borrow cash, sell bonds or even collect taxes to get the money they need to run the country? Well, consider for a moment that the value of our currency is confidence based. If every one is losing confidence because the Federal Reserve pumps billions of dollars into the system which devalues the dollar and in turn causes inflation (in the cost of energy and food in particular). Is this some kind of false reality?

How many times do you have to hear the old phrase that perception IS reality? Whether MMT is technically right doesn't matter if the wheels that turn the world economy are based on the perception that the U.S. government is broke. When American citizens and foreign governments lose confidence in the U.S. dollar all the theory in the world isn't going to change that.

Why are there no brave politicians espousing the "truth" of MMT? An oxymoron, there are no brave politicians. Or are there? Is Paul Ryan brave for proposing a massive restructuring of venerable government programs because even though in reality the government will always pay for Social Security and Medicare the perception is that they will bankrupt the country.

Perception vs Reality.


Anonymous said...

Perception vs Reality.

translation: Ignorance vs Truth.

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