The devaluation of peoples’ hard-earned money is what Australians fear most. People fear inflation. Never mind the crime rate, political corruption, nuclear wars, family violence, pestilence and the like, inflation is the king of fear factors.
So, when you tell them that a currency-issuing government is not constrained in its spending capacity, they immediately imagine this nightmare scenario where a government will just spend and spend and spend.
This is just one of the reasons why people struggle to accept Modern Monetary Theory. Fuelled by ignorance and being fed the wrong information by others who don’t know any better, they cling to old standards such as the myth that running a country is the same as running a household.
They foresee inflation going through the roof, causing all manner of pain and suffering to families, their savings and their future well-being. The word hyperinflation often sneaks into the conversation as well.
It’s an entirely false scenario, there is no reason to think that way but, that is the way of people when they are opposed to something or are gripped by the fear of the unknown.
The other great difficulty is that most economists don’t accept it either because it goes against everything they have been taught.
The problem is that few of them have been taught macro-economics as opposed to micro-economics. Most of them, while acknowledging that we live in a fiat currency world, still maintain a gold standard mindset. That is the sum of their training.
That is why it is easier for people who have not studied economics, to accept it. Their minds have not been polluted with gold standard thinking. Common sense takes over.
People in the financial markets, for example, seem to understand it quite easily. Tell them that bond sales drain reserves and they get it, they understand it.
But within the world of the economist, it takes a heterodox-economist to lead the charge, someone trained and qualified in the old ways but who has broken through that glass ceiling. Sadly, there aren’t too many of them.
Very few, if any, policy makers understand it. Senior central bankers do, of course, after all they are the ones who juggle the numbers in their computers. But will they dare explain it to the politicians? The very thought of it makes them shudder.
They too fear that once a politician realises the possibilities associated with a fiat currency, the politician will wreak havoc upon a nation’s economy, spending recklessly. It’s a sad indictment of the perceived maturity of our leaders.
Perhaps the biggest problem in explaining MMT is the language used. Trying to explain to someone that their entire thinking processes need to be turned upside down if they want to grasp it, isn’t easy.
When you hear someone say, “The federal government spends by issuing currency and can never run out,” they don’t respond by saying, “great, let’s have full employment.” They say, “For goodness sake, don’t tell our politicians, they’ll just spend like crazy. We’ll become another Zimbabwe.”
Somehow, the language has to change. We have to develop a new way of explaining MMT such that the irrational behaviour of those who should know better, can be ignored.
Engaging in a carefully considered language with simplistic clarity, a language that has factored in all the elements of disbelief and fear is a huge challenge.
It’s hard explaining that when a fiat currency is misused, inflation is a possible outcome, but that full utilisation of a nation’s resources (its people), improving our health, our education, lowering our crime rate, is a far better outcome.
It’s hard explaining that a nation is constrained only by its available resources and not by one or two percentage points of inflation. Under our present management, we can’t even achieve that.
It’s hard explaining that a currency issuing nation can always meet its commitments in its own currency, that it doesn’t need to borrow to fund its spending and can always pay for goods available in its own currency.
Why is it that the prospect of providing full employment, having a world’s best education and health system, a state of the art communications network, a respect for our natural resources and equality of opportunity for all, is restrained by ignorance?
This is the 21st century. Those medieval superstitions that so dogged the efforts of people like Galileo and Copernicus should be behind us now. Modern Monetary Theory, like all theories, needs proper implementation to be accepted as fact.
After all, who can seriously say that the present theory of classical economics has proved itself worthy?
Money is indeed a scary subject. But it doesn’t have to be.