In this podcast, Seth discusses the basics behind the Modern Monetary Theory and challenges us to think about its implications and how we will build our economy moving forward.
Currency is the essential element that enables an economy. Ancient emperors would pay the soldiers with minted currency. The soldiers would exchange the currency for food and other essentials with the merchants. The merchants would be interested in exchanging goods for the currency because they can pay the government’s taxes with the currency.
This simple interaction illustrates an important point that money/currency is a story at the end of the day. We believe that currency can help us fulfill our obligations (e.g., paying taxes) and use the rest to purchase things from others. A money system works because people believe that this coin is worth expending effort to get more of.
Capitalism creates a market sensing mechanism. Capitalism helps us identify what people want so that we can offer the necessary goods and services to those customers. Such market sensing mechanisms help solve problems that otherwise would be overlooked or ignored.
Before we can answer how much the government should intervene in the capitalist market, we should agree on the function of the government. One way to think about perhaps is that the government is working together with people to create an environment where people are healthy, intelligent, and confident.
First, healthy workers are significantly more productive. Second, if we train people from an early age to be skilled and ready to do the work, we will end up with a more productive workforce. A more productive Workforce creates more value, and that value benefits everybody in the system.
The third reason is that confidence in the system can strengthen the economy. The economy is vital because the participants are confident about where the economy and the currency are going. The people believe the money is worth of effort to collect and willing to acquire more of it.
But an economy can run into many obstacles, and one such obstacle is inflation. Inflation can creep into an economy when people have lost confidence. When hyperinflation kicks in, it is tough to change the story.
The modern monetary theory argues is that spending money to pay for things like health care and education is appropriate because it does not automatically lead to inflation. When we apply monetary resources to equity-balancing and gap-filling measures, we can move our people to be more innovative and healthier. When we create these cycles of smart and healthy, we end up with a productive population. Finally, a more smart and healthy workforce leads to more confidence in the economy and society.
We have made much progress in humanity’s development by improving the living standard for many people on the planet. Simultaneously, we still have a long way to go in trying to raise everyone’s standard of living. Capitalism has had success in solving some of our problems, but it is also clear that the market alone has not solved them.
We all must understand the impact and implications of modern monetary theory because it will rewire our society as we go forward. We must figure out how we build an economy that creates a future we are proud of.