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Sorry guys, even in China, there’s no magic money tree

50 0 13
04.02.2019

What if there really is a magic money tree? What if governments can spend as much money as they want, without raising taxes or borrowing? What if they can pay for free college education for all, free health care, decent social housing, shiny new infrastructure and a universal basic income – all without worrying about deficits or debt accumulation?

To most people this sounds downright crazy – the sort of fiscal recklessness dreamt up by an extreme fringe of economic illiterates.

Nevertheless, it is an idea that is rapidly gaining adherents. Dubbed modern monetary theory, or MMT, the notion that governments can indulge in endless deficit spending with no fear of the consequences has found favour with Bernie Sanders, former contender for the US Democratic presidential nomination, and socialist heroine Representative Alexandria Ocasio-Cortez, among others.

Far from being dangerously reckless, MMT, say the idea’s advocates, simply reflects a clear understanding of how money actually works in a fiat currency system.

Their notion of free money for all is a deeply seductive one. Unfortunately, there are some big flaws in MMT – institutional, economic, and political.

The basic insight underpinning the theory is that a government which issues its own sovereign currency need never go bust, need never........

© South China Morning Post