Moreover, the ability of a country to borrow money in its own currency isn’t a permanent state of affairs. It’s a credibility that a country can gain and lose, as countless nations have over the centuries. The conventional view is that you attain that ability over time through low inflation, an independent central bank, a strong legal system and good governance. How would the United States’ credibility along those lines fare in an M.M.T. world?
A country that prints its own money has no need to default on its debt. But history offers many examples of the result of using money printing as a solution for a lack of private buyers for debt: a vicious cycle of rising inflation.
The M.M.T. crowd will surely be prepared to explain why its approach wouldn’t end in catastrophe, but there is a broader point. What’s being proposed is a fundamental reordering of how economic institutions and priorities work. It would be nice to have some proof of concept before it is put in place in the largest economy in the world — also home to the world’s reserve currency.
It would be genuinely fascinating to watch a small country — with its own currency — govern itself according to the theory’s principles. Here are some possibilities: New Zealand, Norway, Switzerland, Sweden, Israel, Singapore.
If those smaller countries can work out the kinks of economic governance in an M.M.T. world, and achieve a higher standard of living, maybe then scale it up to a midsize country? We’re looking at you, Australia, Canada, Britain and South Korea.
If mainstream critics of M.M.T. turn out to be misguided, they will have egg on their face, and the conventional wisdom will surely shift. Indeed, an intellectual shift on how much to worry about budget deficits is already well underway.
There’s a bit of a parallel with another innovation in economic policy of the last generation: the setting of a numerical target for inflation, typically 2 percent. New Zealand did it first, in 1989. As it proved helpful in steadying inflation, a series of increasingly large countries embraced it. The United States did not formally do so until 2012.