So I was listening to the radio in the car and my mom switched the channel to 89.9, our local NPR station. She was driving, so I paid full attention on the new segment they were playing. The program was had an economic expert explain the theory and implications of modern monetary theory, and it thought was pretty informative.

If you don’t know, the theory is super simple and intuitive. So the government starts with new project, and requires funding. To get this funding, they issue bonds, and I mean LOTS of bonds. Huge amounts of money is required to fund these government projects. So, of course, these bonds aren’t free money given to the government. These bonds pay back the principal along with a interest rate, some fraction of the principal. I think everyone here knows how bonds work.

So the government will eventually have to pay back all this debt. So the question inevitably comes up, What if they don’t have the money to pay back this debt? This is where MMT (Modern monetary theory) shines through. By printing more money, all debt can be paid off! It can be several multiples of GDP, but its a fiat currency so who cares! Ever times the words “money”, “fiat”, “and “printing” are brought up in one sentence, someone inevitably blurts out “BUT INFLATION!” The real power of this theory is that it converts a problem of solvency into a problem of inflation.

I am not an economist by any stretch of the imagination, but I see a few ways in which inflation can be fixed. Their are a few levers that can be tuned to work with inflation. Inflationary factors are policies that increase the money supply, expand credit, and encourage spending and demand. Deflationary policies do the opposite, reign in credit, constrict the money supple, and encourage saving. If one could stay completely above the politics, we would strive to use these factors together, fluidly, to control inflation for a target rate. This is what I reason is the backbone of Modern Monetary Theory. Countless experts have given opinions and praise of this theory, as everyone takes different stances on its effectiveness.

My idea is that this theory justifies a policy change for more fluid movement of these controls. The theory only works when these factors are all used together and easily adjustable. This flexibility provides the economy room to adjust to changing economic conditions. The policy usually lags behind the financial landscape and either pushes the economy into overdrive or hampers growth. One example of a fluid movement of these controls would be a tax rate that moves in conjunction with government spending and inflation to ensure a steady rate of healthy, capital productive inflation. due to politics, the current tax rate takes major legislature to make a major change to the tax code, meaning this lever is close to worthless for effectively useless for guiding the economy.

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So this is my first intro. I kinda like the look of the site, so I don’t really want to change the initial blog post until later. For those who don’t what this site is (basically Everyone reading this right now), this is a blog where I want to post some quality thoughts about economics, computer science, machine learning, and basically anything I find interesting. People tell me not to reveal my identity to the Internet, so I won’t. All you need to know is that I am probably a lot younger than you and know a lot less.