[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. Res. 89 Introduced in Senate (IS)]
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118th CONGRESS
1st Session
S. RES. 89
Recognizing the duty of the Senate to abandon Modern Monetary Theory
and recognizing that the acceptance of Modern Monetary Theory would
lead to higher deficits and higher inflation.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 1, 2023
Mr. Braun (for himself, Mr. Cassidy, and Mr. Scott of Florida)
submitted the following resolution; which was referred to the Committee
on Banking, Housing, and Urban Affairs
_______________________________________________________________________
RESOLUTION
Recognizing the duty of the Senate to abandon Modern Monetary Theory
and recognizing that the acceptance of Modern Monetary Theory would
lead to higher deficits and higher inflation.
Whereas noted economists from across the political spectrum have warned that the
implementation of Modern Monetary Theory (referred to in this preamble
as ``MMT'') would pose a clear danger to the economy of the United
States;
Whereas, in July 2019, Zach Moller, deputy director of the economic program at
Third Way, wrote in a memo the problems associated with MMT, including
that--
(1) ``Under an MMT regime, policymakers would need to respond to
inflation by doing two of the most unpopular things ever: raising taxes and
cutting spending. . . . We can easily imagine divided government's
paralysis to fight inflation: Republicans refusing to raise taxes and
Democrats refusing to cut spending.'';
(2) MMT ``ends our central non-political economic manager'' and
``markets trust the Federal Reserve and, as a result, businesses and
individuals have well-anchored inflation expectations. . . . To solve the
challenges higher interest rates create, including a possible interest
financing spiral, MMT generally says that the Fed will be tasked with
keeping interest rates low by making the Federal government, through the
Fed, the consistent (if not the primary) purchaser of bonds. This is a
different mission for the Fed than it has now. The Fed would no longer be
tasked with intervening to keep prices stable because it would be too busy
buying bonds. Bond purchases by the Fed generally increase inflation. Thus,
the Fed would no longer be an independent manager of the economy.''; and
(3) MMT ``destroys foreign confidence in America's finances. . . .
Holders of U.S. debt (in the form of treasuries) expect stability in value,
a return from their investments, and the ability to be paid back. MMT blows
that up. Bondholders would no longer be assured a return on their
investment, and it will no longer be as desirable for our creditors to hold
U.S. debt.'';
Whereas, on May 17, 2019, Joel Griffith, a research fellow at The Heritage
Foundation, wrote in an article entitled ``The Absurdity of Modern
Monetary Theory'' the following: ``There is no free lunch. We will pay
either through the visible burden of direct taxation, the hidden tax of
inflation, or higher borrowing costs (as the government competes with
businesses for available capital). Such realities might not make for a
great stump speech, but facing them squarely now can save us a lot of
headaches down the road.'';
Whereas, on March 25, 2019, Janet Yellen, former Chair of the Board of Governors
of the Federal Reserve System, disagreed with those individuals
promoting MMT who suggest that ``you don't have to worry about interest-
rate payments because the central bank can buy the debt'', stating:
``That's a very wrong-minded theory because that's how you get hyper-
inflation.'';
Whereas former Secretary of the Treasury and Director of the National Economic
Council Lawrence H. Summers--
(1) on March 5, 2019, wrote in an opinion piece in the Washington Post
entitled ``The left's embrace of modern monetary theory is a recipe for
disaster'' that, ``contrary to the claims of modern monetary theorists, it
is not true that governments can simply create new money to pay all
liabilities coming due and avoid default. As the experience of any number
of emerging markets demonstrates, past a certain point, this approach leads
to hyperinflation.''; and
(2) on March 4, 2019, said that--
G (A) MMT is fallacious at multiple levels;
G (B) past a certain point, MMT leads to hyperinflation; and
G (C) a policy of relying on a central bank to finance government
deficits, as advocated by MMT theorists, would likely result in a
collapsing exchange rate;
Whereas, on February 26, 2019, Jerome Powell, Chair of the Board of Governors of
the Federal Reserve System, stated: ``The idea that deficits don't
matter for countries that can borrow in their own currency I think is
just wrong.'';
Whereas, on February 24, 2019, Matt Bruenig, founder of the People's Policy
Project, wrote in an article entitled ``What's the Point of Modern
Monetary Theory'' that ``the real point of MMT seems to be to deploy
misleading rhetoric with the goal of deceiving people about the
necessity of taxes in a social democratic system. If successful, these
word games might loosen up fiscal and monetary policy a bit in the short
term. But insofar as getting government spending permanently up to 50
percent of GDP really will require substantially more taxes in the
medium and long term.'';
Whereas, on February 21, 2019, Doug Henwood, a journalist and economic analyst,
wrote in an article in Jacobin entitled ``Modern Monetary Theory Isn't
Helping'' that ``MMT's lack of interest in the relationship between
money and the real economy causes adherents to overlook the connection
between taxing, spending, and the allocation of resources'';
Whereas, on January 28, 2019, in a question and answer session with James
Pethokoukis of AEIdeas, Stan Veuger, visiting lecturer of economics at
Harvard University, stated that, ``if you take MMTers at their word in
the most aggressive sense, then what you would see is a massive debt
finance expansion of the welfare state with Medicare for All, with a
jobs guarantee, and with concerns about inflation being deferred
entirely to elected officials who would have to raise taxes to keep it
under control. I think in a scenario like that, we do run a risk of
going back to the 1970s pre-Volker style macroeconomics and I think that
would be bad.'';
Whereas, on January 17, 2019, Michael Strain, Director of Economic Policy
Studies at AEI, wrote in an opinion article in Bloomberg entitled
``Modern Monetary Theory Is a Joke That's Not Funny'' that ``if you
thought from the start that the whole idea sounded like lunacy, you were
right, even if it's possible to admit some sliver of sympathy for it'';
Whereas Paul Krugman, winner of the 2008 Nobel Memorial Prize in Economic
Sciences--
(1) on March 1, 2019, posted on Twitter a point-by-point rebuttal to an
article entitled ``The Deficit Myth: Modern Monetary Theory and the Birth
of the People's Economy'' by Stephanie Kelton, which concluded with Krugman
tweeting that--
G (A) ``Sorry, but this is just a mess. Kelton's response
misrepresents standard macroeconomics, my own views, the effects of
interest rates, and the process of money creation.'';
G (B) ``Otherwise I guess it's all fine.''; and
G (C) ``See what I mean about Calvinball?''; and
(2) on February 12, 2019, wrote in an opinion piece in the New York
Times the following: ``And debt can't go to infinity--it can't exceed total
wealth, and in fact as debt gets ever higher people will demand ever-
increasing returns to hold it. So at some point the government would be
forced to run large enough primary (non-interest) surpluses to limit debt
growth.'';
Whereas, on November 15, 2019, Jason Fichtner and Kody Carmody of the Bipartisan
Policy Center wrote in a report entitled ``Does the National Debt
Matter? A Look at Modern Monetary Theory, or MMT'' that--
(1) ``deficits do have a role to play in public finance'' but, ``as
interest rates rise, some private-sector projects no longer make financial
sense and are forgone. Crowding out private investment ultimately leads to
a misallocation of resources away from their most economically productive
use, hampering economic growth. . . . The more we borrow today, the more
expensive it will be to continue borrowing in the future. At some point,
debt has to be paid back. There is no free lunch.'';
(2) ``MMT underestimates other downside risks of debt'' and ``MMT
advocates note that inflation is the only restraint on debt-financed
spending. This leads some to conclude that under the theory of MMT, debt is
not a concern, as governments can simply print more money to pay off debt.
Such a theory is roundly rejected by academic economists on both sides of
the political spectrum.'';
(3) printing money has costs, including a ``loss of credibility for the
government'', an ``inflation risk'', and exacerbating ``exchange rates'';
(4) ``MMT assumes away politics'' and puts ``the onus of inflation
control on Congress, the institution that lately seems worst-equipped to
handle it. The Federal Reserve--which has spent a long time building
extensive credibility in its commitment to fight inflation--would be
largely sidelined.'';
(5) ``even MMT admits that deficits and debt matter'', noting that
Stephanie Kelton has stated: ``I would never take the position that we
ought to move forward, passing legislation with no offsets, to do Green New
Deals, and Jobs Guarantees, and Medicare for All. In the end, MMT's
arguments largely boil down to a disagreement over how much room there is
to borrow without accelerating inflation.''; and
(6) it is ``hard to pin MMT down on anything at all'' due, in large
part, to the fact that ``prominent supporters of MMT have taken vague,
sometimes contradictory positions: When politicians make claims about
paying for the Green New Deal through MMT, stay silent, and when economists
criticize this view, claim you are being misunderstood.'';
Whereas the March 2019 report entitled ``How Reliable is Modern Monetary Theory
as a Guide to Policy?'' by Scott Sumner and Patrick Horan of the
Mercatus Center at George Mason University found that--
(1) MMT--
G (A) has a flawed model of inflation, which overestimates the
importance of economic slack;
G (B) overestimates the revenue that can be earned from the creation
of money;
G (C) overestimates the potency of fiscal policy, while
underestimating the effectiveness of monetary policy;
G (D) overestimates the ability of fiscal authorities to control
inflation; and
G (E) contains too few safeguards against the risks of excessive
public debt; and
(2) an MMT agenda of having fiscal authorities manage monetary policy
would run the risk of--
G (A) very high debts;
G (B) very high inflation; or
G (C) very high debts and very high inflation, each of which may be
very harmful to the broader economy;
Whereas the January 2020 working paper entitled ``A Skeptic's Guide to Modern
Monetary Theory'' by N. Gregory Mankiw stated: ``Put simply, MMT
contains some kernels of truth, but its most novel policy prescriptions
do not follow cogently from its premises.'';
Whereas the January 2019 report entitled ``Modern Monetary Theory and Policy''
by Stan Veuger of the American Enterprise Institute warned that
``hyperinflation becomes a real risk'' when a government attempts to pay
for massive spending by printing money; and
Whereas the September 2018 report entitled ``On Empty Purses and MMT Rhetoric''
by George Selgin of the Cato Institute warned that--
(1) when it comes to the ability of Congress to rely on the Treasury to
cover expenditures, Congress is, in 1 crucial respect, more constrained
than an ordinary household or business is when that household or business
relies on a bank to cover expenditures because, if Congress is to avoid
running out of money, Congress cannot write checks in amounts exceeding the
balances in the general account of the Treasury; and
(2) MMT theorists succeed in turning otherwise banal truths about the
workings of contemporary monetary systems into novel policy pronouncements
that, although tantalizing, are false: Now, therefore, be it
Resolved, That the Senate--
(1) realizes that large deficits are unsustainable,
irresponsible, and dangerous; and
(2) recognizes--
(A) that the acceptance of Modern Monetary Theory
would lead to higher deficits and higher inflation; and
(B) the duty of the Senate to abandon Modern
Monetary Theory in favor of mainstream fiscal and
monetary frameworks.
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