Democratic darling, Alexandria Ocasio-Cortez (AOC), has been making a stir in Washington, D.C. with her “bold, radical” economic ideas — which are really just rehashed Marxism, of the sort that’s failed spectacularly all over the world. Nevertheless, she’s drawing inspiration from a renegade school of economics, and persuading people that she’s onto something new and inspiring. She’s not. And Federal Reserve chairman, Jerome Powell, told the outspoken socialist that she’s “just wrong” on how government debt works.
Alexandria Ocasio-Cortez, like many younger and less knowledgeable people on The Left, is a follower of what’s called “Modern Monetary Theory” (MMT). This ideology, rejected by mainstream economists, justifies high government borrowing and spending by, basically, pretending that money doesn’t have real value and the government can print as much as it likes.
- Ocasio-Cortez hasn’t been in Congress two months yet, but she’s already attracted a lot of attention for her ambitious spending plans and far-left views. When someone is proposing restructuring the entire US economy along completely new lines in under a decade, it’s no surprise that people are going to ask how she plans to pay for it all.
- On the surface, AOC gives standard traditional left-wing answers for how her social and economic programs will be funded — more cuts to defense spending and even higher taxes are the main ones. But she’s now flirting with much more dangerous ideas.
- Recently, Ocasio-Cortez has been making more use of the argument that deficit spending (spending more money than is raised in taxes) doesn’t matter. In fact, she said in January that the idea deficit spending is actually good for the economy and “absolutely” needs to be “part of our conversation.”
- This idea comes straight from Modern Monetary Theory, which says any government that controls its own currency can print as much as it likes. Under this theory, tax only exists as a control mechanism and isn’t needed to pay for programs — printing money can do that.
- In fact, the inevitable result of printing money without restraint is hyperinflation and economic collapse. This happens every time a government tries to print itself rich. MMT advocates are in denial about this fact, but it’s still a fact.
- Now Federal Reserve chairman, Jerome Powell, has intervened, explaining that deficits really do matter. If a government spends more than it collects in tax, it has to borrow the extra. MMT people say government borrowing is really an asset, but it’s not, it’s a debt, and it has to be paid back. If the US government doesn’t reduce its borrowing — even without Ocasio-Cortez’s grandiose spending plans — by about 2050 the entire federal budget will go to paying debt interest.
- Powell said “U.S. debt is fairly high as a level of [economic output] and more important than that, it’s growing faster than [economic output]. We’re going to have to either spend less or raise more revenue.” As for Ocasio-Cortez’s wild claim that deficits don’t matter, it’s “just wrong.”