Bastiat versus MMT

According to Bastiat, the MMT perspective on government spending and debt is overly simplistic and fails to consider the unseen consequences. Bastiat believed that a good economist must consider both the immediate, visible effects and the long-term, unseen consequences of economic actions. MMT proponents, such as Stephanie Kelton, focus solely on the immediate financial transactions, ignoring the potential negative effects that may not be immediately apparent. For example, while the government may increase spending and the non-government sector may receive an equivalent increase in financial assets, the potential for inflation, currency devaluation, or other negative economic consequences may not be immediately visible but can have significant long-term impacts. Ultimately, Bastiat's framework reminds us that a comprehensive understanding of economic phenomena requires consideration of both the seen and unseen consequences.

According to Modern Monetary Theory (MMT), the order of government spending and taxation can be reversed, with spending coming before taxes. However, Bastiat's economic principles, which emphasize the importance of understanding the unseen consequences of government actions, would still apply. Bastiat would argue that resources used for government spending could have been used for productive private sector activities. Therefore, while MMT allows for more flexibility in managing the economy, it doesn't negate Bastiat's analysis. Instead, it's crucial to consider the ultimate consequences of government spending and taxation choices in light of broader economic goals.

Key takeaway from the discussion between Bastiat and Modern Monetary Theory (MMT) is that, according to Bastiat, there is no economic difference between taxes and theft. Bastiat's analysis of taxation challenges MMT's belief that government spending creates employment, as he argues that a thief or a government officer would spend money in the same way. MMT proponents might argue that Bastiat conflated spending and taxing, but Bastiat's perspective on taxes remains clear: no good can come from legal or illegal plunder. This comparison of the government's spending as theft can be extended to consider the government as a counterfeiter. The thought experiment is left for the reader, but it raises questions about whether a criminal's counterfeit spending and theft have the same effect on the economy. Ultimately, Bastiat's perspective on taxes and government spending challenges the assumptions of MMT and highlights the destructive nature of taking by violence.

The debate between Modern Monetary Theory (MMT) and traditional economic perspectives, such as those held by Bastiat and Austrian economists, revolves around the impact of government borrowing and spending on the economy. While some argue that government deficits and bond sales alter the economic landscape, others maintain that new government spending does not magically create savings or increase wealth. Instead, it diverts resources from other uses. The distinction lies in whether one views inflation as a result of direct government spending or credit expansion. Bastiat's insights, as expressed in his essay "What is Seen and What is Not Seen," emphasize the importance of considering the unintended consequences of government actions, regardless of the methods employed. In essence, the debate centers on the role of government in the economy and the potential consequences of various monetary policies.

The belief that increasing the supply of money or currency, whether through government spending, deficits, or debt, or through printing money, can lead to more services and economic growth without negative consequences, is an erroneous notion. According to the economist in Bastiat's dialogue, this is similar to counterfeiting, and it ultimately leads to depreciation and duping people, particularly the poor and vulnerable. The insights of Frederick Bastiat demonstrate that MMT's use of accounting tautologies hides the unseen costs of giving the government control over scarce resources. Everything comes at a cost, and diverting resources for government spending and taxation detracts from productive uses in the private economy.

According to the economic principles of Frederic Bastiat, government actions like taxing, borrowing, printing money, and spending do not change their fundamental nature no matter the sequence in which they are performed. Government debt diverts savings from productive uses, and printing money does not add to real wealth. These MMT (Modern Monetary Theory) arguments, while popular, are considered absurd by Bastiat's reasoning. In essence, it's a misleading shell game. If Bastiat were alive today, he would challenge MMT proponents to provide logical justifications for their claims. For further insights on this topic, visit Mises.org.