Bastiat versus MMT

According to Bastiat, the MMT proponents' perspective on government spending and debt is overly simplistic and fails to consider the unseen consequences. Bastiat argued that an economic act or policy has both immediate and long-term effects, and it's crucial to consider both. MMT proponents focus solely on the immediate, visible effects, such as the private sector's gain of funds from government spending. However, Bastiat warned that the unseen consequences, such as potential inflation, increased debt, and interest payments, should also be taken into account. MMT proponents like Stephanie Kelton argue that the net result of government deficit spending is an increase in net financial assets to the non-gov sector, whether or not bonds are issued. However, Bastiat would caution that this simplified view fails to consider the potential negative consequences of increasing debt and inflation. It's essential to evaluate the full range of effects, both seen and unseen, when assessing economic policies.

According to Modern Monetary Theory (MMT), the order of government spending and taxation can be reversed, with spending coming before taxes. This means that the government can spend as much as it likes and then decide later whether to collect taxes or issue bonds to cover the spending. MMT proponents argue that these decisions should be based on policy goals like full employment and price stability. Bastiat, on the other hand, would argue that every government action has consequences, and that the resources used for public projects could have been used more productively in the private sector. He would view government spending as a form of "ruinous mystification," as it hides the fact that resources are being diverted from the private economy to the public sector. In Kelton's example, if we grant the assumption that the initial $100 of spending is efficient, Bastiat would still argue that the labor and resources used in the government project could have been used more productively in the private sector. The government's actions may appear to stimulate the economy, but they come at the cost of preventing productive private sector activity. Therefore, while the order of spending and taxation may be different in MMT, the underlying economic principles remain the same. Every government action has consequences, and it's important to consider the opportunity cost of those actions.

That, according to Bastiat, there is no economic difference between taxes and theft. For Bastiat, the supposed benefits of how tax revenues are spent is a separate issue. This perspective poses a challenge for Modern Monetary Theory (MMT), which holds that government spending drives economic growth. Bastiat's analysis undermines the notion that the government can stimulate employment through taxing and spending. Instead, he argues that the government officer, a thief, or Bastiat himself would spend the money in the same way. MMT proponents might argue that Bastiat conflated spending and taxing, but his stance on taxes remains clear. Bastiat's views on taxes hold true regardless of his perspective on government spending or inflation, which will be discussed later. The essential message is that taking by force is destructive, not productive. If taking by force resulted in wealth creation, our country would be wealthier than it is. To further explore this idea, consider the government as a counterfeiter in a thought experiment. The reader is encouraged to ponder how this comparison works if a criminal replaces God in the example and spends counterfeit dollars into the economy while also stealing money. The order of the printing and theft may also matter.

The economic implications of government actions, such as selling bonds or directly spending new money, depend on the specific circumstances and the perspectives of different economic theories. For instance, according to MMT, the government can magically increase savings in the economy through bond sales or direct spending. However, Austrian economists argue that savings must be diverted from other uses, and direct spending without taxation or bond sales can lead to simple inflation. Bastiat's ideas, as expressed in his essay "What is Seen and What is Not Seen," emphasize the importance of considering the unseen consequences of government actions, regardless of the methods used. Overall, the debate highlights the complexities and nuances of economic theories and the need for clear and accurate definitions of key concepts.

The belief that increasing the supply of money through government actions like printing or digitally creating it can lead to more services and economic growth is a fallacy. Bastiat's economist argues that every service received implies a service returned, and society cannot render more services than it receives. The production of paper money or digital currency is equivalent to counterfeiting, and those who are forced to accept it are being deceived. MMT's arguments for managing the economy through government spending, taxation, deficits, and debt are considered magical thinking by Bastiat's economist. The use of accounting tautologies in MMT hides the unseen consequences of diverting resources from productive uses in the private economy. The depreciation of currency, whether paper or digital, is inevitable and ultimately harms the economy, particularly affecting the poor and simple people.

According to the economic principles of Frederic Bastiat, government actions such as taxing, borrowing, printing money, and spending do not change their fundamental nature no matter the sequence in which they are carried out. Government debt diverts savings from productive uses, and printing money does not add to real wealth. These MMT (Modern Monetary Theory) arguments may be fashionable, but Bastiat would argue they are unjustified and absurd. In essence, these government actions are a shell game that deceives rather than enlightens. To learn more about these economic principles, visit Mises.org.