Yellen: ‘I do not support modern monetary theory’

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Treasury Secretary Janet Yellen told lawmakers on Thursday that she does not subscribe to modern monetary theory.

Yellen, who was testifying before the House Ways and Means Committee, was asked about the macroeconomic theory by Rep. Tom Reed. The New York Republican told Yellen that he is “troubled” because he thinks the theory has “become the de facto policy of America.”

“I do not support modern monetary theory,” Yellen said.

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Modern monetary theory, often shortened to MMT, is a critique of conventional economics, one that emphasizes the federal government’s ability to finance greater spending through larger deficits. The theory has made some inroads with some left-wing members of Congress, such as socialist Sen. Bernie Sanders of Vermont and Democratic Rep. Alexandria Ocasio-Cortez of New York.

Theorists in favor of MMT have used it as justification for grandiose spending proposals such as the Green New Deal and “Medicare for all,” which would cost trillions and may not have immediate pay-fors in place.

Reed pointed out that Yellen has discussed MMT in the past and cited a Bloomberg article from 2019 in which she said it could lead to hyperinflation.

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Yellen told an investors’ conference those boosting the theory suggest “you don’t have to worry about interest-rate payments because the central bank can buy the debt.” She then said, “That’s a very wrong-minded theory because that’s how you get hyperinflation.”

Reed asked if she thinks the United States is now at risk for hyperinflation, and Yellen said that she didn’t think so. She said that while the country has had several months of high inflation, most economists, including herself, believe the high prices to be transitory.





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