[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. Res. 136 Introduced in Senate (IS)]

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117th CONGRESS
  1st Session
S. RES. 136

 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 25, 2021

   Mr. Braun (for himself, Ms. Ernst, and Mr. Tillis) 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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