Judd Gregg: Water does run uphill

Judd Gregg: Water does run uphill
© Stefani Reynolds

There is a new economic paradigm on the left.

It is called the Modern Monetary Theory.

Its basic premise is that we should not be concerned about the federal debt.

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The theory asserts that the federal government still has plenty of space to run up more debt. Debt, part of the logic goes, is not a problem unless interest rates start to rise.

Since interest rates are below their historic average, running up more federal debt is acceptable. In fact, according to the Modern Monetary Theory, we have not even begun to meet the limits of how much debt we can put on the backs of the American taxpayer and future generations. 

It is a “sky is the limit” type of economic axiom.

This theory comes along at a convenient time for the Democratic Party.

Many of the announced Democratic candidates for president have set forth platforms or positions that allow them to compete for left-wing votes with Sen. Bernie SandersBernie SandersHere are the potential candidates still eyeing 2020 bids Sanders unveils education plan that would ban for-profit charter schools Warren policy ideas show signs of paying off MORE (I-Vt.).

Sanders is, of course, a socialist.

Those who wish to get to the left of him, or merely rival him, are promoting massive expansions in the size and activities of the federal government — expansions that would require dramatic spending.

Several Democratic candidates — and the rank and file of their party, for that matter — have endorsed nationalizing the healthcare delivery system using the euphemism of “Medicare For All."

This idea is projected to cost between $30 trillion and $40 trillion. Even if one were to introduce the 70 percent income tax rate being proposed by leaders on the left, this would still involve a huge increase in deficit financing and thus the debt.

Along with nationalized healthcare, the majority of the Democratic Party and certainly many of those who wish to be president are calling for a “Green New Deal.”

The specifics of this proclamation involve, among other things, ending all net carbon emissions within ten years and retrofitting all buildings in America so they have no carbon footprint.

The cost of this idea is so staggering that it cannot be effectively calculated. But it is a more than a safe bet that it would add many trillions to the national debt.

Now along comes a group of economists who, advocating for massive government spending and the resulting explosion of debt, have proposed the Modern Monetary Theory.

This is very convenient for Sanders and others on the left — a group which now appears to include the entire aristocracy of the Democratic Party.

This economic theory could best be described as the equivalent of claiming that water runs uphill, the sun rises in the West and apples do not fall from trees.

It is the Alfred E. Neuman platform of political posturing. It takes “What, Me Worry?” to a new level in promoting political ideas that are fiscally dysfunctional.

Two weeks ago, the U.S. national debt passed $22 trillion.

According to the new Democratic theorists, this is not an issue of concern. It may not even be a bad thing. The suggestion is that the federal debt can, should and will be increased with enthusiasm through the expansion of the role of government.

There are, of course, a few problems with this bit of snake-oil economics.

First is the fact that debt does not grow on trees. Debt comes from people, entities or other governments lending us money. Amazingly, or so it seems to those on the left, these creditors expect to be paid back.

No problem, the leftists insist. In the United States we print our own currency — the same currency in which our debt is denominated. Therefore, we have the flexibility to simply print more money to pay for the debt.

Under the new Democratic theory, inflation is not a problem. It has departed as an economic threat. Printing massive amounts of money to cover our debt, therefore, is acceptable.

This will be a very hard sell to those who have lent us the money in the first place, and expect to get paid back in dollars worth as much as those they lent to us. These folks will not, one presumes, be accepting of the economic sleight of hand that these new modern Democratic leaders are proposing.

Even without any new acts of massive government largesse, federal deficits are projected to annually exceed $1 trillion for the foreseeable future.

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By the end of the next decade, our debt to GDP ratio will easily top 100 percent.

These numbers are not good.

If they are compounded by anything resembling the spending proposed by Democratic candidates for president, we would see an astronomical increase in our national debt.

If all this new debt is to be justified and dismissed by cranking up the money printing presses, it is inconceivable that significant inflation will not result. In effect, we would be talking about a massive devaluation of the dollar.

Think Greece when you contemplate the implications of these ideas — or Venezuela, or Argentina or Germany in the 1930s.

Or — if you are drinking the Kool-Aid of the new Modern Monetary Theory and those running for president who embrace it — think about how you get water to run uphill or the sun to rise in the west.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.