Many may remember the initial ripple that struck us in the economic and political debate spheres when it seemed that Modern Monetary Theory (MMT) began to gain some traction and ran contrary to nearly everything that was believed to be how fiat currency, and money in general, worked. In a piece by our own Vinny Marshall that you can read here, he breaks down some of the ideas and observations that are key to the idea. Now, don’t worry too much here, this isn’t an article about MMT or the like, but I think highlighting it shows us a very interesting dilemma that we encounter in some of the things we argue about. It showcases the difference between observations and prescriptions.
Using MMT as our example again, we see its supporters make note that the government doesn’t need to tax the citizens to pay for something. Why you may ask? Because they have a monopoly on the currency. They can, and functionally do, simply print the amount they need and use that to pay for whatever they wish. The taxation aspect in this view of currency is what gives money its value. If you didn’t need to pay taxes in the format the government enforces then what would stop you from simply using alternative forms of currency? Nothing. According to the observations of MMT, the taxation forces people into having confidence in the currency which creates the value of it and sets how much needs to be printed by the government in order to pay for the things it wants. As far as an observation is concerned, I see few flaws in this logic. They are the ones that print it, so why would they need to tax it in order to spend that which they create? The prescriptions, however, are where we run into issues.
Some of the prescriptions I’ve seen from supporters of MMT echo statements like that of Alexandra Ocasio-Cortez, who has (roughly) stated that the national debt would be a form of savings for the private sector, so if we want something we literally just need to pay for it with the money we can print at will. This is, for more reasons than one, an absolutely terrible idea. Because of all of our current monetary policy, the beliefs and views of those setting the laws and taxes around our currency, and a little thing called hyperinflation, having the government spend whatever amounts they please would be catastrophic. Just because the observations are correct does not mean that the prescriptions will automatically be correct as well. It’s the difference between the facts and the arguments. Observations might support the prescriptions, but they don’t automatically make them as some MMT proponents have suggested.
Another example of this phenomenon would be with the environmental debate. We can clearly observe with more and more definitive proof that human activity has been having a deeply impactful effect on our planet. While the damage levels themselves aren’t completely nailed down (relative to the natural changes the planet goes through) the fact that there is a massive impact beyond what a species of our type would naturally contribute is beyond question. It is an observable fact at this point that some level of effect has and is continuing to take place. Climate alarmists, however, will tell you the only possible way to fix this is with a form of carbon tax or other restrictions implemented by the government. The people making the claims, it should be noted, are also the ones that have continuously tried and failed by massive differences to create models of our impending doom.
How though does the existence of pollution immediately lend itself to the tax argument right off the bat? How can they demand immediate overhauls of society to prevent disasters that they can’t even accurately say are going to happen? It would be like upending our lives every time someone came up with an end of the world prediction. Sure, it will eventually happen, but following their prescriptions on it every time would only make us look foolish. Once again, the observations are accurate, but only when separated from the prescriptions. It’s important for us to separate these two concepts when we are looking at new ideas or arguments that are presented to us. Bad prescriptions do not mean that the observations are bad or wrong, just as accurate statements about the observations don’t immediately prove the arguments for certain prescriptions offered based on them either.
You can read more from Killian Hobbs on Think Liberty here.