By: Ddr Štefan Šumah
What is wrong with the sentence: “Gold has become more expensive again, rising from $2,800 to $2,900 per ounce”? And I do not mean in terms of spelling. If you did not catch the issue, let me tell you: the sentence is incorrectly framed! It should say: “The value of the dollar has once again dropped in comparison to gold, from $2,800 per ounce to $2,900 per ounce.” Or: “Real inflation in the dollar zone has once again increased by 3.5 percent.” And the U.S. is monetarily sovereign – it prints its own money.
Why am I writing this? A new or modern monetary theory (MMT) has emerged, advocating the idea that governments should actively use public spending to stimulate growth and ensure full employment. For example, if a country wanted to reduce unemployment, it could create new jobs through public investments in infrastructure and social programmes, without being constrained by the principle of budgetary balance. Taxes, in this framework, would only be introduced afterward to control inflation and balance the economy. One could even say it resembles a form of constant helicopter money. MMT is based on the idea that governments which issue their own currency cannot become insolvent because they control money issuance. Taxes, therefore, are not necessary to fund government spending, but rather serve as a tool to regulate inflation and stabilise the economy. Borrowing through government bonds is not so much about financing public spending as it is about managing interest rates and controlling money flows. In short, this theory aims to completely change our understanding of macroeconomics.
Similarly, in the 1930s, Keynes revolutionised macroeconomic thinking with his General Theory of Employment, Interest and Money. He focused on fiscal policy, proposing the use of tax increases and decreases as tools for regulating economic activity. He believed that during times of economic overheating, characterised by high demand and inflation, the state should raise taxes to reduce disposable income for individuals and companies. This would, in turn, reduce overall consumption and investment, prevent excessive inflation, and stabilise the economy. During a recession, however, he recommended lowering taxes to encourage consumption and investment, as more disposable income would lead to increased demand for goods and services and promote economic growth.
However, what I find most crucial is that MMT assumes the government will act with maximum responsibility within its powers. Keynes had similar thoughts (he had unlimited trust in the civil service), assuming the government would behave responsibly as well.
And this brings us to two key pitfalls. Many of us still remember Yugoslavia, where money was printed in unlimited quantities at Topčider, as Yugoslavia was monetarily sovereign. This money mostly financed public spending – precisely the main idea of MMT – and inflation… Well, we know inflation in Zimbabwe, Argentina, Venezuela last year. All reached triple-digit inflation rates, and despite being monetarily independent and printing their own money, they are still on the brink of insolvency.
Then there are taxes. Just remember how in 2013 the Bratušek government “temporarily” raised VAT from 20% to 22%. Has it returned to its previous level? No. With taxes, it is often the case that they go up and rarely go back down. So, Keynes, at least in terms of taxes, was – mildly put – an idealist.
Perhaps both systems or theories would work in ideal conditions, under a truly responsible and highly competent government. But is that even possible? Power is sweet and corrupts, especially when there is even a trace of a socialist gene in play. Would such a government really act responsibly? Just look at the current Slovenian government. I would say we are lucky to have the euro – if we printed our own money, we would quickly become the next Venezuela in terms of inflation. As for taxes, they already seem to be rising almost monthly. And if Slovenia had its own dollar, the headlines would constantly read: Gold price jumped from $3,000 to $3,100… from $3,100 to $3,200…
