• Friday, March 29, 2024
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Can the government print more money to save Nigeria?

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Can the government simply print more and more money to solve its economic challenges? Maybe. Maybe not. In January 2015, a powerful but controversial newspaper opinion piece titled ‘The Chance of Prosperity Versus the Poverty of Austerity’, written by Bola Tinubu espoused a radical policy prescription:

“Because the federal government has the sovereign power to issue our national currency, this can be done without risking insolvency or further debt. Inflation not insolvency is the constraint. The major concern will be in ensuring that inflation does not rise above limits acceptable to our specific political economy. This can be done by making sure expenditures are limited to those projects that increase productivity and have the positive economic multiplier effect we seek. This will be a hard but not impossible feat. Harder would be to allow the nation to fall into steep recession and cause the masses to suffer unduly.”

Tinubu contrasted Nigeria’s fiscal conservatives from the progressives: “Nigeria’s Tories, Nigeria’s conservative Republicans. If the choice came down to the choice between saving money or people, a progressive would advocate saving the people by spending the money. The conservative would say expend the people yet save the money at all costs.”

This is the controversial modern monetary theory or ‘MMT’ for short. A hotly-debate issue in macroeconomics today. MMT theory states that government owns a country’s currency as a public monopoly and the amount of money a government can print is only limited by inflation. So, a government should print more money to deal with unemployment. Accord to MMT theory, large unemployment in a country is enough evidence that financial assets are being restricted in supply. Supply of financial assets are needed for the payment of taxes and the desire for savings, and other issues. MMT’s advocates state that the government must aim for full employment, a sacred responsibility. Once full employment is reached, the threat of inflation can be countered by higher tax rates and by issuing bonds. This would dampen inflation as it would remove excess money in the economy. The first academic textbook based on MMT was published this year by William Mitchell, Randall Wray and Martin Watt.

The father of macroeconomics, John Maynard Keynes, during the great depression of the 1930s proposed the then radical idea that a government must spend to stimulate the economy during a downturn. It was Keynes’ revolutionary book ‘The General Theory of Employment, Interest and Money’ published in 1936, that split the field of economics into microeconomics and macroeconomics. Proponents of MMT could lay claim as Keynes’ heirs, taking his theory further to its logical conclusion. Some supporters want MMT as policy to help create something like a universal basic income for all citizens in a country. The Democratic Party of America has many strident members devoted to MMT, they cite MMT as the solution to fund the ‘Green New Deal’ to combat climate change and create ‘green’ jobs.

Prominent critics of MMT include Lawrence Summers. Summers is a former Vice President and Chief Economist of the World Bank, he was also America’s Treasury Secretary during the Clinton presidency before becoming the President of Harvard University. Summers described MMT as “fallacious at multiple levels” and he accused MMT proponents of promising the public a free lunch. He claimed that MMT has its roots in a “valid idea” but has been “stretched by fringe economists into ludicrous claims.”

James Meadway, a former adviser to the UK’s Shadow Chancellor of Exchequer believes that MMT “disorients the Left by peddling simplistic monetary solutions to complex problems of political power.” Paul Krugman, the 2008 Economics Nobel Prize winner stated, “The doctrine behind MMT was smart but not completely right.” Martin Wolf, the influential and highly respected economics columnist for the UK’s Financial Times (FT) advised, “To the extent modern monetary theory is true, it is unoriginal; to the extent it is original, it is false.” In an apt summary about the pros and cons of MMT, Wolf wrote: “The state is the most important of all our institutional innovations. It is the ultimate guarantor of security. But its power also makes it frightening. For this reason, people sometimes pretend it is weaker than it is. In one area of economics, this is particularly true: money. Money is a creature of the state. Modern monetary theory, a controversial account of this truth, is analytically correct, so far as it goes. But where it does not go is crucial: money is a powerful tool, but it can be abused.”

 

Uyiosa Omoregie

Uyiosa Omoregie is a petroleum economist and management analyst. He can be contacted at [email protected]