Thread by @walrusmagazine

@maxfawcett’s article on a controversial economic theory has been one of our most read articles this week, so we've invited him for a Twitter takeover to talk about why Canada won't go broke: thewalrus.ca/why-canada-won… 1/15

Hi everyone—this is @maxfawcett, the author of this week's piece on something called "modern monetary theory" (MMT). I know economics and monetary policy *might* sound boring, but I promise you it's anything but. Strap in. 2/15

It's no secret that governments around the world are racking up a lot of debt right now to pay the bill on COVID-19 supports. In Canada, the fiscal deficit for 2020/21 is projected to be $343 billion. That's the biggest deficit since World War II, and it’s not very close. 3/15

How are we going to pay for that? Some have already started talking about the need to wind down COVID-19 supports, even with a second wave still building. Others have floated the idea of temporary tax increases to fill the financial hole when the pandemic passes. 4/15

But here’s another idea: What if we didn’t have to pay it down at all? What if, instead, the Bank of Canada simply printed more money and used that to pay the COVID-19 deficit and debt? That’s the radical—and fascinating—idea behind MMT. 5/15

This isn’t just some left-wing fantasy. It’s been embraced by economists, debated in the Financial Times, and explained in a popular new book called The Deficit Myth. 6/15 amazon.ca/Deficit-Myth-M…

In fact, the former chief of the International Monetary Fund, Olivier Blanchard, said in a recent speech that, “put bluntly, public debt may have no fiscal cost.” 7/15

Now, to be clear: this isn’t a blank cheque for governments, and it isn’t an invitation to ignore deficits entirely. Instead, it’s a different way of looking at them—and an opportunity to start looking harder at our social, cultural, and environmental deficits. 8/15

MMT theorists acknowledge that inflation is a risk worth watching, but it’s not clear that it directly correlates to government deficits and debt. Japan, after all, has massive amounts of debt—yet inflation has been muted there for decades. 9/15

And, while many still remember the inflationary episodes of the 1970s and early 1980s, for most of this century, inflation has consistently undershot expectations. For MMTers, this is proof that it’s time to reassess what really causes it—and what doesn’t. 10/15

What does this mean for you? It means that you should be skeptical of claims that we need to embark on a massive austerity campaign, and you should look suspiciously at anyone who compares household finances to government ones. 11/15

The good news is that we have time to figure this out. According to TD, interest rates won’t return to 2019 levels until 2026—and won’t exceed 1 percent until 2024. We should use this time to explore new ways of thinking about debt, deficits, and what really matters to us. 12/15

There’s a passage Ernest Hemingway’s The Sun Also Rises where a character is asked how he went bankrupt. “Two ways,” he says. “Gradually, then suddenly.” Some have used this line to criticize MMT and its proponents. 13/15

But that pacing applies to paradigm shifts as well. Maybe, in time, we’ll look back on this moment and realize it was when we started thinking about deficits in a whole new way. If so, we’ll have MMT to thank for that. 14/15

That’s it from me, @maxfawcett. Thanks to @walrusmagazine for sharing their Twitter account. You can read my story here: thewalrus.ca/why-canada-won… 15/15