‘I haven’t really seen a carefully worked out description of what is meant…’
Ocasio–Cortez recently said she would support using modern monetary theory—the idea that because government controls its own currency, there’s no real need to balance the budget—to fund socialist policies, like Medicare-for-all and free college tuition.
“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” Powell said.
“U.S. debt is fairly high as a level of economic output, and more important than that, it’s growing faster than economic output. We’re going to have to either spend less or raise more revenue,” he said.
Powell said that though he’s not familiar with modern monetary theory, he found surprising some of the spending proposals outlined in the recent framework for Ocasio–Cortez’s Green New Deal.
The radical policies would mean investing trillions of dollars—more than the gross domestic product of any nation except the U.S. and China—into attaining a net-zero balance of carbon emissions.
“I haven’t really seen a carefully worked out description of what is meant by MMT … it may exist but I haven’t seen it,” said Powell. “But I’ve heard some pretty extreme claims attributed to that framework, and I don’t know whether that’s fair or not.”
Powell also rejected the bizarre idea that the Fed should pay for the Green New Deal.
“To the extent people are talking about using the Fed, our role is not to provide support for particular policies,” Powell said. Rather, the Fed’s job is to keep interest rates low to ensure stable prices and low unemployment, he said.
Ocasio–Cortez dismissed Powell’s criticism and said he’s looking at things in the wrong “framework.”
“Fed chairs are appointed and they have their own frameworks for approaching issues,” she said. “It doesn’t always mean that it’s objectively the right thing.”