The Debt Delusion: Why Modern Monetary Theory Is a Luxury Belief

While Fed Chair Jerome Powell made the rounds on Capitol Hill this week, discussions about the Federal Reserve’s expectations for inflation have once again come to the forefront. Unsustainable government spending is raising inflationary pressures with potentially devastating consequences for the US economy. In this context, the belief that debt doesn’t matter, especially championed by proponents of Modern Monetary Theory (MMT), appears more detached from reality than ever.

This notion, prevalent on the political left, claims that a government that issues its own currency can never run out of money in the same way a household or business might. Advocates argue that such a government can always print more money to pay off its debts, thereby sidestepping any constraints imposed by traditional fiscal discipline. While this might sound appealing, it’s a classic example of what sociologists call a “luxury belief”—an idea that is primarily held by those insulated from its real-world consequences.

“We are a sovereign currency, we can print all the money we want”—former House Budget Committee Chair John Yarmuth (D‑KY) at a congressional hearing.

Luxury beliefs, as sociologist Rob Henderson describes, are ideas that confer status on the rich while often burdening the less fortunate. The concept has traditionally been associated with cultural and social norms, but it applies equally well to economic theories like MMT. Proponents of this “magic money” theory, often shielded by their own economic stability, pay too little heed to how elegant theories on paper can lead to catastrophic outcomes in the real world.

A key argument against MMT’s false promise is that printing money for the sake of financing government spending leads to inflation. When a government prints money to cover excessive spending, it increases the money supply without a corresponding increase in goods and services. This creates an imbalance between available resources and the money available to purchase them, with the result being inflation—an increase in the price level that erodes the purchasing power of money. For the wealthy, this might mean adjustments to their investment portfolios or higher prices on certain items. For the poor and working class, however, inflation can be devastating.

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