Oaktree Capital Management co-founder Howard Marks presents a cool evaluation of modern monetary theory or MMT: he declines to ridicule it but admits he struggles to understand how it doesn’t cause devastating currency responses.
MMT “holds that governmental deficits and debt don’t matter and ‘for nations that are in control of their currencies’ you can spend as much as you want,” Mr Marks told the Sohn Hearts and Minds investment conference on Friday. He was interviewed by Caledonia’s Mark Nelson.
“But it doesn’t seem to me that you can really run deficits of any size for any period of time … without having some effect on the desirability of your currency,” the fund manager remarked. “To me, that doesn’t make sense.”
Mr Marks attended graduate school at the University of Chicago, where the results of a faculty poll showed MMT was yet to grip its academics with enthusiasm. “I don’t think it’s going to be taught as the truth for any time soon, it’s called modern monetary theory, I think it’s just a theory,” he said.
“The interesting thing is they argue that deficits are not a bad thing because when a government spends more than it brings in, there’s a corresponding surplus in the private sector, which receives more than it pays out. So the deficit is really an indicator of all that the government is accomplishing.
“They also argue that if governments can invest money in facilities that have a higher rate of return in excess of the cost of capital, they should do it and it benefits society. There’s probably some truth in it,” Mr Marks agreed.
“On the other hand, hiring more civil servants, giving civil servants a raise, giving foreign aid, it’s hard to see how these things can be looked at as good investments, financially speaking.”
The US was experiencing serious anti-capitalist sentiment, the Oaktree founder added.
“If you look at the young people in America, aged 18 to 34, the majority thought socialism sounded like a pretty good idea.”
And although the US dollar’s dominance is infrequently challenged, Mr Marks wasn’t sure that the Chinese yuan or gold were credible practical alternatives.
By Vesna Poljak