In this insightful discussion, Dr. Emanuel Maggiori delves into Modern Monetary Theory (MMT), explaining its core premise that governments with sovereign currencies can create money to fund spending without the traditional constraints of debt. He highlights how MMT has recently entered mainstream political discourse in the UK, sparked by statements from politicians suggesting government debt is not a real problem since it is owed to the central bank, essentially to themselves. Dr. Maggiori clarifies that while MMT presents an appealing idea of a “free lunch” where governments can print money to solve issues like unemployment and climate change without causing inflation, this theory oversimplifies complex economic realities and often ignores practical limitations and risks.

The conversation then explores the mechanics of money creation, distinguishing between the two levels of money in the economy: broad money created by commercial banks through lending, and reserves created by central banks used to settle transactions between banks. Dr. Maggiori points out that contrary to MMT claims, the government treasury itself does not directly create money but operates through accounts that can go negative, requiring tax revenues to top up spending capacity. He critiques MMT for making accounting errors, particularly the mistaken belief that taxes are unnecessary for government spending, and for relying on exceptions and technicalities to defend these claims.

Drawing from his personal experience growing up in Argentina, a country plagued by repeated hyperinflation episodes, Dr. Maggiori provides a real-world perspective on the dangers of unchecked money printing. He recounts how inflation devastated the economy, leading to practical hardships like the need to carry large amounts of cash for everyday purchases. He contrasts this with MMT’s optimistic view, noting that in countries like Argentina and Venezuela, money printing was often a quick response to fiscal shortfalls, which invariably led to inflation and economic instability. He also discusses recent political developments in Argentina, where a libertarian government has attempted austerity measures to curb inflation, with mixed but somewhat promising results.

The discussion shifts to Bitcoin and its role as a potential solution to monetary problems. Dr. Maggiori expresses skepticism about Bitcoin’s volatility and its effectiveness as a store of value compared to other investment options like stocks. While acknowledging the innovative decentralized ledger technology behind Bitcoin, he questions its practical utility for everyday transactions and wealth preservation. He also touches on conspiracy theories about Bitcoin’s origins but emphasizes the cleverness of its design in addressing issues of centralized control and censorship in monetary systems.

Finally, Dr. Maggiori addresses the current AI bubble, distinguishing between foundational AI companies like OpenAI and the numerous startups building applications on top of AI technology. He predicts a likely crash or restructuring in the AI startup ecosystem due to lack of competitive advantages and commoditization of AI services. However, he remains optimistic about AI’s lasting impact on daily life and work, comparing the current moment to the transformative effect of the iPhone on technology use. He advises caution regarding economic theories like MMT and emphasizes understanding AI as a powerful imitator rather than a source of absolute truth, encouraging a balanced and critical approach to both economics and emerging technologies.