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Washington

Senate has duty to denounce modern monetary theory, Republicans say in resolution

Rep. Alexandria Ocasio-Cortez, D-N.Y., is a supporter of modern monetary theory.

Five Senate Republicans want Congress to denounce modern monetary theory, a doctrine gaining fans among progressive Democrats, as a menace to the U.S. economy.

The progressive theory, invoked by Rep. Alexandria Ocasio-Cortez, D-N.Y. — and the subject of fierce debate among thinkers on Wall Street and beyond — would result in bigger budget deficits and higher inflation, according to a non-binding resolution. It was backed by five Republican senators led by Georgia's David Perdue, a former Dollar General Corp. CEO.

MMT says countries that print and borrow in their own currency, like the U.S., can't go broke and don't need to worry too much about budget gaps when inflation is subdued, as it is now.

The idea has been cited by progressives as a way to pay for programs like the Green New Deal. It's been attacked as a recipe for hyperinflation by a series of financial heavyweights. And some investors and economists, from Olivier Blanchard to Bill Gross and Ray Dalio, have taken more nuanced views and sided with some elements of the theory.

Nobel laureate Paul Krugman has been among the critics. But he pushed back Friday against the Republican move on Twitter.

Since the recession a decade ago, the U.S. budget deficit has expanded under both Democratic and Republican leadership. It was shrinking when President Donald Trump came to power, but he's presided over tax cuts and spending increases that reversed the trend, taking the shortfall to about 3.9% of gross domestic product last year.

The looser fiscal policy has helped accelerate the U.S. economy under Trump. His economic team says faster growth will eventually enable the government to recoup revenue lost to the tax cuts.

Democrats say that's an old supply-side argument that's been empirically disproved, though they're split over whether the U.S. should try to reduce the deficits or just spend them differently.