Maurice Höfgen is a prominent representative of the controversial Modern Monetary Theory. In an interview, he explains how it is supposed to help fight inflation, which measures he still misses and which sanctions against Russia he advocates.
Mr. Höfgen, you are one of the most prominent representatives of the controversial Modern Monetary Theory (MMT) in Germany. Now you have written a book about economic sanctions against Russia. MMT hardly plays a role in this. Why?
Maurice Höfgen: Yes, it's true that MMT only plays a supporting role. In fact, however, MMT helps to understand the effect of financial sanctions.
You have to explain that...
Let's start with the energy sanctions, keyword: gas embargo. We had this debate for months and it was always about: should we forgo Russian gas so as not to continue financing Putin's war? From MMT's point of view, that's weird, because Putin is financing his war in rubles, not in euros. And rubles he can theoretically print as many as he wants.
Don't you underestimate the dependency on imports?
Russia has to pay for them in foreign currencies. Unfortunately, Russia is not particularly dependent on imports for pure warfare. Russia is a large arms producer, has its own soldiers and large reserves of raw materials. That Russia can pay for everything in rubles, so it is very self-sufficient. However, the economy as a whole is not self-sufficient. For example, Russia is dependent on technology imports and here we can meet them too. So the sanctions are already damaging the Russian economy, but unfortunately they are not causing Putin to run out of money for his war.
There is Western technology in tanks and other modern artillery pieces; there have been reports that arms production in Russia is halting because of the sanctions. Is Russia really as self-sufficient as they say?
In the very long term, of course, they are dependent on such imports or have to come up with solutions. But not in the short term. Nevertheless, this is a good example of how sanctions can work: export bans on war technology, such as antennas or navigation systems, are much more effective than an attack on Putin's coffers.
Which sanctions against Russia do you think make sense, and which less?
The sanctions against Russian banks hit the credit business, the export bans hit the commercial business, and the oligarch sanctions hit Putin's center of power. That makes sense. In my view, the energy sanctions are not serving their purpose.
For real? Most experts see it completely differently. Russia, for example, has to accept huge discounts on its oil and gas, and foreign exchange inflows will be permanently lower. So, in the long run, the damage will show up. Hasn't your thesis been refuted long ago?
No, that's only partly true. So far, the foreign exchange inflows are even larger because of the high prices. In addition, many flows of goods will be rearranged over time. Even if Europe no longer buys gas and oil - China, India and Co. will step in. In this way, we are also tying many poorer countries to Russia, which are now buying their oil there at reduced prices. That cannot be in our interest. And last but not least, this changes little in terms of financing the war economy. Russia does not have to sell us any energy for this. Export bans are much more effective here.
Export bans and thousands of Western companies emigrating hit Putin's economy much more quickly and precisely. This is still obscured in the raw economic data today, because GDP increases when Putin pays soldiers and invests in his war economy. But that is not something that creates prosperity and advances the Russian economy. On the contrary: This is a waste of money and resources. Then there are the sanctions against Russian oligarchs.
You dedicated a whole chapter to them...
Yes, and the sanctions themselves make a lot of sense. They target the people who support Putin's regime of power. But there are some problems, especially in Germany, because investigators don't know who owns what here. That's why the oligarch sanctions are unfortunately not as severe as they could be.
If you move to the Facebook comment columns, you might get the impression that the sanctions hurt us much more than Russia. What do you make of it?
This is clearly wrong. The sanctions hurt Russia much more than they do us. But it is also clear that in the end both will suffer and even involve third countries, for example in Africa. As I said, I don't think much of the energy sanctions economically.
Some economists led by Rudi Bachmann, who researches in the USA, predicted something different back in March and called for an energy embargo...
Yes, but you have to see that in context. At that time, the gas storage tanks were empty and Russia still supplied us. Those were the assumptions. Now Putin himself has decided to stop gas supplies. Thus, study is simply outdated.
You and Mr. Bachmann are two of the influential minds in the economist dispute on Twitter. Why are they bickering - and what does that do to you?
First of all, I'm really happy about the thousands of young people who are interested in economic issues. That's a value in itself. That's why it doesn't bother me much when established professors from America bluster on the Internet. What annoys me more is that the discussions are mostly superficial and destructive. A reasonable debate would certainly be more exciting. But Twitter doesn't seem to be the right place for that.
You share well yourself.
Yes, of course, that's part of it. As long as everything stays within limits, I think that's fine. I'm good at taking it too. Such bickering might be briefly entertaining, but not important to me. In any case, my experience is that the younger ones are open to new things, not the older ones. Even more: more and more students are annoyed by the conservative economics at the universities. Rudi Bachmann's behavior doesn't make it any better. He does gatekeeping and conveys that only established professors can make legitimate contributions to the debate. Twitter is actually breaking down just such hurdles.
Are there any economists that you recommend on Twitter?
Yes, in any case. I read Achim Truger, Sebastian Dullien and MMT icon Stephanie Kelton as well as Lars Feld, Veronika Grimm or Clemens Fuest. Very different schools of thought. And that these schools of thought fight among themselves is normal and advances science. It always depends on the tone.
In your current book, you also call for a kind of gas price brake to lower inflation. It came in the meantime. Are you happy with the result?
Yes, the gas price brake is a fever reducer. The economy is in fever, as can be seen from the high inflation rate, and the gas price brake is alleviating the symptoms. However, it does not change the cause. For this you would have to invest in additional offers. The federal government is also doing this, for example with the new LNG terminals or with wind power.
So the 30 billion euros for the gas and electricity price brake are money well invested?
Yes. You could have saved yourself a few billion by capping the super-rich, but it doesn't matter much in the end. It is important that the price shocks are mitigated. This is also good for the economy, by the way. We're seeing the energy crisis turn into a demand crisis because people have to pay so much for petrol and gas. In the end, bakeries or cinemas go broke because people can spend less money on them - even though these shops are actually very healthy.
Where can Modern Monetary Theory help us to fight inflation? Their core thesis is that you can feed the system with an infinite amount of money. First of all, that wouldn't change anything. The economic mainstream sees it completely differently and says there is a positive correlation between the money supply and inflation.
First of all, it can help us with the analysis. We are experiencing a supply shock in the energy markets. That is indisputable. However, the central bank cannot combat a supply shock. Higher interest rates are not only pointless here, they are actually counterproductive.
Hans-Werner Sinn would gasp by now at the latest...
Yes, and Bundesbank President Joachim Nagel probably too. But higher interest rates make investments more expensive. But we need investments to get out of the supply shock.
The central bank and the federal government are currently trying to find a middle ground. On the one hand, demand should fall due to the higher interest rates, on the other hand, the state is investing massively in supply. Isn't that the more pragmatic way to get both sides moving?
I find it difficult to attest Mr. Lindner's pragmatism. A week before the "double boom" he wrote in a guest article that we cannot fight inflation with debt. This is of course a joke, because price brakes lower the inflation rate. And for the gas and electricity price brake he is now in debt. So he's a bit dishonest there. Nevertheless, I can see that Mr. Lindner has changed his mind. Over the summer he noticed that we had to take on debt so that the economy didn't slack off too much. Mr. Lindner didn't want to become an economic crasher. The path is correct now, but the speed could be even higher. The debt brake simply does not fit the time. It doesn't matter whether he hides the measures in shadow budgets.
What other measures do you propose to curb inflation?
A lot has already been implemented. What I still miss is a relief for staple foods. The EU allows VAT to be abolished here. So you could make bread and butter seven percent cheaper with the stroke of a pen. The same could also be done for train journeys. That would accelerate the traffic turnaround.
Jannik Tillar spoke to Maurice Höfgen
The interview first appeared on Capital.de