The economist known as the godfather of Modern Monetary Theory is sounding an alarm on the rising fiscal deficit, saying that America is spending like a “drunken sailor.” 

American economist Warren Mosler, who was in the vanguard of Modern Monetary Theory, went on Bloomberg’s Odd Lots podcast to discuss the efficacy of using interest rates to taper inflation during a high-inflation environment. 

During the podcast, Mr. Mosler lambasted the government’s deficit reaching 7 percent of gross domestic product — despite the economy not being in a recession — as “a drunken-sailor level of government spending.” 

When asked if he believes that the size of American debt hinders the ability of monetary policy to act as a balancing force to inflation, Mr. Mosler responded by saying that the effect is even “more than” a constraint, adding “it takes it away now.” 

While high government spending has been criticized by prominent economists, hedge fund managers, and political analysts alike, it is surprising to hear criticism from one of the founders of modern monetary theory. MMT reckons that government debt shouldn’t be scrutinized in the same way as private household debt, allowing for greater fiscal discretion — meaning deficit spending. 

“Did I just hear the godfather of MMT say that large deficits can be a problem — is that what you just said? I feel like I might be hallucinating that,” one of the hosts of the podcast asked in a moment of incredulity. 

Mr. Mosler responded by noting that that the deficit itself “is just an accounting residual” but adds “any spending has consequences.” As the government passes high-cost policies in the current inflationary macroenvironment, the Federal Reserve’s high interest rates have served to place upward pressure on prices, he says. 

“It doesn’t have to be that way,” he says, critiquing the central bank’s conventional macroeconomic approach to target inflation. 

Japan, he adds, faces a similar situation. Should Japan’s central bank choose to curb higher prices by raising rates, “With their debt-to-GDP, they’d be throwing gasoline on the fire the way we have, except, you know, twice as much,” Mr. Mosler says.