Can MMT save AI from catastrophe?

John Alt

A chief criticism of Modern Monetary Theory (MMT) is that it is inherently inflationary. The simple logic goes like this: Issuing new fiat currency ex nihilo adds money to the market without necessarily adding new products and services for that money to buy. More money chasing the same products and services drives prices up — the definition of inflation. Thus, advocates for using the mechanisms of modern fiat money to pay ourselves to provide goods and services for our collective well-being are shot down, out of hand, with a single inflation phobia laser bullet.

In contrast, it is telling that no one is talking about what is inherently deflationary. And not talking about it even though deflation – less money chasing the same products and services – is, in many ways, more terrifying and destructive than its counterpart: A certain amount of inflation, in fact, is healthy -it has the market economy virtue of encouraging people to buy things now rather than wait until later when they might cost more. Even a whiff of deflation, however, leads to an economic death spiral that is difficult to pull out of. This is because deflation-conscious consumers stop buying now with the expectation that waiting will result in a lower price down the road – and this expectation slows consumer activity, causing businesses to fail, unemployment to skyrocket, and entrepreneurial investment to tank.

It is telling that no one is talking about this because the signature initiative being promoted by our current “masters of the economy” – artificial intelligence – is, in fact, inherently deflationary in its structure. As such, while AI promises trillions of dollars in profits to the titans of technology, it poses the real threat of a monetary death spiral far more insidious than anything MMT could possibly set in motion. Here’s why:

AI bots are Not Consumers

AI (and robotics) are deflationary for the simple reason that they stand to produce goods and services in great abundance without increasing the consumer wages that purchase the goods and services produced. Thus, available goods and services will increase while the human wage-earners holding the money to buy the goods and services will not – i.e. the same amount of consumer money chasing a vast increase in things to purchase, generating a deflationary fall in prices. This inversion will be turbo-charged by two additional factors:

First, in virtually every case the AI bot will replace a human wage-earner, so the number of employed humans available to buy goods and services actually declines while production increases. Or, alternately, the replaced humans are pushed into lower paying employment, or partial employments, reducing the number of dollars they have to spend for consumption.

Whichever way you calculate it, the rise of AI bots will result in fewer consumer-held dollars chasing ever more goods and services – the definition of deflation.

Second, the “wages” (purchasing power) that AI bots displace will be directed away from the great population of lower-middle class consumers to a small, elite population of AI technology owners who receive the subscriptions or lease payments for the AI bots. Not only are these subscription/lease payments less than the wages they replace (why else will businesses employ AI products?) they are now concentrated in the hands of a relatively small, super-wealthy class that, in aggregate, will purchase fewer goods and services than the human workforce displaced. This is a nose-dive of less money pursuing more goods on steroids.

It is a supreme irony, therefore, to consider that the only remedy to AI’s deflationary havoc will be – guess what? -Modern Money Theory! Specifically, the only way to maintain a human workforce capable of buying the goods and services the AI bots will produce is by using the mechanisms of modern fiat currency to create new employment and wages for the lower-middle class workers the AI bots will lay off. If, in so doing, MMT creates some inflationary pressures along the way, they will likely be seen as a godsend.

The revolutionary need for “intentionally created” employment

One of the founding propositions of early MMT advocates was, in fact, a national Job Guarantee program. And this was proposed with a strong rationale even before AI was a visible speck on the horizon. Now that this “speck” is expanding to become the horizon itself, MMT’s Job Guarantee – framed as a temporary workforce “bufferstock” that would grow in economic downturns and diminish in recover-ies – seems almost quaint. Now, we face something that is not simply a “temporary economic downturn,” but a seismic shift in the structure of market society itself:

We are on the brink of producing much of what people need without the input of human toil. Ironically, however, for people to earn the money to buy the needed things AI produces, human toil must somehow be reinvented, “intentionally” created, employed, and compensated. And this is precisely what MMT’s monetary perspective is uniquely structured to accomplish.

It is Modern Monetary Theory, then, that gives us hope: While AI steals our profit-making employment and wages, new employments, “intentionally created” and compensated by the mechanisms of modern fiat money can enable lower-middle class families to buy the goods and services AI produces. Even more important, however, the “intentionally created” employments can be marshalled to produce the not-profit-making goods and services that will maximize – and equitably distribute -our collective well-being. In many ways, it could be an astonishing improvement to the status-quo.

What we decide to do with the wealth-saturated AI oligarchs is another topic. The important thing to focus on now is what the “intentionally created” employments will be, and the process by which they will be established and compensated. Time has never been more of the essence.

Source: John Alt, Paying for it, 7 Jan 2026 https://johnalt.substack.com/p/can-mmt-save-ai-from-catastrophe
John Alt is an architect-writer working to devise ways of explaining and visualizing  Modern Money Theory for laypersons.