Elon Musk's explanation of inflation is unfortunately contradictory

The energetic, awesome, and brilliant Elon Musk recently took to X (or Twitter) to explain what causes inflation. It seems that even Musk gets it wrong occasionally. Disappointingly, he claimed that inflation is “caused by the federal government spending more than it takes in because they simply print more money to make up the difference.”

Sadly, but not surprisingly, neo-Austrian economists who were convinced that the US was in a constant state of hyperinflation have happily embraced Musk's strange explanation. And strange it is.

To understand why, you have to consider how Musk's own remarkable creation, SpaceX, generates some of its revenue: through government spending dedicated to transporting cargo into space. If some of the money was simply “printed,” as Musk claims, SpaceX would have little real value. We should not forget that SpaceX earns dollars and is valued in dollars, but if the dollars flowing into SpaceX were merely a function of the speed of the federal government's printing press (which neo-Austrians like Peter St. Onge claim with a straight face), SpaceX would have little revenue and a dollar valuation that no one would trust.

Looking at the national debt more broadly, it is currently at $35 trillion? Musk claims that money printing has made this massive spending possible, thereby claiming – like the neo-Austrians who cheer him on – that Modern Monetary Theory (MMT) is real.

How else can you explain a viewpoint that is so popular among neo-Austrians and so contradictory to reality? And to be clear, that is exactly what neo-Austrians like St. Onge believe. In response to Musk's explanation of inflation, St. Onge wrote, “It fills me with joy that the real Hank Rearden fully understands inflation.” With that, St. Onge is saying that MMT is not only real, but works really well. Fortunately, market signals scoff at the parallel views of neo-Austrians and MMT supporters.

To see how much St. Onge et al. contradicts actual market realities, look at the yield on the 10-year U.S. Treasury bond. In 2024, with $35 trillion in debt, the yield is 3.86%. In 1980, when the Treasury had a total of $900 billion in debt, the yield was over 11 percent. That's just a gentle reminder to St. Onge et al. that so-called “money printing” has not paid off the federal government's debt for decades. Contrary to neo-Austrians and MMT followers, MMT is a fraud. $35 trillion in national debt shows why.

The fact that government bonds, by far the most widely “owned” asset in the world, are yielding exponentially less today than they did in 1980 is not a sign of the spread of neo-Austrian “money printing” fabulism coupled with MMT illiteracy, but the exact opposite. It suggests that government bonds have been able to accumulate quite high levels of debt precisely because the actual markets do not share Musk's or St. Onge's rather superficial definition of inflation.

Importantly, it is not just government bond yields that reveal the obvious. Perhaps even more revealing is the sad fact that the federal government does not count Musk as its only customer. As the annual government spending and trillions in debt show, our federal government has many, many other customers besides Musk. This is sadly true. Government spending is a huge tax.

Of course, if the Treasury were only printing its needs for goods, services, and labor from private producers, it would logically have no customers. Just as SpaceX would not and could not exchange real goods and services for printed money, neither would others. Producers do not simply accept “money,” they accept money exchanged for goods, services, and labor. In other words, the surest sign that the U.S. did not print dollars to accumulate $35 trillion in debt is the $35 trillion in debt.

If Musk, St. Onge, and a host of other neo-Austrian mystics assume that the US Treasury's debt was financed by printing inflationary money, then this is not just a foolishness of the market, but a foolishness of enormous proportions. Who would really own Treasury bonds if the revenue streams were “printed”? Who would accept US dollars if the issuer had to print them to pay its debts?

The answer is that if the Treasury had to raise inflation to “make up the difference,” as Musk et al. assume, it would have no debt at all. That's because, as the rise in national debt over the decades clearly shows, national debt is much more correlated with a lack of inflation. Contrary to St. Onge, the markets are smart.