Modern monetary theory

What is the core idea behind MMT?

The central idea of MMT is that governments with a fiat currency system can and should print as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken. According to MMT, a large government debt isn’t the precursor to collapse. Countries like the US can sustain much greater deficits without cause for concern, and in fact a small deficit or surplus can be extremely harmful and cause a recession since deficit spending is what builds people’s savings.



Arguments for MMT

This latest macroeconomic framework is used in policy debates to argue for more progressive legislation like universal healthcare and other expensive public programmes for which governments claim to not have enough money for. MMT argues that while taxes on the wealthy are good for lessening inequality, they aren’t essential to pay for government spending. While supporters of the theory acknowledge that inflation is theoretically a possible outcome from such spending, they say it is highly unlikely, and can be fought with policy decisions in the future if required.

The arguments against MMT

Traditional thinking says such spending would be fiscally irresponsible as the debt would balloon and inflation would skyrocket. High spending can lead to a break-out of high inflation if both public and private sectors spend too much at the same time. MMT argues that as long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.