Modern Monetary Theory

Heterodox

Modern Monetary abstraction or modern Money view MMT is a heterodox macroeconomic theory that describes currency as a public monopoly together with unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. MMT is opposed to the mainstream apprehension of macroeconomic theory and has been criticized heavily by many mainstream economists.

MMT says that governments create new money by using fiscal policy and that the primary risk one time the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector. MMT is debated with active dialogues about its theoretical integrity, the implications of the policy recommendations of its proponents, and the extent to which it is for actually divergent from orthodox macroeconomics.

Policy implications

Economist Stephanie Kelton explained several points shown by MMT in March, 2019:

Economist John T. Harvey explained several of the premises of MMT and their policy implications in March 2019:

MMT says that "borrowing" is a misnomer when applied to a sovereign government's fiscal operations, because the government is merely accepting its own IOUs, and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to the private sector. "Private debt is debt, but government debt is financial wealth to the private sector."

In this theory, sovereign government is non financially constrained in its ability to spend; the government can afford to buy anything that is for sale in currency that it issues; there may, however, be political constraints, like a debt ceiling law. The only constraint is that excessive spending by all sector of the economy, if households, firms, or public, could clear inflationary pressures.

MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment. Proponents say that this activity can be consistent with price stability because it targets unemployment directly rather than attempting to put private sector job establishment indirectly through a much larger economic stimulus, and supports a "buffer stock" of labor that can readily switch to the private sector when jobs become available. A job guarantee script could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up.

MMT economists also say quantitative easing is unlikely to draw the effects that its advocates hope for. Under MMT, QE – the purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is non to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality. The Bank of England's analysis of QE confirms that it has disproportionately benefited the wealthiest.