MMT: Case for Caution, Political Panacea, or Economic Promise
Why Richard Dennis's 'Fear of Spending' Need Not Apply: How Cautious Consideration of MMT Could Pay Off?
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Richard Denniss gave us a quite reasonable bird’s-eye view of MMT in the October 2020 issue of the Monthly magazine.
How Cautious Consideration of MMT Could Pay Off?
Modern Monetary Theory (MMT) argues sovereign governments issuing their own currency cannot run out of money and can afford to buy anything for sale in their currency. According to MMT, governments create money by spending and can always fund spending through money creation or central bank financing, not just taxation or borrowing. This means there may be more fiscal space to achieve public goals than typical deficit fears imply.
MMT advocates say responsible spending is necessary to avoid inflation, but it is not inherently limited by deficits or debt levels. Advocates argue policy should aim for full employment and meeting essential needs. Critics counter this could enable irresponsible spending and high inflation. Some MMT proponents overstate its implications as an "economic and political panacea" that could support extreme policies. Determining appropriate limits is challenging and subject to debate. We addressed this common critique directly back in June.
Whilst MMT builds on older ideas like Chartalism, it has gained more attention amidst recent policy debates. However, its future impact is uncertain. Widespread adoption seems unlikely soon, but MMT may increasingly shape discussions, even amongst critics. Disagreements exist around the implications, with some seeing the progressive potential and others saying it just describes monetary mechanics. To be fair, these are not mutually exclusive. The theory's success will depend on how well its predictions and policy proposals fare in practice. Pretty good, in my opinion.
There are complex political questions around resource distribution that theories alone do not resolve. Prioritising particular goals or groups can depend on ethical views, not just economic arguments. Whilst MMT could expand feasibility, it does not specify whose interests to serve or what trade-offs to make. The future of economic debates will depend on how well-competing arguments and stories address major issues like inequality, employment, and the climate crisis. The post-crisis consensus is dissatisfying to many, but there are many arguments across perspectives and challenges for all.
Policymakers must consider both technical economic debates and deeper social and political questions. MMT highlights the potential for greater government action but also hard decisions around limits and distribution. Its impact will depend on how it informs real-world policies and how those fare in an uncertain world. There are no easy solutions to stubborn problems, but continuous debate can help approach them.
Clearly, I think MMT insights can help us provide an answer!
MMT's proposal that sovereign governments can fund public spending by creating money rather than relying on taxes or debt holds some appeal for Australia. MMT insights suggest government investment could boost employment, especially in times of recession, and support vital programs like universal healthcare and education that Australians widely value. Whether MMT's insights could work in Australia's favour depends on responsible applications that control inflation and align with full employment, equitable growth, and other national priorities. MMT just may inspire fresh thinking!
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