Modern Monetary Theory – An Idea whose moment has come

Modern Monetary Theory (MMT) is not a particularly new idea. It has been around since at least the 1940s. At its core is the recognition that a currency issuing government has no need to issue debt in order to fund government spending. Governments can (and do) simply spend the money into existence. This is a simple fact about how the monetary system works and is not open to dispute.

Mainstream economists and economic commentators do however present a number of arguments as to why governments should not simply “print money” to fund government spending and consequently why they need to issue debt and maintain that debt at a sustainable level. These arguments usually include dismissive remarks about a “Magic Money Tree” and references to the Weimar Republic or Zimbabwe. These remarks are intended to demonise MMT in the eyes of the general public thus ensuring that its ideas are unlikely to become part of the mainstream and hence inform government policy. The reasons for this are manifold but fundamentally are driven by vested interest of parties who benefit from the current state of affairs. For example, there is an entire industry supporting government debt issuance. These are companies employing some of the best brains and technology in the country, paying very high salaries and making very large profits in an exercise which is essentially paper shuffling. It is entirely unnecessary, adding nothing to the wealth or wellbeing of the nation. The very considerable resources (financial, physical and intellectual) would be better deployed to the benefit of the UK in productive activities e.g. in the scientific, medical or technology sectors.

An MMT economic approach (just like any other economic approach)is not without risks. Inflation is the one which springs readily to mind. However many highly respected economists around the globe have been researching and refining the approach over many decades. They are aware of the risks and have devised tools and policies to manage them. What is needed now is an impartial assessment by experts in all relevant areas to assess the risks and benefits of an MMT approach to economic policy and to compare these to the risks and benefits to the approach currently favoured by the government.

On reading this some will Inevitably shout “Magic Money Tree” but I reiterate that MMT is a serious proposal by respected academics representing many decades of study and refinement. It should not be dismissed by a glib (and by now very worn-out) joke.

The potential benefits of adopting an MMT approach are clear for all to see. Avoiding a recession and with public spending not being constrained by an incorrectly perceived need to maintain government debt at a “sustainable level” would enable the government to implement a wide range of policies to benefit the UK – some of which may be identified as a result of this contest. The fact that adoption of this proposal may be the enabler for the implementation of so many other beneficial policies is why this proposal should be given serious consideration.

 

 

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