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Response to bucolic_frolic (Reply #4)

Wed Jan 27, 2021, 07:01 PM

7. First, you are a mainstream theorist and I am a modern money theorist...

We will never agree so I will refer you to...

Modern Monetary Theory or Modern Money Theory (MMT) is a heterodox[1][2][3][4][5][6] macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.[7][8]

MMT is an alternative to mainstream macroeconomic theory. It has been criticized by well known economists but is claimed by its proponents to be more effective in describing the global economy in the years following the Great Recession of 20072009.[9][10]

MMT argues that governments create new money by using fiscal policy. According to advocates, the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector.[11] MMT is debated with active dialogues about its theoretical integrity,[12] the implications of the policy recommendations of its proponents, and the extent to which it is actually divergent from orthodox macroeconomics.

MMT's main tenets are that a government that issues its own fiat money:

Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases;
Cannot be forced to default on debt denominated in its own currency;
Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment;
Can control demand-pull inflation[13] by taxation which removes excess money from circulation;
Does not compete with the private sector for scarce savings by issuing bonds.
These tenets challenge the mainstream economics view that government spending is funded by taxes and debt issuance.[14][15][12] The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. For example, as former Chair of the Federal Reserve Alan Greenspan said, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default."[16] However, MMT economists disagree with mainstream economics about the fifth tenet, on the impact of government deficits on interest rates.[17][18][19][20][21]


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