The most interesting development in economics within the last decade has been the growing popularity of Modern Monetary Theory (MMT). If you are not an economist, do not worry. I am going to explain this in the simplest way possible.
MMT, distilled to its essence, is a theory which posits that when it comes to nations with a fat currency, the only restraints are real restraints, not financial restraints. Meaning, the restraints an economy faces are not how much money is contained in the budget, but rather, what labor and resources it has available to utilize. This theory and its application are built off a few key assumptions:
- The federal government cannot default on its debts since it issues its own currency. Theoretically, if the government is $27 trillion in debt, it can just issue another $27 trillion to remove the debt. Some of you are immediately going to shout “Inflation!”—trust me, that will be addressed later.
- MMT proponents see (involuntary) unemployment as evidence that the economy is operating under capacity. For the sake of better utilizing our resources and making the country better, we should be striving to reach full employment.
For now, let’s just take a step back and analyze some underlying features of the US monetary and fiscal systems.