Or…Everything You Need to Know About Modern Monetary Theory
MMT is actually grounded in old and uncontroversial economic ideas, and its appeal is neither ideological nor partisan. In May, Sen. Marco Rubio (R., Fla.) released a detailed paper on the state of the U.S. economy that repeatedly cited papers and books associated with MMT. Despite his diatribes, Summers has made many of the same policy prescriptions as the MMT thinkers in recent years—and for largely the same reasons.
The best way to understand MMT is to think of it as the peacetime version of wartime economic management: Governments can do whatever is necessary to satisfy the “public purpose” as long as they maintain their authority over the populace. The U.S. government was able to run budget deficits worth more than 20% of gross domestic product during World War II without risking either inflation or its own creditworthiness—but it needed to use rationing, wage and price controls, and financial repression to do so.
As Bill Mitchell, a professor at Australia’s University of Newcastle and a co-author of a new MMT textbook on macroeconomics, puts it, sovereign governments face no “so-called financial constraints,” only “political constraints.”
China illustrates the potential of this approach—for good and for ill.