Modern Monetary Theory

According to MMT, a government that borrows in its own currency, such as the United States, the United Kingdom or Japan, can always create money to pay its debts, so it cannot be forced to default. Taxes, in this view, are mainly a tool to control inflation and create demand for the currency, rather than a way to fund spending.

MMT supporters argue that governments should use spending to achieve goals such as full employment, for example through a job guarantee, and use taxes to cool the economy if inflation rises.

For example, an MMT supporter might argue that a government facing high unemployment should increase spending without worrying about the deficit, as long as inflation remains under control.

MMT is controversial. Critics argue that it underestimates the risk of inflation, that raising taxes quickly to fight inflation is politically difficult, and that it could undermine confidence in a currency. Mainstream economists generally accept some of its observations about countries that borrow in their own currency, but reject its policy conclusions.