Modern Monetary Theory: Some Additional Dimensions

Abstract

The objective of this paper is to examine the foundations of Modern Monetary Theory (MMT) by building upon the individual papers in this issue of the Atlantic Economic Journal by Mark Skousen and Patrick Newman. The foundations of MMT include five cornerstones. First, sovereign governments that are the sole supplier of a national currency (e.g., United States) can issue as much currency as they want, have unlimited ability to fulfill promised future payments, and cannot go bankrupt. Second, legislation enables spending while taxes neither place a limit nor specify government spending (earmarked taxes would be an exception). Third, a sovereign government can borrow as much as it likes in pursuit of laudable public sector projects or fiscal policy programs to manage the economic cycle. Fourth, a huge and growing national debt is beneficial to the economy as long as inflation remains contained. A fifth feature, the blogosphere, shaped the emergence of MMT largely in the absence of technical vetting and critical empirical examination. The popularization derived for MMT through the blogosphere will have a profound effect on U.S. politics and economic policy in the 2020s and 2030s. The foundations of MMT are refuted by the work of public finance theorists David Ricardo, James Buchanan, Robert Barro, and Alberto Alesina.