
22nd June 2025
Forget the myths. In this video I set the record straight on MMT: what it is, how it works, and what it doesn't claim to do. If you've ever wondered how modern monetary theory could change things, this is your explainer.
Modern Monetary Theory (MMT) is a heterodox macroeconomic theory that suggests governments with their own sovereign currency can never be constrained by a lack of funds, as they can always create more money to meet their spending needs. Essentially, MMT posits that a government can spend without needing to tax or borrow, as long as there are available real resources (like labour and materials) to support that spending.
Here's a more detailed breakdown:
Monopoly of Currency:
MMT emphasizes that a government that issues its own currency has a monopoly on that currency. This means it can create new money to meet its obligations.
Fiscal Space:
Unlike traditional economic theories that emphasize balancing the budget or reducing national debt, MMT argues that a government's spending should be guided by the availability of real resources and the potential for inflation, rather than arbitrary financial limits.
Full Employment:
A key aspect of MMT is its focus on achieving and maintaining full employment. It suggests that governments should use their spending power to fund job creation programs and other initiatives that can boost employment and economic activity.
Inflation as a Limit:
MMT acknowledges that excessive government spending can lead to inflation if it outstrips the economy's capacity to produce goods and services. However, it suggests that inflation can be managed through taxation and other policy tools.
Challenging Conventional Wisdom:
MMT challenges the conventional wisdom that government deficits are inherently bad and that national debt is unsustainable. It argues that a country's debt, if denominated in its own currency, is not necessarily a problem.
Real Resource Constraints:
MMT emphasizes that the real constraints on government spending are the availability of resources (labour, materials, etc.) and the potential for inflation, not the availability of money itself.
In essence, MMT offers a different perspective on how governments can use their monetary power to achieve economic goals, with a strong emphasis on full employment and price stability.
[b]Read a longer explanation at Wikipedia[/b[