Modern Monetary Theory explained simply - Business Insider

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Bernie Sanders is being advised by a fan of an economic theory called MMT: Here's a plain-English guide to what it is and why it's interesting

. "[The government] must use its position as a monopoly issuer of the currency to ensure full employment."Modern Money Network / Wikimedia CCWhen the private sector fails to provide full employment, MMT advocates support the idea of a "jobs guarantee" that provides government-funded jobs to anyone who wants or needs one. The spending on such a program would be capped when the economy reaches full employment.

Traditional economists regard this type of thinking as highly inflationary and damaging to free markets. If the government is printing as much money as it takes to buy up all the unemployed labour, then the private sector will be starved of workers. Employees will be pulled out of productive, efficient, market-driven companies into inefficient government jobs. Wage inflation will spiral as the government's new money pours in and workers demand higher pay in the private sector.

The idea of increasing taxes as a deflationary measure is probably one of the most controversial aspects of MMT. Critics are highly sceptical than any government would have the courage to increase taxes during a period of inflation. And tax policy is difficult to implement quickly, whereas inflation can move fast.

The US runs a deficit most of the time and it has no significant inflation. Its Treasury bills are highly rated, too.. The European Union's Stability and Growth Pact requires members not to run a budget deficit above 3% of GDP or take on debts greater than 60% of GDP. MMT proponents argue these restrictions prevented Italy, Ireland, Greece, and Spain from spending enough to mitigate their economic downturns.

 

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