Modern Money Theory can be quite complicated, for which it is recommended that you refer to additional articles. But the main points of MMT are as follows:
- Modern Money Theory (MMT) is descriptive
MMT describes how the economy works, Although knowledge of MMT may suggest what the government could do, it does not tell the government what it should do (i.e. MMT is not prescriptive).
- MMT recognises that government finances are not like your household budget
The biggest error made by politicians (and some economists) is claiming that governments must budget or fund their spending by first collecting taxes or borrowing. In practice, all taxes are paid from money that the government has already spent into the economy. Government spending must always comes before taxation.
- Government spending is not funded from taxation, but by Government money creation
The decision to create (print) money and invest in the country is political. This does not mean that a government should print as much money as it wants, and although it could, there are other factors that determine whether this is sensible (such as the availability of resources: land, labour, materials, energy). This is possible only by countries that have monetary sovereignty (they print and issue their own currency, and it is not back by a commodity such as gold).
- MMT focuses on achieving full employment
It does not believe that the interest rate should be the main policy instrument of monetary policy, and consequently that the interest rate should be controlled through unemployment. This could be through a government Job Guarantee which would stop involuntary unemployment. Jobs would pay a living wage, a proper pension, benefit the community, reduce the need for benefits, and maintain personal mental and physical health.
- MMT does not describe the National Debt as a debt
One person’s debt is another person’s asset. Quite simply, public debt is equal to the money a government has spent, and not yet collected back in taxes. Government debts are also public assets. And because the government creates its own money, it cannot default on its own debt.