Modern Monetary Theory

Economists claim that MMT is a system that is already in place so it does not take the role of
acting as a proposal. Kelton's argues that competent central bankers and economists now
recognize that banks lend by creating money first (specifically credit) rather than saving and
then lending out existing money. Kelton explains that as with currency-issuing, governments
spend by creating money first (specifically reserves) instead of them taxing and borrowing
existing money. When fiscal spending is greater than tax revenue it creates a financial
surplus and contributes to another area of the financial market creating debt. If the
government is going to increase its spending then it needs to have sufficient human capital.

Kelton’s Ted Talk closes the gap on the core hypothesis made in Stephanie's book ‘The
Deficit Myth’ by stating that since currency issuers already spend by issuing money, they
can spend as much as is required to remove involuntary unemployment and fill the output
gap without going overboard and causing inflation. Covid-19 is a great example of how
effective this is as a solution through covid-19 relief support. The relief support consisted of
Govts giving money to institutions e.g. healthcare and households. This created profit for
households as the government was putting debt on them.

An economist would see MMT as a positivist theory rather than a normative one. Kelton's
perspective is that there is no longer a debate on if policy makers should use ‘MMT’ or ‘print
money’ as he says that we already have a fiscal and monetary system where the
government that issues money spends by creating more money. I would say that MMT has
been excepted in many cases but is still seen as not being the most effective method by
policy makers as they are trying to spend more without increasing national deficit. MMT is
also highly protested as it contests mainstream macroeconomic theory, so is not favored by
traditional economists.