For years, many countries have adhered to the belief that state coffers are empty and money is scarce. Continuous austerity measures are deemed unavoidable to avoid burdening future generations with unbearable debt and to prevent state bankruptcy.
But what if these fears are unfounded and we have fallen for a modern economic myth? Advocates of Modern Monetary Theory, an established school of economic thought, argue precisely this. They claim that a state can never go bankrupt because it can print as much money as it needs. MMT, as an analytical lens and descriptive framework, asserts that taxes are not meant to finance government spending but to regulate the economy.
Developed by economists like William Mitchell and Stephanie Kelton, MMT gained significant recognition when Kelton's book "The Deficit Myth" became a bestseller, and she advised Bernie Sanders during his 2020 presidential campaign. Despite its growing popularity, MMT faces significant criticism. Both conservative and left-leaning economists warn of possible inflation and the underestimation of the risks of state debt.
Literature:
Kelton, Stephanie. The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. PublicAffairs, 2020.