How Do We Pay for It?

Exploring the transition to a degrowth economy often leads to the pivotal question: "How do we pay for it?" This page delves into Modern Monetary Theory (MMT) as a lens through which to view the financing of degrowth initiatives. By breaking down MMT, we'll uncover how this economic framework can support the necessary shifts towards sustainability and equity, challenging conventional views on public financing and monetary policy.

Table of contents

What is Modern Monetary Theory?

At its heart, Modern Monetary Theory (MMT) offers a fresh lens through which we can view our economy and the role of government spending. Unlike traditional economic theories that often compare a country's budget to a household's—emphasising the need to balance income (taxes) and expenses (government spending)—MMT presents a different perspective, particularly for countries that issue their own currency, like the US, Mexico, Australia, and China.

Key Insights from MMT:

Sovereign Currency: MMT emphasises that countries which control their own currency can never "run out of money" in the same way businesses or individuals can. They can always create (print) money to fund public services and initiatives.

Inflation Over Debt: Because governments that issue their own currency can never run out of money, MMT suggests focusing on inflation instead of worrying about accumulating debt. If a government spends more money than the economy can absorb without a corresponding increase in labour, goods and services, it could lead to inflation. Therefore, the real limit to government spending is not debt but the economy's capacity to absorb that spending without causing too much inflation.

The Role of Taxes: MMT shows us that governments don't need taxes to fund spending directly. Instead, they serve to control inflation, redistribute wealth, and encourage or discourage certain behaviours (like taxes on tobacco). This shifts the conversation from "How will we pay for it?" to "How do we manage the economy's resources efficiently?"

Unemployment: MMT views unemployment as evidence that there's more capacity for government spending on productive projects without causing inflation. It proposes the idea of a Job Guarantee to provide employment to everyone willing and able to work, thereby achieving full employment and stabilising the economy.

In essence, imagine the economy as a sink, where the water level represents the total money in the economy. Government spending is like the faucet/tap, adding water (money) into the economy, while taxes are the drain, removing some of it. MMT suggests that the goal is to adjust the flow carefully using the 'sink stopper' (tax policy) to keep the "sink" adequately filled without overflowing (causing inflation) or running too low (causing unemployment).

Why is MMT Relevant to Degrowth?

MMT offers a key to unlocking a successful degrowth transformation by showing us that governments can afford to invest in a healthier planet and society without needing the economy to grow. MMT teaches us that a country with its own currency can fund big changes for the environment (ecosystem regeneration, renewable energy deployment, convivial conservation) and communities (job guarantee, universal basic services, community resilience) as long as it keeps an eye on not causing too much inflation. This means we can focus on what truly matters—building a sustainable world with less waste and more care for people and nature. By embracing MMT, we can pave the way for degrowth, shifting resources towards things that make life better for everyone without pressure to constantly increase economic output (GDP).

This accessible academic paper is a fantastic overview of how we can completely change our economy to get back within planetary boundaries by using insights from Modern Monetary Theory.

Check it Out Here!

Play a Game About MMT!

Dive into "Anything We Can Actually Do, We Can Afford," a unique text-based interactive game created by Sheridan Kates. Through the engaging format of Choose Your Own Adventure, this game challenges conventional economic wisdom, guiding players through scenarios that illustrate the principles of degrowth and Modern Monetary Theory (MMT).

Whilst this game is based on the UK economy, its principles still apply to any country that controls its currency.

Further Reading, Watching and Listening

Books and other readings

How to Pay for Saving the World: This accessible academic paper is a fantastic overview of how we can completely change our economy to get back within planetary boundaries by using insights from Modern Monetary Theory.
The Deficit Myth: An accessible overview of Modern Monetary Theory, which goes into detail about how governments currently manage their economies and why fears of "the national debt" are unnecessarily holding them back.
Debt: The First 5000 Years: This book by David Graeber is long, but it's an incredible, well-written history of the last 5000 years of money, debt and society.
Randy Wray's MMT Primer: An in-depth, fantastic deep dive into all things MMT.

Podcasts and Videos

The MMT Podcast: A fantastic treasure trove on how all of MMT works in detail. Start with the first three episodes for an overview of MMT, then explore the archive for anything that interests you. We recommend the episodes "How Banks Create Money, and "Whether the Markets Have Too Much Influence on Our Politics" (spoiler: only if we let them!)
Macro N Cheese Podcast: Another great MMT podcast (US-based but with many international guests).
Planet Critical: A wide-ranging focus on many causes of the crises we're facing. There's also a fantastic episode focused on MMT.
Modern Money Lab: A YouTube channel with many incredible videos on many topics regarding monetary policy. We particularly recommend their episode with Randy Wray, "The History and Nature of Money".

This list was originally created by Sheridan Kates. It has been edited and shortened to increase accessibility.

Learn more about degrowth in the pages below: