What is Degrowth?
This page presents a definition of degrowth that goes beyond the mainstream narrative, weaving together the rich tapestry of ideas, struggles, and movements that have shaped its evolution. Here, we …
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).