Modern Monetary Theory (MMT) has become a hot issue, especially after U.S. Rep. Alexandria Ocasio-Cortez stressed its importance in boosting public spending for education and medical services. The global economic slowdown, rising inequality and limited opportunity for additional monetary easing support a fiscal expansionary policy.
MMT claims that governments never default on their own currency-denominated debt because they have a monopoly on supplying the currency. Thus they should increase public spending to achieve full employment and price stability. Neither taxes nor bond issuance are necessary to finance public spending. Expansionary fiscal policy can be sustained until substantial inflationary risk emerges, which in turn can be controlled through a tax hike.
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