MMT is only applicable to countries that the majority of their debt in their own currency such as the USA or UK. It doesn’t apply to countries without their own currency (like Greece), countries that peg their currency (like Venezuela), or countries with large debts in another currency (like the Weimar Republic).
The main principle is that spending should be limited by inflation not the deficit, and that most countries are not realising their full potential by running below target inflation.
MMT is most popular with the left but shouldn’t be. There’s no reason the additional capacity it allows couldn’t be used to pay for tax cuts, military spending or immigration control.
Spending is still balanced by taxes, as spending is inflationary and taxes are deflationary.
Running a deficit is adding money into circulation, whereas running a surplus is taking money out of circulation. Running a surplus for too long will deprive the economy of the money it needs to function and cause a depression (this, trying to run a balanced budget, creates a similar problem that the UK had when on the Gold Standard - the amount of money in circulation was fixed by the amount of gold in the Bank of England and the economy couldn’t grow without enough money in circulation to support it)
Every pound taxed or spent is not equally deflationary or inflationary, e.g. £2 billion in spending on infrastructure would be relatively inflationary, but raising a £2 billion wealth tax on the rich would only be very lightly deflationary as the rich spend proportionally little of their wealth so the money taxed wasn’t in circulation to begin with.1
Quantitative Easing is not inflationary because the BoE is simply swapping gilts into pounds then holding onto the gilts, private sector net wealth stays the same and the gilts are removed from circulation indefinitely. If anything it would be slightly deflationary as it is cutting off the interest payments into the economy.
Full employment can be achieved without creating 1970s style wage-push inflation by replacing the minimum wage with a ‘National Employment Service’ that pays a fixed wage for anyone who wants a job.
Loc 1131↩