Modern Monetary Theory (MMT) is an economic framework that provides an alternative understanding of government spending, taxation, and the role of the [[money supply]] in a modern economy. MMT challenges some of the conventional wisdom in mainstream macroeconomics, particularly the focus on budget deficits and [[national debt]]. The key tenets of MMT include: 1. **Currency sovereignty**: MMT emphasizes that countries with a sovereign currency, meaning they issue their own [[fiat currency]] and have a floating exchange rate, have more financial flexibility. These countries can't "run out" of money because they can always create more currency to fund government spending. 2. **Government spending and taxation**: In MMT, government spending is seen as a way to inject money into the economy, while taxation is a way to remove money and control [[inflation]]. Unlike mainstream [economics](https://doctorparadox.net/category/economics/), which emphasizes the need for a balanced budget, MMT argues that deficits can be beneficial and necessary for economic growth, especially during recessions. 3. **Full employment**: MMT proponents believe that the government has a responsibility to ensure full employment by using its spending power. One policy proposal to achieve this is a federal job guarantee program, which would provide a job to anyone who wants one at a fixed wage, effectively creating a wage floor and reducing involuntary unemployment. 4. **Inflation and interest rates**: MMT argues that inflation is primarily driven by demand-side factors, such as the available resources and the overall spending in the economy. As long as there is enough productive capacity in the economy, the government can spend without causing inflation. MMT also downplays the role of [[central banks]] in controlling inflation through interest rates, suggesting that fiscal policy should play a more significant role in managing the economy. 5. **National debt**: MMT contends that the national debt is not inherently problematic for countries with currency sovereignty, as it is essentially a record of the money the government has spent into the economy but not yet taxed back. The primary concern should be the potential for inflation rather than the size of the national debt. Critics of MMT argue that its policy prescriptions could lead to runaway inflation, fiscal irresponsibility, and diminished central bank independence. However, proponents maintain that MMT offers a more accurate understanding of the modern monetary system and can guide better fiscal and monetary policies. See also: [[fiscal policy vs. monetary policy]]