This post describes the difference between “the issuer of the currency has the unlimited capacity to spend” versus “the issuer of the currency will definitely spend without limit, which will definitely cause Economic Armageddon.”
When driving on a busy highway, driving far below the speed limit is dangerous. Driving far above the speed limit is also dangerous. Just… drive the speed limit!
(Acknowledging we can safely increase our speed to the legal limit is misinterpreted or twisted to mean that we recommend disabling the brakes and flooring it. This is the argument in the above tweet.)
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This post was last updated April 25, 2021.
Disclaimer: I am a layperson who has studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.
It sounds like there’s no upper limit to how much $$$$$$$ a monetarily sovereign country can spend. Is this true? Because it sounds unbelievable.
Yes, the issuer has unlimited capacity to spend. That doesn’t mean “spend endlessly.” It means “if you tell me the issuer can’t do what is desperately needed by millions (and for which we clearly have the resources and labor to do), and the only reason given for why it can’t be done is
- But, but, hoWreYoUgOnNaPaYfErIt?!,
- the national debt!!,
- the deficit!!!,
- inflation-the-boogeyman!!!!, or
then you are, at best, plainly incorrect.”
In other words, unlimited capacity to spend does not mean unlimited power. The issuer has plenty of severe constraints, but finance/money just happens to not be one of them. Most average people are simply unaware of what those real constraints are: our productive capacity to do what we want to do. When that limit is exceeded, it causes inflationary pressures. So inflation is the signal that we’re attempting to do to much. MMT is about replacing false financial constraints with real constraints.
Recognizing the currency issuer has the “unlimited capacity to spend” means only that we can safely increase spending for public purpose, as far as our productive capacity is not exceeded. If we wish to decrease inequality – to care for all and not just for some – then increasing federal spending (in this way!) is necessary and, in fact, desperately needed.
The inspiration for the driving analogy comes from this video by PEGS Institute (I prefer the idea of flooring it to becoming a rocket ship):
To be clear, however, spending and doing is not a monolith. We could be doing wayyyyy too much in one part of the economy, and waaaayyyy too little in another. This is obviously the case, as evidenced by our obscene inequality and impending… societal… collapse. (We can clearly do Medicare For All, a truly-bold Green New Deal, we can clearly cancel all student debt, and implement the MMT-designed job guarantee.)
- Monolith: Government is too big!
- Reality: We need to eliminate the bad from and increase the good in our government.
- Monolith: We have too many government regulations!
- Reality: We should eliminate bad regulations, and create/improve/enforce good ones.
- Monolith: We need term limits!
- Reality: We need to eliminate bad politicians and support the good. We do this by improving voting rights, eliminate gerrymandering, etc. Then voting would be the only term limits needed. (In the words of Neil Wilson: The plane works just fine. We need a new crew. In the words of Sam Levey: Even more than that, we need a new process by which we select our crews.)
- Monolith: We need to reduce the deficit!
- Reality: We need to spend more on good things and less on bad things. In other words, we need to reduce income inequality.
- Monolith: We need to reduce the national debt!
- Reality: We need to give wealth to the poor and take obscene wealth from the obscenely wealthy. In other words, we need to reduce wealth inequality.