Modern Monetary Theory (MMT) is an economic perspective that has risen in popularity in recent years. It is beginning to have more of an influence on government spending decisions as proponents have become more common within the US and UK government. Essentially, MMT argues that monetary sovereign nations (currency-issuing nations like the UK and US) are wrong to treat the national debt in the same way a household would. Treating the national debt like a burdensome household debt is wrong. It leads us to impose arbitrary spending limits on our own government that has unlimited capacity to create money to finance spending. MMT tells us to look at government spending through the lens of real resource limitations that when exceeded, lead to inflation. Removing spending restrictions on the fiscal budget may allow us to directly address more issues in the economy as “how are we going to pay for that?” is no longer the issue. The deployment of MMT’s insights in government spending could allow our government to address the many Environmental, Social and Governance (ESG) issues that are faced in the economy.
The MMT perspective does not mean that the government has unlimited ability to spend. Rather, it asks us to consider the real limits of the economy that are defined by real resources. Through this perspective, financing new spending is no longer a problem. To capture this potential would be to go a lot further in our efforts of solving the climate crisis as well as other humanitarian ‘deficits’ in education, infrastructure and employment that are often overlooked due to spending restrictions. This becomes even more important in the wake of the Covid-19 pandemic where huge spending packages have increased the national debt to 113.6% GDP the highest in the early 1960s. The dangerous rhetoric surrounding the need to reduce spending to finance the debt has been rising. Government spending restrictions cause all sorts of damage to peoples lives, their education and training, healthcare, transport, police protection to name a few. More important than all of these now is dealing with the climate crisis that faces humanity. The MMT perspective to government spending could allow the UK to aim more ambitiously with spending on climate solutions. Recent plans to cut emissions by 78% compared with 1990 levels by 2035 are good, but further increasing investment in our renewable energy production capacity would be a smart way the UK government could employ the insights MMT gives.
Utilising the MMT perspective gives the UK government an opportunity to unequivocally change lives. Unfortunately, economic insights such as these are often overlooked as the inescapably political nature of government spending choices takes over. National debt and spending restrictions put in place in order to finance said debt are all too often used as a political tool that justifies spending in one place and denies it in another. MMT does not suggest that you can ‘have your cake & eat it’ and it does not mean that we have a magic money tree that can make everyone rich. It simply asks us to consider the real limits of our economy that are defined by the productive capacity. The current, often politically charged, restrictions on government spending damages people’s lives with no real gain. The national debt is not the same burden on the economy that it is often made out to be.