As modern monetary theory's political stock has risen, so has the temperature of debate about it
That perspective is not always clear; there is no canonicalmodel. But there are some central ideas. A government that prints and borrows in its own currency cannot be forced to default, since it can always create money to pay creditors. New money can also pay for government spending; tax revenues are unnecessary. Governments, furthermore, should use their budgets to manage demand and maintain full employment .
To those versed in orthodoxy—in which governments must eventually pay for their spending through taxes—these ideas sound bizarre. This strangeness is partly a result of’s adherents is sometimes like watching a football match with friends who insist the ball remains stationary while every other element in the game, including the pitch and goalposts, moves around it. Communication is made harder still byers’ sparse use of mathematical models.
Economists recognise that their models have shortcomings, and that monetary policy is not all-powerful. But most economists have long held that macroeconomic policy should stabilise the economy with the lightest possible touch, the better to let markets allocate resources. Other means can then be used to tackle reckless lending, market failures or inequality.You might suppose that the feud could be settled by testing rival claims. Alas, macroeconomics rarely works this way.
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