A macroeconomic framework that says governments that create their own fiat currency such as the United States and United Kingdom do not have to worry about national debts. The belief is they are not constrained by the revenues brought in through taxation.
The tenet starts with the idea that governments create new money by using fiscal policy. MMT proponents believe the biggest risk of full employment is inflation (price increases). It core idea is to reduce the spending ability of the private sector through taxes.
Many mainstream economists reject the idea of MMT.
One immediate drawback of the theory is the fact that governments spend just like the private sector. Thus, even increasing taxation, draining the money from the private sector, will not result in demand for goods and services since governments continually spend.
Another issue is that misguided notion that governments do not rely upon taxes or debt to finance the spending. The theory states that there is a monopoly on the currency which allows them to print as much as they want.
Deficit spending is funded through the sale of bonds. That is debt financing. So the idea of simply "printing" currency is used to pay for fiscal spending is not accurate.
If these governments were not following this path, why are national debts increasing?
Some of the main tenets are as follows:
- Large government debt isn't the precursor to collapse as we were taught
- Countries like the US can sustain much larger deficits
- Small deficits or surpluses are negative as deficit spending is how people amass savings
The Richmond Fed issued a brief about MMT and Government Financing.