Hi, today in the next episode of this series exponential economy we’ll be talking about modern monetary theory what it is found out after the break. What is a modern economic theory in short m t this is a kind of a new paradigm of thinking about economy about the role of the state in the economy and the financial and fiscal policy of the government, and this is a socialistic or communistic way of thinking about a government which becomes, unfortunately, more and more popular in today’s world. The traditional economy sees a government as a body that needs some money to sustain itself its activities. To fund the government, they need to tax the population to tax the people right.
It is not enough then that the government can think of course finance itself by debt issuing bonds and then getting money forums for the bonds and, of course, paying it later on when the economy grows. You know from the future earnings or for from the future taxation so to say. Still, the modern monetary theory has a different view of this reality and um of the relationship between government and the population. It generally states that the government can buy good services or any asset by printing its own money and without taxation.
Statement of MMT
Instead of uh introducing taxes or getting the money to spend, why should you text people you could print new money and pay that right and so this is the first one the second statement of MMT is that the government can’t go bankrupt. It can always print more money right, so if there is a debt payment. If the government can pay print new money and then pay for on that excellent debt pay off the debt and then get maybe new debt or whatever the only limiting parameter may be unemployment and inflation. Still, the modern monetary theory MMT says that unemployment is the cause of not enough money in the economy so if you provide more money to the economy you can reduce the unemployment or maybe eradicate the unemployment because then there is money people get money or businesses can get more money can employ more people. They can save more they can invest more, and that’s how you reduce unemployment so generally the only limit is the inflation that may follow if you put into the economy too much to too much money.
Then the fourth postulate of MMT is that you can reduce the inflation by taxation, so the tax is not needed to finance the government in that theory in that thinking it is necessary to withdraw the money from the market uh from the circulation uh that you have pumped into circulation generally by your spending as a government so by removing that money. The circulation you lower the inflation and the last postulate is that when you look at that from that perspective of what I have said before, the government doesn’t compete with the private sector for scarce resources or doesn’t need to compete.
Probability of Default
It can generally pay any price uh on the market. It could just print money and pay any fee for anything, so private sector can’t compete with government uh for buying anything um because it has to earn its money and government doesn’t have to make its money. It just prints the money right so that’s why for example you know you can get a hammer us army pays for a hammer over thousand dollars uh a hammer that you could get in a regular store for two or three five dollars maybe it’s a special hammer I don’t know maybe 10 15 right.
When you know um official when the state institution buys uh the same or similar merchandise similar goods they can pay 100 times as much as you would pay on a normal in a stock market as a private enterprise private company would pay for the same goods because they can you know they can spend as much as they want. They don’t compete with others right um. Alan Greenspan actually um the head of the fed once said the united states can pay any debt it has because we can always print money to do that so there is zero probability of default so if you followed these thoughts you would realize that in that part in that thinking taxation is not needed to fund the government.
It is only a policy tool to regulate inflation and unemployment. There are many technicalities of about MMT MMT is just let’s say a vision maybe a rough understanding of how the economy could work. Of course, how the government could work in today’s world, is not a pure MMT that governments use. They still issue bonds to get new money from the central banks they don’t bring the cash themselves. There is always the division between state and at least a formal division between state and a central bank, so in theory, governments can’t issue you know money by will. Still, in reality, they can but of course the um the consequence of that is inflation.