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39 Cato J. 563 (2019)
Modern Monetary Theory: A Critique

handle is hein.journals/catoj39 and id is 572 raw text is: 













MODERN MONETARY THEORY: A CRITIQUE
                       Warren Coats

   Modern monetary theory (MMT) claims that government can
spend more freely by borrowing or printing money than is assumed
by conventional monetary theory. According to Mackintosh (2019):

     The most provocative claim of the theory is that government
     deficits don't matter in themselves for countries-such as the
     U.S.-that borrow in their own currencies .... The core
     tenets of MMT, and the closest it gets to a theory, are that the
     economy and inflation should be managed through fiscal pol-
     icy, not monetary policy, and that government should put the
     unemployed to work.

   MMT has become popular with Green New Dealers because it
claims to remove or at least loosen traditional constraints on govern-
ment spending.
   Although MMT makes much of its preferred way of looking at the
process of producing money, it does not credibly reveal more scope
for deficit spending without inflation. Its proposal to use taxation as a
monetary policy instrument ignores decades of efforts to separate
monetary policy decisions from fiscal/spending decisions in light of




   Cato jounal, Vol. 39, No. 3 (Fall 2019). Copyright © Cato Institute. All rights
reserved. DOI: 10.36009/CJ.39.3.4.
   Warren Coats is a Fellow of the Institute for Applied Economics, Global Health,
and the Study of Business Enterprise at The Johns Hopkins Krieger School of Arts
and Sciences. In 2003, he retired from the International Monetary Fund, where he
led technical assistance missions to more than 20 countries. The author thanks Jim
Roumasset, Jerry Jordan, Gerald O'Driscoll, Joseph Potvin, Robert Pringle George
Selgin, and Leanne Usser for helpful comments on earlier versions of this article. A
shorter version of this article appeared in the Cayman Financial Review, May 2019.

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