MMT: what is modern monetary theory and will it work?

“Modern monetary theory” – or MMT – is all the rage among progressive thinkers, especially in the United States. What is it? And does it stand up to scrutiny? Stuart Watkins reports.

This article was first published in MoneyWeek magazine issue no 940 on 28 March 2019. To make sure you don't miss out in future, and get to read all our articles as soon as they're published, sign up to MoneyWeek here and get your first six issues free.

Back in 2015-2016, the Labour Party rounded up a panel of experts to advise it on economic policies that could lead the way out of austerity without indulging in profligacy. As a result, Labour adopted a "fiscal credibility rule", based on the work of academics Jonathan Portes and Simon Wren-Lewis. This meant committing to balancing day-to-day expenditure with revenue from taxes, to borrowing only to invest for the long term, and to reducing debt over a five-year period. Sounds sensible. But for proponents of “modern monetary theory” (MMT), this is exactly the same kind of wrong-headed thinking that led to austerity in the first place.

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Stuart Watkins
Comment editor, MoneyWeek

Stuart graduated from the University of Leeds with an honours degree in biochemistry and molecular biology, and from Bath Spa University College with a postgraduate diploma in creative writing. 

He started his career in journalism working on newspapers and magazines for the medical profession before joining MoneyWeek shortly after its first issue appeared in November 2000. He has worked for the magazine ever since, and is now the comment editor. 

He has long had an interest in political economy and philosophy and writes occasional think pieces on this theme for the magazine, as well as a weekly round up of the best blogs in finance. 

His work has appeared in The Lancet and The Idler and in numerous other small-press and online publications.