For Overspending Governments, an Alternative View on Borrowing Versus Raising Taxes

Under conventional economic thinking, a government that spends more than it collects has two unpleasant choices: borrow or raise taxes. An alternative view, Modern Monetary Theory, is more accommodating of deficit spending. MMT is taking hold among U.S. politicians whose wish lists include guaranteeing everyone a job, fixing infrastructure, making higher education loan-free and ensuring everyone has access to health care. The invigorated progressive wing of the U.S. Democratic Party is using MMT to push back against decades of fiscal hawks saying the nation can’t afford large-scale social projects such as the recently proposed Green New Deal.

Its main argument is that countries that have their own central banks and borrow in their own currencies -- the U.S., U.K., and Japan, for example -- can’t go broke and don’t need to be so worried about overspending. This isn’t such a departure from mainstream political thought. The U.S. has run surpluses in only 12 of the last 77 years, and Republicans -- members of a party once known for challenging too much government spending -- cut taxes and raised military spending under President Donald Trump, adding more than $1 trillion to the deficit. America’s creditors show no signs of worry about the government’s ability to pay its bills, as judged by the yields on the nation’s benchmark notes.