DEBATE: Would Modern Monetary Theory be a viable strategy to boost the UK economy?

first_imgProfound changes have opened the door to creative policy-making in the UK. All the parties have abandoned fiscal belt-tightening, and the Bank of England has implicitly acknowledged that it will continue to support the financial system indefinitely through quantitative easing. Many governments have tried to live beyond their means via the printing press. (Getty Images) Main image credit: Getty Modern Monetary Theory (MMT) says that the government can fund as much public spending as it wants, simply by creating money. The problem is that if you monetise enough spending, you’ll eventually end up with too much money chasing too few goods, and inflation spiralling out of control. DEBATE: Would Modern Monetary Theory be a viable strategy to boost the UK economy? Would Modern Monetary Theory be a viable strategy to boost the UK economy? whatsapp Melissa Davies, partner and chief economist at Redburn, says YES. Tom Clougherty, head of tax at the Centre for Policy Studies, says NO. As an economy with a persistent current account deficit, it is arguably better for the UK to run a corresponding government budget deficit (which it can finance easily) than have it weighing on the private sector. The challenge would be where to direct these resources. If used effectively (say, to build new infrastructure), we could look forward to faster growth, more foreign investment, and better performance for UK assets. Opinion City A.M.’s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M. Share whatsapp Melissa DaviesMelissa Davies is partner and chief economist at Redburn. and Tom CloughertyTom Clougherty is head of tax at the Centre for Policy Studies. Many governments have tried to live beyond their means via the printing press. It has always ended badly. MMT offers nothing new — it certainly isn’t the Magic Money Tree that the British left has been searching for. Monday 25 November 2019 9:47 am MMT proponents say that inflation won’t happen while there’s “spare capacity” in the economy. But UK employment is already close to a record high. What’s more, inflation and “economic slack” can go hand-in-hand. It’s called stagflation, and we had it in the 1970s. They also suggests using fiscal policy to control inflation, with taxes rising to choke off “excess demand”. But a democratic government will struggle to hike taxes when people are already feeling the pinch from ever-higher prices. More From Our Partners Police Capture Elusive Tiger Poacher After 20 Years of Pursuing the Huntergoodnewsnetwork.orgRussell Wilson, AOC among many voicing support for Naomi Osakacbsnews.comFort Bragg soldier accused of killing another servicewoman over exthegrio.comAstounding Fossil Discovery in California After Man Looks Closelygoodnewsnetwork.orgMan on bail for murder arrested after pet tiger escapes Houston homethegrio.comNative American Tribe Gets Back Sacred Island Taken 160 Years Agogoodnewsnetwork.orgColin Kaepernick to publish book on abolishing the policethegrio.comBrave 7-Year-old Boy Swims an Hour to Rescue His Dad and Little Sistergoodnewsnetwork.orgA ProPublica investigation has caused outrage in the U.S. this weekvaluewalk.com Under these circumstances, politicians may be increasingly attracted to the ideas of Modern Monetary Theory, which argues that a large government deficit isn’t a problem in itself, since it can always be financed by reserve creation (where the Bank of England effectively prints money to fund the government).last_img

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