Modern monetary theory (MMT)

A school of economic thought which argues that a government, which can borrow in its own currency, can issue as much debt, and run as large a deficit, as it likes, subject only to the constraint of higher inflation. The government does not have to worry about financing its deficit, since the central bank can buy the extra debt, or indeed just create the required money. Only if the economy is at full capacity will this credit creation lead to inflation. Adherents to MMT tend to believe that the business cycle should be managed with fiscal policy rather than interest rates. Orthodox economists are dismissive of MMT: see this article and our Schools Brief.