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Debt and Deficits—A Modern Monetary Theory Perspective

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  • William F. Mitchell

Abstract

COVID‐19 has triggered the most severe economic crisis since the 1930s. The resulting policy shift is diametric to what mainstream macroeconomists have been advocating for decades. We argue that their framework underestimates the fiscal space available to governments and cannot provide an understanding of the consequences of these policy extremes. We introduce modern monetary theory (MMT), which disabuses us of the claims that deficits and debt are to be avoided. MMT defines fiscal space in functional terms, in relation to available real resources that can be brought back into productive use, rather than focusing on irrelevant questions of government insolvency.

Suggested Citation

  • William F. Mitchell, 2020. "Debt and Deficits—A Modern Monetary Theory Perspective," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 566-576, December.
    • Handle: RePEc:bla:ausecr:v:53:y:2020:i:4:p:566-576
    DOI: 10.1111/1467-8462.12400
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    Cited by:

    1. Osband, Kent & Filoso, Valerio & Capasso, Salvatore, 2024. "The limits of limitless debt," Journal of Macroeconomics, Elsevier, vol. 79(C).

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