Modern Money Theory policymaking praxis: a response to critics

Modern Money Theory (MMT) policy recommendations are said to promote fiscal dominance and irresponsible budgeting, and to misjudge or ignore the institutional existing constraints. As such, MMT is argued to provide a poor framework to manage policymaking. This chapter shows that MMT advances a practice of policymaking that emphasizes the political and economic constraints, and that rejects policy debates and decisions based on the logic of private finance. When a government is monetarily sovereign, the central bank (which may be highly independent) and the Treasury (that may not have direct access to central bank financing channels) work routinely together. Seeking to balance the budget and courting the taxpayers and wealthy are not proper ways to conduct policymaking. Instead, policymakers should independently set spending, taxation and public debt policies to meet the public purpose according to the economic and political constraints that exist in a society.