Modern Money Theory and economic theory

Some argue that Modern Money Theory (MMT) is not a theory. Others accept that there is a theory but that there is nothing new or that, if there is something new, it is invalid and misleading. As a consequence, MMT is supposed to provide a poor framework to understand government finances and the role of government in the economy. The chapter shows that MMT relies on a rich theoretical tradition and that mathematical models do exist. MMT notes that two macroeconomic stylized facts are that the government runs fiscal deficits and the domestic private sector runs surpluses. MMT explains these stylized facts. MMT provides an institutional analysis of the coordination between the central bank and the Treasury, which leads to an analytical simplification that fuses them. Such consolidation shades light on the macroeconomic role of taxes and public debt policies and the impact of the fiscal balance on the economy.