Modern Monetary Theory: Cautionary Tales from Latin America

Author
Sebastian Edwards
Content Type
Journal Article
Journal
The Cato Journal
Volume
39
Issue Number
3
Publication Date
Fall 2019
Institution
The Cato Institute
Abstract
dea has emerged in economic policy circles in the United States: “Modern Monetary Theory” (MMT). The central tenet of this view is that it is possible to use expansive monetary policy—money creation by the central bank (i.e., the Federal Reserve)—to finance large fiscal deficits, and create a “jobs guarantee” program that will ensure full employment and good jobs for everyone. This view is related to Abba Lerner’s (1943) “functional finance” idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts.
Topic
Debt, Monetary Policy, Populism, Banks, Economic Policy, Inflation
Political Geography
Latin America