1. Myth: Governments must balance their budgets like households or businesses.
Debunked: MMT explains that governments, especially those that issue their own currency (like the U.S. with the dollar), do not need to balance their budgets in the same way households or businesses do. Since they control the currency, they can create more money to fund spending without facing the same constraints as individuals or private entities.
2. Myth: Deficits are inherently bad and must be avoided.
Debunked: MMT argues that deficits are not inherently harmful and can be used to stimulate economic growth and full employment. The real constraint on government spending is inflation, not the size of the deficit. As long as inflation is controlled, governments can run deficits without causing long-term harm to the economy.
3. Myth: Government spending leads to inflation and financial collapse.
Debunked: While MMT acknowledges that excessive spending can lead to inflation, it stresses that inflation is the key constraint, not the budget deficit itself. A sovereign government can avoid inflation through strategic taxation, managing resource constraints, and ensuring productive capacity in the economy is fully utilized before inflationary pressures build up.
4. Myth: Raising taxes is necessary to fund government spending.
Debunked: According to MMT, taxes are not needed to fund government spending, but rather to manage inflation, control demand, and encourage or discourage certain behaviors (e.g., carbon taxes to fight climate change). Government spending is instead limited by inflation, not revenue.
5. Myth: Printing more money leads to uncontrollable hyperinflation.
Debunked: MMT asserts that inflation can be controlled through appropriate policy tools like taxes and regulation, not just by limiting money supply. Hyperinflation happens in specific situations, such as when there’s a collapse of confidence in the currency, but MMT argues this is avoidable with sound policy and fiscal management.
6. Myth: High public debt leads to a financial crisis.
Debunked: MMT argues that sovereign debt is not like household debt. Governments that issue their own currency can always make payments on their debt by creating more money, which avoids default. The primary risk is inflation, not insolvency.
7. Myth: Full employment policies are unaffordable.
Debunked: MMT advocates for policies like a job guarantee, where the government ensures employment for all willing workers. This is affordable, according to MMT, because the government can fund these programs through its control of the currency. Unemployment is seen as a failure of policy, not an inevitable economic condition.
8. Myth: Social programs and welfare are unsustainable due to government debt.
Debunked: MMT suggests that government social programs are not constrained by revenue. The government can finance these programs through its capacity to create money, and they can be designed to avoid inflation by using progressive taxation or other policy levers.
9. Myth: Monetary policy (interest rate control by central banks) is the only tool to manage the economy.
Debunked: MMT shifts the focus away from monetary policy as the main tool of economic management and emphasizes fiscal policy (government spending and taxation) as more effective in managing economic activity, particularly in achieving full employment and price stability.
10. Myth: A government that spends too much will drive up interest rates.
Debunked: According to MMT, the government does not face the same constraints as private borrowers. Sovereign governments that issue their own currency are not subject to the same interest rate pressures because they can always create the money needed to fund their spending. Interest rates are more influenced by central bank policy than by the level of government spending.
11. Myth: Foreign investors must finance government debt.
Debunked: MMT points out that a sovereign government that issues its own currency does not need to rely on foreign investors to finance its spending. The government can create the currency it needs domestically. This is a key distinction between sovereign debt and corporate or household debt, which does rely on external financing.
12. Myth: Budget surpluses are necessary for economic health.
Debunked: MMT argues that running budget surpluses can actually harm an economy by reducing the money supply and lowering aggregate demand. In fact, in a modern economy, large-scale surpluses can lead to stagnation and underemployment.
13. Myth: Inflation control requires austerity or reducing government spending.
Debunked: While traditional economic thought might argue for austerity to reduce inflation, MMT emphasizes that inflation can be managed by using fiscal policy tools, such as taxation and price controls, rather than cutting government spending. Austerity can harm economic growth and increase unemployment without necessarily controlling inflation.
14. Myth: MMT is just about printing money and has no real-world application.
Debunked: MMT is not about mindless money printing; it is a comprehensive framework for understanding how modern economies work, particularly with respect to sovereign money creation and its implications for fiscal policy. The theory includes careful management of inflation and recognizes the importance of full employment and productive capacity.
