Some left-wing economists go even further by arguing for a new way of thinking about fiscal policy, known as Modern Monetary Theory.
MMT argues that fiscal policy makers are not constrained by their ability to find investors to buy bonds that finance deficits—because the U.S. government can, if necessary, print its own currency to finance deficits or repay bondholders—but by the economy’s ability to support all the additional spending and jobs without shortages and inflation cropping up.
Rather than looking at whether a new policy will add to the deficit, lawmakers should instead consider whether new spending could lead to higher inflation or create dislocation in the economy, said economist Stephanie Kelton, a Stony Brook University professor and former chief economist for Democrats on the Senate Budget Committee.
If the economy has the ability to absorb that spending without boosting price pressures, there’s no need for policy makers to “offset” that spending elsewhere, she said. If price pressures do crop up, policy makers can raise taxes or the Federal Reserve can raise interest rates.
“All we’re saying, the MMT approach, is just to point out that there’s more space,” she said. “We could be richer as a nation if we weren’t so timid in the use of fiscal policy.”