Question

Even though she has her own priorities on spending, Professor Kelton suggests that under Modern Monetary Theory (MMT) the government can spent the money on anything it wants. It can spend all of its money on guns and tanks rather than on butter and classrooms. Professor Kelton posits this idea to show that MMT (the idea that government can print its own money) is neutral and viable. Do you agree?

Answer 1

I don't agree with this just because the government can print its own money, it can spend its money on guns and tanks because the future trajectory of the economy depends on what the government spends on, if it constantly keeps on spending on guns and tanks, it will have to constantly keep on printing money because the output will be low of the economy as the government is not spending on productive resources which will create growth in the economy.

Even if the government can print its own money, if not implemented properly it can lead to extensive amount of inflation, which could prove harmful for the country as commodities will turn out to be expensive, with no clear cut investment by the government on increasing the level of output.

Thus all in all it is not neutral and viable because it has several repercussions in place which could prove detrimental for the economy, the government spending more on defense essentially means there is more discretionary spending, which it can be easily avoided, it also means less expenditure on development, which would lead to people dissolving the government as they are not benefiting by electing a particular government, which might cause further turmoil, less technological development because money is not being spent on productive resources, and all the more excessive spending on defense as common man will revolt which will create drastic negative impact on the future of the economy.