PART 3. Modern Monetary Theory

Inflation, the Barrier that Isn’t

Part Two outlined why the national “debt” and “deficit” are things we should not fear, but rather, embrace. The national “debt” and “deficit” are fundamentally different to debts and unbalanced budgets in the private market. This analysis has not addressed the elephant in the room, and the largest motivator of MMT controversy. Inflation.

MMT is too quickly dismissed by overly simplistic interpretation. It roughly follows:

“Currently, you might think the government taxes us and then uses those tax dollars to buy stuff. In MMT, because tax dollars are never actually spent, our government can buy whatever it wants and then worry about taxation later”.

Some part of MMT exists within this explanation, but it misses one of the most fundamental components of MMT.

MMT does not justify governments to always spend beyond their means. Yet, society and policy makers tend to misunderstand that taxation and government “debt” are fundamentally different to income and debt in the private market. As such, it is likely that through the lens of MMT governments would likely be able to provide society more than they currently do.

YES, fiat currency providers have unburdened themselves from the worry of default and budget balancing. It is their role to provide services to give the greatest benefit to society while managing price stability and unemployment.

YES, taxation isn’t a fund raising mechanism that limits what our government can spend, BUT it legitimises our currency, creates space for public service and this inherently manages inflation.

Inflation and unemployment are linked. High taxes and low public service provision creates a lot of “space” in our economy (low inflation, high unemployment), while low taxes and a high provision of public service creates little space or – perhaps – an “overheating” economy (higher inflation, lower unemployment). What is most appropriate for any given economy is dynamic and unique.

Yet how does this differ from the traditional way we look at our economy? Does it matter if taxation is thought of as a fundraiser or a way to manage employment? So long as we all agree that high inflation is bad, does is matter what the mechanics are?

The answer is a resounding, unequivocal, yes – it absolutely does matter.

Think of high inflation like a horrible leg disease that requires an amputation. Then calling on an economists who understands the principles of MMT is like seeing a surgeon. While calling on an economist with an ignorant view of the economy is like calling a veterinarian. They can both cut it off, but how much damage will be incurred elsewhere?

It seems the common argument against the introduction of any new public policy is that it is too expensive. Free tertiary education, increased benefits for those suffering from illness, increased subsidies for childcare etc. Any politician who makes such an argument should be lambasted. Of course we can afford it, the true debate should be whether there is “space” in our economy for such a policy.

Undoubtedly the biggest challenge facing humanity is climate change. This has contributed greatly to our loss of native vegetation and wildlife. To combat this, Bonnie Mappin from the University of Queensland has argued that for $2 BN AUD every year, for the next 30 years, 30% of lost native vegetation could be restored [11].

Under an MMT framework, the government of the day could create or support some entity to carry out this plan that would employ a number of academics, researchers and rural workers to carry out Mappin’s recommendation. The wages and resources for this program would be paid with new, or “printed”, Australian dollars. Unemployment would decrease by some amount and inflation caused by wage growth and increased resource demand would also increase.

The “cost” should not be recorded as $60 BN AUD ($2 BN * 30 years). That was the amount paid, but unlike a household where a cost prevents the purchase of something else, this program would not come at the expense of a new hospital or better resourced education. The true cost is how the economy adjusts to this new allocation of resources.

If the economy is running “hot” it may be difficult to justify such a policy. However, one must also consider that wages and inflation are not uniform. We often quote inflation and wage growth numbers as if they affect us all equally through the CPI. Yet we seldom discus the disparity between sectors and industries despite the information being just as available.

It is the COVID strained workers in the postal and transport industry who face the lowest wage growth in the nation, and those in the stimulus-funded and negatively-geared property industry who have the greatest wage growth [13].

This is nether inherently good nor bad. But when there are strikes and wage disputes across the transport industry [26,27], during one of the largest property rallies in our history, we must question the effectiveness of the targeted public service.

Mappin’s policy may increase wages and unemployment during a period of economic “overheating”. But, this will most directly affect those working in environmental science and in rural Australia.

If we consider the true cost of environmental protection as inflated wages in environmental science and lower unemployment in rural Australia (where it is much higher than urban areas, [29]), then politicians who proport that the cost of such policies is too great a burden should be met with great condemnation.

There is precedent to such an example. During the 1960s the spread of communism was considered an existential threat to the Western way of life. As a way to prove the supremacy of capitalism and to make expensive research in hypersonic missiles more politically palatable (yes, really [14]) the US government introduced the Apollo space program.

In today’s Australian dollars, the total cost of the space program was about a third of a trillion dollars. Through either a traditional or MMT lens, such a cost seems difficult to justify. Not only is the dollar amount massive, but in order to complete the program the government had to compete with the private market in order to obtain the highest-skilled labour.

Finding room in the economy for such a large public service is almost impossible without immense costs elsewhere. To manage this, the government forged an unprecedented relationship with industry groups that stabilised industry prices and wages. The result of this lead to the development of much of the technology that now exists in our personal computers and smartphones [6].

In the past governments have considered communism, hypersonic missiles and global pandemics to be egregious threats to society. In reaction, the public service stopped being viewed as something that had to be justified by taxation. Instead, it was funded like an essential service in the knowledge that inflation management should be prioritised before budget balancing. I argue that all public services should be managed in such a way. Starting with climate action. The reason this has not been the case is because we fear deficits and debt. It has been too easy for politicians to reject ideologically unpalatable policy as debt or deficit burdening without well-informed public scrutiny. It is true that new policies are debt and deficit burdening, but that isn’t bad, it is often wonderful. Like the Emperor’s New Clothes, MMT exposures political conservatism for what it is, bare-faced showmanship.

11. Mappin, Bonnie, et al. ‘Australia Could “green” Its Degraded Landscapes for Just 6% of What We Spend on Defence’. The Conversation, Accessed 14 Aug. 2022.

13. Wage Price Index, Australia, March 2022 | Australian Bureau of Statistics. 18 May 2022,

26. Parliament; address=Parliament House, Canberra corporateName=Commonwealth. ‘Australian Government Debt’. Text. Accessed 12 September 2022.

27. Australian Manufacturing Workers’ Union. ‘BCS Airport Workers Strike’. Accessed 12 September 2022.

29. Regional inequality in Australia and the Future of Work, 2018, ACTU

14. Hypersonic missions. (n.d.). Retrieved 28 September 2022, from Dreier, Casey. ‘An Improved Cost Analysis of the Apollo Program’. Space Policy, vol. 60, May 2022, p. 101476. ScienceDirect,

6. Kelton, Stephanie. The Deficit Myth. John Murray (Publishers), 2021.