Monetary and Fiscal Policy for Sovereign Currencies: What Should Government Do?

In this chapter we will turn to what government ought to do. This chapter will specifically treat only sovereign government — one that issues its own currency. From the chapters above, that will make it clear that we are addressing only a government that does not face an affordability constraint. In this chapter we will examine alternative views about the proper role for government — given that it can “afford” anything for sale in its own currency. We first look at five reasons why government spending ought to be constrained. We then compare and contrast a typical “conservative” versus “liberal” view about the scope of government. (These terms are used in the American sense, which is somewhat idiosyncratic. The liberal view in the United States is closer to the progressive, Social Democrat, “left” view in Europe; the conservative view is closer to what is called “liberal” or even “neoliberal” outside the United States.) In the next chapter we examine an example of a government program that is consistent with the MMT view of sovereign money — one that uses the principles we have established in previous chapters to resolve the problem of unemployment in a manner that is consistent with both the liberal and the conservative views.