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A set of policy prescriptions based on Modern Monetary Theory (MMT) have been developed that are independent of the monetary model, which are often presented together, in a context that does not require taxation: guaranteed income, job guarantee and full employment. These are enabled by the ability of a government to deficit spend as needed, as long as government controls its sovereign currency. Here I raise the concern that implementing MMT accounting could cause increases in political power inequality relative to citizens not seen since the medieval era or before. The assumption that spending and tax policy in an MMT system would occur as proponents expect is contradicted by the history of political choices regarding spending and taxation over the past half-century. The record of behaviour by politicians in the nations where foreign aid money “fell from the sky,” thus divorcing national income from the tax base, also contradicts this idea. With removal of the formal requirement for taxation, politicians operating in an MMT system will have little inherent reason in the short term to treat citizens well except moral suasion. This should provide a foundation for tyranny unparalleled in modern history. Incorporating progressive taxation into MMT’s corpus, for the express purpose of economic and political stability, is suggested in order to achieve the overall aims of the MMT policy advocates. However, this may not be sufficient. In addition, considering increasing the role of governors/leaders of states within the monetary unions may be useful, because those governments do need to follow the old rules of taxation to support spending, and this may provide a counterweight.

Is Modern Monetary Theory’s prescription to spend without reference to tax receipts an invitation to tyranny?