Investment Innovation Institute has the article MMT – In Conversation with Bill Mitchell.

Here is Modern Money Theory (MMT) condensed into the smallest nut shell I have ever seen.

“What do taxes do? Taxes create, what I call, the ‘real resource space’, in which governments can spend and not cause inflation,” he says.

The article has a really good explanation of this, but I will try to put it in my own words as an alternative explanation.

When a government decides it wants to get something done, it needs to see if there are unused resources available in the economy to do it. If the resources are all being used for private purposes, it needs to get the private sector to stop using those resources so that the government can use them. It frees up the economic resources by raising taxes on the private sector to stop the private sector from using those resources. That is the meaning of creating real resource space.

Sometimes, there are unused resources already available. In that case, the government does not need to raise taxes to shift the resources to government purpose. In that case the government just has to create the money to pay for those resources.

When there are idle resources such as unemployed people, the government can put money into the economy to get the private sector to use those resources. John Maynard Keynes explained that recessions and depressions are exactly those situations. For reasons he explained, it makes little difference how much money the government pumps into the economy, the private sector is not going to use that money to employ those people. In that situation, the government has to employ those people itself. It can employ those people for useful purposes such as building roads, hydroelectric power stations, and the like. This usage does double duty. It employs people, and it increases the productive capacity of the country. Eventually, the private sector will be able to employ those people and the newly built infrastructure. and the government can back off its own attempts to use the resources.

A good national government budgetary process would start by deciding the goals the government wants to achieve. Then it can determine what resources are available to achieve those purposes. Then it can decide how much it has to tax to make the requisite resources available for its purposes. The government also has the option of lessening its use of resources for less productive purposes, and instead use them for more productive purposes.

This is exactly the process that many progressives are suggesting for our future. They are looking at the country’s situation, and deciding what needs to be done. Then they determine how to make the resources available to get that job done. Then they get the government to spend the money on these projects. The people who tell you the government does not have the money to do what you want it to are either lying to you, or they just don’t know how to run a federal government.

July 16, 2019

I wonder if this longer excerpt makes Bill Mitchell’s comment more self-explanatory.

But wait a moment, isn’t government spending paid for by taxes?

Well, no, MMT says. Taxes don’t pay for anything. Taxes are used to reallocate resources from the private sector to the public sector, a subtle yet important difference, Mitchell says.

“What do taxes do? Taxes create, what I call, the ‘real resource space’, in which governments can spend and not cause inflation,” he says.