Why Government Spending Can’t Turn the U.S. Into Venezuela

Faculty

Inflation and poverty are two subjects that Associate Professor of Economics Fadhel Kaboub examines through the lens of Modern Monetary Theory (MMT).

In a recent article in “In These Times,” Kaboub argues that “MMT points to a different primary cause of inflation in developing countries: not domestic spending, but foreign debt and a resulting lack of ‘monetary sovereignty.’”

“A country has full monetary sovereignty when it has its own national currency that is not fixed to the value of gold or another nation’s currency; it uses that currency to impose taxes, fees and fines; and all its debt is payable in that currency. Countries that meet these criteria, like the United States and Japan, face no external constraints on government spending, as Pavlina R. Tcherneva explains. The risk of inflation remains under control so long as government spending does not outpace the economy’s real productive capacity—the availability of physical resources, skilled labor, equipment and technical know-how.”

“For developing countries, the problem begins with trade deficits and resulting debt owed in foreign currencies.”

Posted Date 
Thursday, January 17, 2019

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