Up until recently, the degrowth movement has given little attention to macroeconomic theory. Yet, contributions on the macroeconomics of a degrowth transformation in the global North and South are increasing. In this essay, we will discuss a novel macroeconomic theory in relation to engendering a decolonial degrowth transformation, i.e. Modern Monetary Theory (also known as MMT). We hereby tap into a broader ongoing discussion on how to pay for a social ecological transformation when rich nations aren’t able to grow anymore.

The MMT proposition

MMT has praisefully been described as a ‘macroeconomic theory profound enough in its implications to usher in a new societal paradigm’ and ‘macroeconomics done properly’.

MMT theorists begin with separating nations into those that are monetary sovereign and those that are not. For a nation to be monetary sovereign, it needs a) to issue its own currency, b) collect taxes in the same currency c) only issue bonds denominated in that same currency with no significant government borrowing in foreign currencies and d) not have a forcibly fixed exchange rate. Monetary sovereignty matters since whoever controls a currency gets to decide how labor and resources are used. MMT theorists point out that governments that control their own currencies are not like households. Contrary to what is argued by neoclassical economists, they do not have to “balance their budgets”, and do not have to tax, issue government bonds or sell assets before they can spend. In essence, a state that controls its own currency creates new money whenever it spends.

From the perspective of MMT, governmental spending is not limited by public debt but rather by inflation. Indeed, the topic of inflation is often brought up by MMT critics, who claim that printing money will inevitably cause inflation because ‘more money is chasing the same goods and services’. Nevertheless, mainstream neoliberal institutions, including the European Central Bank, have been notoriously bad at predicting inflation rates. The US federal reserve recently admitted that it does not actually understand what drives inflation. MMT as laid out by scholars like William Mitchell, Stephan Williams and Fadhel Kaboub offers a more comprehensive and empirically convincing theory of inflation.

According to MMT, inflation can be understood as a situation where demand surpasses a country’s real resource base (i.e. its productive capacity). As such, from an MMT perspective, government spending can be indeed a driver of inflation, since it will increase demand (there is more money circling around in the economy). However, if this public money is spent in a way that enhances or better utilizes the productive capacity of the country (creating solar panels, improving the health care system, insulated public housing etc.) inflation can be curtailed. In other words, there is more money chasing more (meaningful) goods and services. Furthermore, if a country’s productive capacity actually reaches its limits, inflation can be controlled by taxation, taking out excess demand from the economy.

There is, however, a second driver of inflation: concentrated economic power. There is substantial empirical evidence showing that inflation is driven by cartels and monopoly capital that disproportionately drive up their prices to increase their profits, therefore appropriating a larger share of income away from common people. We can see these dynamics at play right now, as people throughout the European Union are experiencing record high energy prices while the fossil fuel industry is recording record profits.

The solution for this problem is simple: to break up forms of elite economic power that can arbitrarily raise prices by taxing or regulating it away – either as a desirable policy in its own right, or to simultaneously alleviate excess demand from the economy. A less radical solution are price controls. Either way, monopoly pricing can be addressed directly by government policy.

Combining these insights, MMT shows that the government can spend how much it wants on desirable sectors of the economy (healthcare, education, green energy) and tax away any excess demand from undesirable sectors of the economy (luxury consumption, fossil industries, capital monopolies, military industries). From an MMT perspective, the purpose of taxation is not to fund government spending, but rather to reduce excess demand and break up the concentration of economic power.

The class realities of inflation

To be clear, MMT is a description of how the economy actually works, not necessarily a policy prescription. These very same insights can be used for reactionary agendas. As Ali Kadri argues, for example, the Pentagon currently functions in the same way, as a balancer for the capitalist economy, allowing the government to spend trillions directly in the corporatized military-industrial complex. As the rapper Tupac Shakur famously said: ‘There is money for war, but they can’t feed the poor.’ The challenge, then, is to use MMT insights for eco-socialist ends, rather than for destruction, domination and private profits.

Clearly then, we also need to be sceptical of the centrist obsession with inflation, which is regularly used to argue against higher wages and social policies. Inflation itself matters much less than distribution. Income is in essence the obverse of prices. Therefore, there will always by definition be enough income to purchase all commodified goods and services and there will never be a deficit of purchasing power in the economy. What matters is distribution. More specifically, an equitable distribution of purchasing power. Who is actually able to purchase the goods and services within our economy?

Such a view reveals the class dynamics of inflation: without additional social arrangements, inflation will lead to a situation where the rich have more to spend, increasing their command over resources, leading to a cost-of-living crisis for ordinary people like we are seeing today.

In essence, inflation should be understood as a crisis of distribution, not of income or prices per se. Social policies, such as universal public services and taxing or regulating away capital monopolies, can address these inequalities at source, making inflation a secondary issue at best.

In fact, the very policies prescribed by the Washington consensus to tackle inflation only make matters worse. Raising interest rates across the board to tackle inflation only increases inequality, leading to higher profits in the financial sector and lower investments in the economy, which leads to lay-offs and unemployment and  concurrent lower wages because of the worsening bargaining position of labour. Even mainstream establishment journals such as Foreign Policy Magazine openly call it ‘class war.’ Yet, this is exactly what the European Central Bank and the Federal Reserve are doing right now to combat the soaring inflation in the European Union and the United States.

All of this shows that the real limitations of an economy are physical, not fiscal. There are no excuses for governments to avoid social and ecological policies except for hard physical boundaries, such as the amount of resources available and the productive capacity to use them. This requires diligent planning and organization in the real world. ‘Balancing the budget’ and the poltergeist of inflation are nothing but a ruse.

MMT and degrowth in the Global North

It goes without saying that degrowth requires addressing common perceptions that uphold our current economic growth dependency. Many of such beliefs are in fact related to national government debt and a state’s budget balances. The MMT perspective reveals that if countries are monetary sovereign, these concerns are ungrounded.

Rather, when acknowledging national governments’ massive power (in a situation of monetary sovereignty) to shape and control their economies using the levers of monetary and fiscal policy, ushering in a just degrowth transition becomes way more achievable than currently thought. By tomorrow, any monetary sovereign government could establish generous, high-quality universal basic services, a public job guarantee and a rapid roll out of renewable energy infrastructures while regenerating ecosystems. MMT shows us that it can never say it does not have the money to set up such policies.

Moreover, understanding inflation as a crisis of distribution that increases the cost of living for the majority of the population, reveals that key degrowth policies like strengthening the commons and introducing universal basic services would in fact have a deflationary effect for ordinary people since they reduce the cost of living. MMT’s perspective on income as the obverse of prices, shows that when we agree on which sectors of the economy we want to scale down and which goods and services we need to meet everyone’s needs, there will always be enough income to purchase everything that remains commodified. And of course, that which is not commodified, can be distributed as a society itself chooses to.

MMT and decolonization of the global South

Besides strengthening the call for degrowth in the global North, MMT can serve as a powerful tool to achieve full decolonization of the global South. We know that at present, Southern labor and resources are organized around the economic interests of the imperialist world, representing a drain since the 1960s worth 152 trillion dollars. We also know that most Global South countries currently rely heavily on external finance through their debt to foreign creditors in currencies they do not control themselves. In other words, they are captive to the demands of international capital and are all but monetarily sovereign.

As the Tunisian economist Fadhel Kaboub shows, applying an MMT perspective to break free from this imperial arrangement first of all means seeing inflation in the South as mostly being ‘imported’ from currency exchange rates and trade imbalances. In turn, these trade imbalances are caused by colonial relations, which lead, firstly, to colonized countries mainly exporting raw materials while importing processed or high-technology goods at a much higher price and, secondly to currency depreciation. While colonized countries lack food and energy sovereignty, they are forced to import increasingly expensive vital life-lines from abroad. Since such a reliance on foreign currency and imports increases the risk of inflation, reducing this dependency decreases it.

MMT shows that governmental spending could be directly used to invest in energy and food sovereignty that would overcome foreign dependency. However, the debts owed in foreign currencies force formerly colonized countries to produce short-term export-oriented raw materials instead. Some progressive MMT scholars as Kaboub for example therefore call for a debt default by the Global South, something long overdue considering the massive colonial, neo-colonial and climate debts that the Global North owes the South.

In the initial phase, especially in the case of a unilateral default, imposing capital controls to maintain finance within a country becomes crucial. The potential fallout from Western sanctions and capital flight could be managed by investments in the import-sectors we want to replace in the first place as well as south-south cooperation, where terms of trade are much more equal and where relevant goods are increasingly available. In the words of MMT economist Fadhel Kaboub: ‘you can’t decarbonize what has not been decolonized’. A Green New Deal in the Global North without an anti-imperialist framework would set up the majority of the world as a green sacrifice zone.

Importantly, food, energy and economic sovereignty have always been bed-rock demands of anti-imperialist movements since the days of Kwame Nkrumah, Thomas Sankara, Samir Amin and the New International Economic Order. And they have remained highly relevant to this day. Venezuela, for example, has been hit hard by the persistence of colonial-era food dependencies and raw material exports, making it especially vulnerable to imperialist sanctions from the United States. In Venezuela too, inflation is regularly triggered before election time, driven by comprador elites arbitrarily hoarding products or raising prices. An MMT-perspective automatically infers the necessary policies that overcome these obstacles, such as nationalizing comprador firms, breaking up their monopolies, and investing in Cuban-style agroecology to decrease dependence on food imports.

Importantly, however, imperialism maintains more tools than just capital flight and sanctions. When economic subversion fails, assassination, coups, invasions and psychological warfare are never shunned. Thomas Sankara, who publicly preached for a collective debt default by the African Union, was assassinated with the complicity of US and French intelligence shortly after giving his A United Front Against Debt speech in Addis Ababa. Since the Second World War, the United States has attempted to overthrow at least 70 foreign governments.

As such, any real solidarity movement must recognize that implementing a global decolonial degrowth framework will also require abolishing the military-intelligence-banking complex that is subverting the sovereignty of the South. These firms can be abolished, regulated and nationalized within an MMT framework in the North – not to ‘pay for the policies we want,’ since that is not the actual function of government revenue – but because it is just. The Global South can rebuild its independence within their own MMT framework, focussed on eco-social energy, food and economic sovereignty. As such, MMT offers powerful insights to dismantle imperialism.

Crucially, since MMT is descriptive, not prescriptive, MMT is neither inherently pro-growth nor post-growth. Yet, as Stephen Williams and Samuel Alexander have put it in MMT, post-growth economics, and avoiding collapse, “when MMT is understood, post-growth policy options expand dramatically and become more viable, while the dominant neoclassical model is seen to be a kind of ideological straitjacket”. This position was recently reiterated by Christopher Olk, Colleen Schneider and Jason Hickel in their recent article How to Pay for Saving the World: Modern Monetary Theory for a Degrowth Transition.

A decolonial degrowth transformation needs a macroeconomic theory based in social and biophysical reality rather than myth. It seems to us that MMT offers us exactly that: an important insight in the monetary system that opens up tremendous possibilities: for a universal basic income, public job guarantees, agro-ecological food sovereignty, renewable energy independence, labor-intensive Cuban-style healthcare, and much more. The only limit is our capacity to organize and put the rightful arrangements in place in the physical world. Let’s never let a banker make us believe otherwise.


Teaser photo credit: Landing of Pedro Álvares Cabral in Porto Seguro, in 1500. This work is in the public domain in its country of origin and other countries and areas where the copyright term is the author’s life plus 70 years or fewer. This work is in the public domain in the United States because it was published (or registered with the U.S. Copyright Office) before January 1, 1927, via Wikipedia at https://en.wikipedia.org/wiki/File:Desembarque_de_Pedro_%C3%81lvares_Cabral_em_Porto_Seguro_em_1500_by_Oscar_Pereira_da_Silva_(1865%E2%80%931939).jpg