Anthony J. Pennings, PhD


MMT in a Post-Covid-19 Environment

Posted on | July 29, 2022 | No Comments

Modern Monetary Theory (MMT) is a set of descriptions about government (fiscal) policy originating from the financial world. Traders of government bonds began to inquire about Federal spending and fiscal monetary processes in the post-Reagan environment as the US debt increased substantially. They looked beyond the curtain to processes of money creation and the roles of bonds and taxes in the political economy.

What is the role of money? How does the US government get its money? How does it spend money? What are the constraints on government spending? This post looks at MMT and its prospects by examining the economic problems associated with COVID-19 virus pandemic.

We hear the term “printing money” a lot, usually by gold or bitcoin enthusiasts who believe in establishing strict financial constraints. By establishing “hard money” and limiting the quantity of money in an economy, they hope to see their assets rise in value while keeping prices down. Certainly, governments do print some of their money for public use, but the preponderance of funds are entries in digital ledger accounts. I prefer the imagery of the “magical mouse” to the printing press. But I digress.

So how does the US government spend money? In the US, pursuant to Congressional legislative action, the Federal Reserve credits the appropriate accounts at the Department of the Treasury. That’s pretty much it.

Currency-issuing governments do not have the same financial constraints as a household, a business, or even a municipal government, state, or province. They can use their sovereign currency to pay for whatever is available to buy in their own denominated currency. Those are pretty important points so you may want to read them again. They don’t need to print, tax, or auction off bonds to to spend. But it is registered.

Stephanie Kelton at Stony Brook University in New York has been a strong academic and policy proponent of MMT and its possibilities. A professor of economics, she has also been a consultant to Democratic candidates. In this video, she explains how MMT sees the spending process and some of the implications of seeing money and the deficit in a new way.

Kelton and the MTT theorists have been clear about the downsides of these spending processes. While a currency may not have the restrictions many believe, resources can face limitations. Labor, education, land, materials, and even imagination are called into service under such conditions. Shortages can mean rising prices, has we have seen in the COVID shutdown of businesses and supply chains. MTT proponents have been mindful of this stress and the potential of rising prices from its inception.

But the problem of increasing costs from resource limitations never really emerged since the 1970s until the Covid-19 pandemic. Globalization (particularly the Chinese workforce), a large working force (including women), and technological innovations such at IT and the Internet increased productivity and managed prices at relatively low levels. Also, spending, despite deficits, stayed within manageable levels. Then, however, the pandemic began to shut down businesses and disrupt traditional supply lines. Also, the Federal Reserve, the US central bank, reduced interest rates and increased bank reserves. At the same time, the Federal government began to spend trillions on Payroll Protection Program (PPP) and other stimulus spending.

Stimulus spending continued into 2021 to address the K-shaped economy, a split in continuing economic benefits to those who could adjust to the pandemic and those hit the hardest. As people were hunkering down at home, many adjusted by working online or taking classes via Zoom. Others lost their jobs or had to quit to take care of children not attending school. Some $5 trillion was spent as COVID-19 stimulus, and the pandemic severely limited work and availability of goods and services. As a result, the economy was strained and thrown into disarray.

During 2021, prices started to rise, especially oil that had crashed in 2018, and to less than $20 a barrel in 2020 as the pandemic took hold. Oil production shut down until the roaring return of demand in late 2021 and 2022. In February 2022, as Russia attacked Ukraine, oil access was further reduced, as was the availability of fertilizers and materials needed to fight climate change.

In addition to resources, MMT also needs the ideas and policies to put the currency to work efficiently. Wars have been the defacto spending rationalization for governments. Military spending creates jobs and innovative technologies that often spill over into the larger economy.[1]

How do we collectively decide on alternative spending strategies? Should consumers drive social demand? Can universal healthcare drive down business costs? Can renewable energy infrastructure investment kickstart a new industrial era-based cheap electricity inputs? Should increased spending go into a war on climate change?

How do we recognize the constraints in these strategies? Materials? Labor? Criticisms of centrally planned economies abounded in the 20th century. Most concerns have lamented the lack of price signals aggregated from individual consumers and profit-seeking private firms.

Others have argued that government spending would “crowd out” the private sector by absorbing available investment capital. This would decrease private sector activity. But Kelton argues current economics gets it backward. Spending comes first.

Do they sufficiently allocate resources in a society? The Paycheck Protection Program (PPP) stimulus program under the Trump administration was probably the wildest expenditure of government money in modern history. But did it matter if the goal was to stop the slide into a major recession?


[1] Unlike monetary policy enacted by the Federal Reserve which works to manage the economy by “lifting all boats” and not target individual industries, MTT will likely have to be more targeted.


AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. From 2002-2012 was on the faculty of New York University where he taught comparative political economy, digital economics and traditional macroeconomics. He also taught in Digital Media MBA atSt. Edwards University in Austin, Texas, where he lives when not in the Republic of Korea.


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