GND funded fully by the government maximizes resource distribution and doesn’t increase inflation.

The understanding of how the monetary system works and the role of the state in its monetary system that Modern Money Theory provides is fundamental for the GND. MMT maintains that a sovereign government is not financially constrained. As the currency issuer in a credit-money system, it neither has nor does not have money. It simply issues currency (its IOUs) into existence when it spends. In the modern world that amounts to changing numbers in bank accounts, i.e., electronic entries which the government can neither run out of nor save for future spending. Government spending leads to credits to nongovernment sector bank accounts, while tax payments lead to debits. A deficit then implies a net credit to bank accounts (Wray 2015 [2012]; Wray 1998; Nersisyan and Wray 2016). While the statement that the government is not financially constrained is often misinterpreted as a claim that the government faces no constraints, MMT maintains that the availability of real resources should constrain spending, both private and public. Excessive spending creates problems not in terms of higher government deficits and debt (and the usual insolvency arguments), but in terms of inflation. The danger of inflation, however, stems not from the way the spending is financed, but because of potential pressure on resources.2 Similarly, the function of taxes is not to finance government spending, but to withdraw demand from the economy, creating space for government spending to move resources to the public sector without causing inflation. From this perspective, it is counterproductive for the government to withdraw more spending power than it wants to put back in—except in the case that the economy is already operating beyond full capacity. It would be equivalent to opening up real resource space by preventing the private sector from using real resources while refusing to use them itself. MMT maintains that the concept of “paying for” government spending in financial terms is meaningless. The government pays for all of its spending, including interest and principal on bonds, the same way—by crediting bank accounts. If there is any sense in which “paying for” spending makes sense it’s in terms of real resources; a nation always pays for things in terms of the real output it can produce or can net import from others. Below full employment government spending creates “free lunches” as it utilizes resources which would otherwise not be used. Only at full employment does a country face tradeoffs for real resource use. Although the implementation of the GND will increase government spending and total aggregate demand, this does not imply that taxes need to go up. Instead, taxes should be raised only if the additional spending creates inflationary pressures. In general, it makes no difference in terms of inflation whether the dollar spent to hire resources comes from the government or from the private sector. Thus a shift in spending from the private sector to the government required by the GND need not be inflationary. Those arguing for tax increases have not carefully assessed the inflation potential of the GND. The GND will bring online existing excess capacity, will shift resources from current uses, and will further increase capacity along the way. It is not a foregone conclusion that the net increase in the demand for resources will be beyond our capacities. If we tackle climate change as the moral equivalent of war, and if this really does take us to and beyond full employment of resources, we can adopt measures to counter inflation pressure, including tax increases. Knowing that that is the real danger, we can formulate a strategy to prevent it.