Merryn Talks Money Modern Monetary Theory: Free Money or Fiscal Fantasy?
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Feb 16, 2026 Simon French, Managing Director and Chief Economist at Panmure Liberum, explains Modern Monetary Theory in plain terms. He discusses the pandemic as a real-world stress test. He weighs monetary versus fiscal tools and highlights UK supply constraints, political tensions, and market risks. Short, sharp takes on capital flows, bond markets, and how policy choices reshape resource allocation.
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MMT Defined And Its Core Constraint
- Modern Monetary Theory (MMT) says a sovereign currency issuer can finance spending without market borrowing, limited mainly by inflation.
- Simon French warns inflation is the real constraint and taxes are the proposed countermeasure under MMT.
Pandemic Was A Test MMT Failed
- The pandemic was a live test where massive money creation coincided with rising inflation rather than rapid fiscal tightening.
- French argues this experience undermines MMT's claim that fiscal policy can quickly mop up inflation.
Fiscal Levers Distort Behavior More
- Fiscal policy is more distortionary than monetary policy because taxes and spending change behaviour and allocation decisions.
- French says that makes monetary policy the less crooked lever for macro control in most cases.