Merryn Talks Money — Modern Monetary Theory: Free Money or Fiscal Fantasy?
Host: Merryn Somerset Webb (Bloomberg)
Guest: Simon French, Managing Director, Chief Economist, and Head of Research
Date: February 16, 2026
Episode Overview
In this episode, Merryn Somerset Webb sits down with economist Simon French to demystify Modern Monetary Theory (MMT)—often a hot topic in current economic and political discourse. Together, they dissect what MMT is, its theoretical foundations, real-world applications (especially recent pandemic-era policy), and why it's currently back in UK political debate. The discussion also tackles practical objections, the blurred lines between monetary and fiscal policy, and the risks of unconstrained government spending.
Key Discussion Points & Insights
1. What is Modern Monetary Theory?
[03:29] Simon French:
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MMT posits that a sovereign currency issuer (like the UK) faces no hard limit on financing—it can create as much money as needed. The only true constraint is inflation.
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If inflation rises due to “too much money,” MMT theorists suggest government should then increase taxes to dampen demand and bring inflation under control.
“There isn’t an effective constraint on financing... The only constraint in the ideas of modern monetary theory is that if you produce too much, it could be inflationary. The counter to that... you can use fiscal policy—tax increases—should inflation rear its ugly head.”
— Simon French [03:29]
[04:08] Merryn Somerset Webb clarifies:
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Under MMT, the bond market (government debt issuance) becomes redundant; the state could just direct the central bank to produce money for welfare, infrastructure, or any need—so long as it's not inflationary.
“You do not have to borrow money from the markets... you simply print the money that you want... and all you have to do is figure out exactly how much resource is available...”
— Merryn Somerset Webb [04:08]
2. Why Doesn’t MMT “Just Work”?
[04:58] Simon French:
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Real-world policy during the pandemic loosely resembled MMT: large-scale money creation (“money printing”), yet governments didn’t respond to the inflationary consequences by quickly raising taxes.
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Post-pandemic: inflation across Western economies rose by 25-30% over five years, disputing the idea that fiscal policy (taxation) can be a nimble enough tool to check inflation.
"The idea that fiscal policy can respond in short order has been slightly disproven in practice.”
— Simon French [04:58] -
Monetary policy is preferred as an inflation control tool because its impact is less disruptive than fiscal policy, which directly changes household and business behavior and can distort economic activity.
“If you tweak fiscal policy, which is effectively what modern monetary theory says... you start to have second-order effects on behavior and quite inefficient, unproductive activity.”
— Simon French [05:46]
3. Can MMT Be “Done Properly”?
[06:52] Merryn Somerset Webb invites counterarguments:
- Some claim that the post-COVID response “wasn’t real MMT”—that if governments had fully understood and implemented MMT, inflation could have been managed.
[07:17] Simon French rebuts:
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Analogous to failed communist experiments (“we haven’t really tried it” defence).
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Empirically, the pandemic was a near-perfect control experiment for MMT—and the inflation spike happened partly due to unrestrained fiscal and monetary expansion, not just energy shocks.
“Why is communism sort of ringing in my ears?... What better control experiment than the extraordinary expansion in the money supply that took place...”
— Simon French [07:17] -
Fiscal policy changes (like tax hikes) are rarely as swift as monetary interventions; political and logistical barriers make timely tax adjustments extremely difficult.
4. Human and Political Limitations
[08:32] Merryn Somerset Webb:
- Asks if human nature and politics inherently doom MMT.
[08:40] Simon French:
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MMT’s relevance was greater in low-inflation environments, but with high inflation now, risks of debasing currencies and misallocating assets are greater than ever.
“When the facts change, you must change your view... There's a real risk of misallocation if you're pursuing MMT at this point...”
— Simon French [08:40]
5. Limits to Resource Assessment—Why the Market Matters
[09:49] Merryn Somerset Webb:
- How can a central authority determine the “right” amount of money, given it’s near impossible to calculate true resource availability?
- Markets excel at allocating resources—central planning struggles.
[10:07] Simon French:
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The UK faces significant supply-side constraints (energy, labor, capital).
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Three main issues:
- Energy: Policy-induced limitations.
- Labor: Increased costs, welfare disincentives.
- Capital: UK pension and savings funds allocate more globally than domestically, making local capital scarcer.
“The UK also has rather outsourced its allocation of capital for a long time. So you've got three [constraints]... actually its ability to absorb a big expansion in the money supply without creating inflation... is probably more constrained now than any time in my professional career...”
— Simon French [10:59 & 11:38]
6. Could Supply Constraints Be Fixed?
[11:52] Merryn Somerset Webb:
- Theoretically, supply constraints (energy, labor, capital) are fixable by policy change.
[12:34] Simon French:
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Incentives matter more than mandates; past tax credits and savings incentives effectively kept capital onshore.
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Most MMT advocates (UK Greens, Labour’s left) actually propose policies that would tighten—rather than loosen—these constraints by favoring regulation and higher labor costs.
“The proponents of MMT are not the proponents of making that journey... that would make the likelihood of success of MMT even lower than they're proposing.”
— Simon French [13:35]
7. Blurring Fiscal & Monetary Policy
[17:11] Merryn Somerset Webb:
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Notes the blurred distinction between monetary and fiscal policy—excess money creation quickly becomes about redistribution (typically a fiscal tool).
“By creating, you know, inflation in asset markets... you redistribute wealth, which is the job of fiscal policy, not... monetary policy.”
— Merryn Somerset Webb [17:11]
[17:54] Simon French:
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Agrees; it’s not black and white. However, fiscal tools are more directly allocative, and left-of-centre proposals (like wealth taxes) would require capital controls to be effective—contradicting their support for liberal labor movement.
“On capital to be wanting to constrain movements and on Labour trying to increase those movements. That seems quite a difficult position to adopt.”
— Simon French [19:38] -
Predicts some form of capital controls may well emerge in the UK (e.g., “exit tax” debate).
8. Lessons from Political Shocks and Potential Policy Shifts
[20:50] Simon French:
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Investors are wary of a Labour shift to the left, referencing the upheaval from the Truss “mini-budget.”
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Warns that major change—such as MMT—requires understanding, preemptive policies, and mechanisms to crowd in capital (e.g., making gilts inheritance tax-exempt) or risk financial dislocation.
“If you're going to introduce something like MMT, you're going to do a real pivot to the left, you need to recognise the policy environment as it's set up at the moment would doom you to pretty quick failure, as Liz Truss found out.”
— Simon French [22:09]
9. Case Study: Japan and the Global Capital Environment
[22:28] Merryn Somerset Webb and Simon French:
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Rising Japanese bond yields signal that capital that once flowed out of Japan (“carry trade”) may soon return, tightening global financial conditions.
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If Japanese investors bring cash home, markets in the West may experience repricing, especially in “private” assets that haven’t yet adjusted to post-pandemic rates.
“The counter to that is some of the capital tailwinds, the financing tailwinds the rest of the economy have benefited from, are unwinding and potentially unwinding in quite quick order.”
— Simon French [24:31]
10. MMT and the Discipline of Markets
[28:29] Merryn Somerset Webb:
- The podcast returns to MMT's big weakness—without bond markets or the need to tax/borrow, public spending may lose vital discipline, causing poor capital allocation.
[29:00] Simon French:
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The need to issue debt or raise taxes forces governments to ask: is this spending efficient? MMT weakens that discipline.
“The disciplines of the bond market mean that... ministers ask themselves the question... is this the most efficient allocation of capital? And MMT for me weakens that... Too little discussion is about the quality of public spending. Too much is about the quantum of public spending.”
— Simon French [29:38]
Notable Quotes
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On the theoretical appeal of MMT:
“I love this. This is so simple. And we would have everything that we need... Let’s just do it.”
— Merryn Somerset Webb [04:08] (ironically) -
On real-world limitations:
“The idea that fiscal policy can respond in short order has been slightly disproven in practice.”
— Simon French [04:58] -
On why MMT offers an illusory simplicity:
“The unconstrained money printer is very, very attractive in kind of sound bite economics... But actually when you delve into the detail... the risk is an allocation of capital [with less discipline].”
— Simon French [28:35] -
On the political reality:
“I think my reading of the UK economy is it is pretty supply side constrained at the moment... its ability to absorb a big expansion in the money supply without creating inflation... is probably more constrained now than any time in my professional career.”
— Simon French [10:07–11:38]
Timestamps for Key Segments
- [03:29] — What is MMT? Simon’s definition
- [04:58] — Pandemic policy as a quasi-MMT experiment
- [07:17] — “It wasn’t real MMT!”: Did we ever try it?
- [10:07] — Why market allocation of resources matters—UK’s supply-side constraints
- [12:34] — Could the UK overcome these constraints? What politicians propose instead
- [17:11] — Blurring the line between monetary and fiscal policy
- [20:50] — Political risk, Labour’s potential shift left, and lessons from the Truss mini-budget
- [22:34] — Japan’s bond market turmoil and what it means for global capital
- [28:29] — Back to MMT: why the bond market’s discipline matters
Memorable Moments
- [14:24] — Lighthearted banter about old-timey payments at “Renaissance fairs” (levity from ad break).
- [28:03] — “If you do get Anthropic and OpenAI listing... the amount of institutional and retail capital that will flow to them will leave very little left over for any small or medium-sized companies ...”
Conclusion
This episode provides a lucid, candid, and accessible critique of Modern Monetary Theory—from theory to practice—anchored in UK and global realities. Simon French and Merryn Somerset Webb cut through the political “Instagram economics” soundbites, making a compelling case for why, despite its superficial appeal, MMT faces deep economic, political, and practical obstacles, especially amid today’s constrained and uncertain policy environment.
To follow Simon French:
Twitter: @frencheconomics
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