Economist Stephanie Kelton, an advisor to Bernie Sanders' 2016 presidential campaign, says there's a way to run the economy to pay for liberal priorities like guaranteed government jobs for anybody who wants to work and Medicare-for-all.

Kelton subscribes to what's called Modern Monetary Theory, which posits that governments like the U.S. that can borrow in their own currencies can't run out of money. That's because money, like bonds issued to finance federal spending, is actually a government promise not a physical commodity.

"MMT is trying to build a better mousetrap," Kelton said in an interview Thursday on CNBC's "Power Lunch." She added that the $22 trillion national debt not a concern. "I'm not worried about $22 trillion in U.S. assets being held in portfolios and pensions all over the world."

At the core of MMT is jobs, said Kelton, a fellow at the Sanders Institute, a group founded by Jane O'Meara Sanders, wife of the Vermont senator who announced last month another Democratic run for the White House.

"What we would do is effectively establish a public option in the labor market. Instead of having millions and millions of people locked out of employment who actually want a way in … we would guarantee employment at a fixed wage. We would say $15 an hour," Kelton said.

She said such a system would differ from how the Federal Reserve steers the economy. The Fed uses interest rates and other tools to keep growth from overheating and causing troublesome inflation. The other part of the central bank's dual-mandate from Congress is to conduct monetary policy in such a way to maximize employment.

Kelton argues that MMT would use "full employment to fight inflation" by giving companies that want to hire a better option. "They don't have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs."

"The government's budget has to be responsive. But it's certainly not a way of you saying you get unlimited deficit spending. It controls itself as the economy goes through the business cycle," she said. "Deficits do matter. But they don't matter in the ways we've been conventionally thinking about them. The way we usually think about a deficit is that it's evidence of excessive spending. And that's just wrong. Evidence of excessive spending is inflation. So I would argue that you don't have a deficit problem, a debt problem, unless you have an inflation problem."

Appearing on CNBC with Kelton Thursday, Dan Mitchell, co-founder of the right-leaning Center for Freedom and Prosperity and a former economist for the Senate Finance Committee, disagreed with that premise.

"Whether you're part of the Modern Monetary Theory people that think you can basically finance more government with the printing press or whether you're talking about it in the sense that Stephanie is talking about it, where you just have bigger government that's supposedly going to be a perpetual motion machine for the economy, in either way I think we're at risk at best copying the economic policies of Greece, and at worst copying the economic politics of Venezuela," Mitchell said.

Fed Chairman Jerome Powell was asked about MMT this week, during the delivery of his semiannual report to Congress. "The idea that deficits don't matter for countries that can borrow in their own currency, I think, is just wrong," he said. "U.S. debt is fairly high to the level of GDP — and much more importantly — it's growing faster than GDP, really significantly faster. He also called MMT "just wrong."

"Fundamentally, we're really debating should government be a lot bigger," Mitchell argued. "And if you want government to be a lot bigger, which I don't, then you have the challenge of how you are you paying for it. Stephanie is promoting a theory that is rather unconventional. Even a lot of left-wing economists disagree with it."

He added, "If you're going to make government a lot bigger, it's going to, in effect, divert resources from the productive sector of the economy, whether you finance it by taxes, whether you do it by borrowing, or by simply running the printing presses, figuratively speaking."

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