The Deficit Myth Review
What if we had been wrong all this time?
I just finished listening to the audiobook by Stephanie Kelton, The Deficit Myth- Modern Monetary Theory and the Birth of the People’s Economy.
This NYT bestseller explains how governments, as currency issuers, can’t run out of money because of fiscal deficits.
Any American reader is thinking that’s impossible. Spending must be balanced against income. Otherwise, debt will be incurred. This is how the average person lives. This is what the author calls household thinking.
Imagine if you had a chest that was always filled with cash. It never ran out of those large stacks of hundred-dollar bills. What would you do? Many would quit their job and go on a buying spree. At some point, you might start investing it in the market.
Well, this is what a fiat currency system is like. An ever-filling chest of money that never runs out. The investing is what treasury borrowing is about because this side of government spending is parsed out on banks. Spending is mainly on programs, while taxes are used to regulate behavior and collect money from the super-rich.
Now Stephanie Kelton is clear that Modern Monetary Theory (MMT) isn’t about constant spending. MMT has one problem with spending wrongly on the economy, which is inflation.
As she states, “A deficit is only evidence of overspending if sparks inflation.” Further, “… the federal government has historically almost always kept its deficit too small … Evidence of a deficit that is too small is unemployment.” I also assume underemployment based on the book’s emphasis on a program called guaranteed employment or job, which is a concept like Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) part of Roosevelt’s New Deal. This would pressure private sector wages by providing government-funded living wages.
MMT’s support for large government programs, such as big infrastructure projects, is key to this theory. You would need not just physical workers, but office workers and accountants. Many critics say the incentive to work in the regular economy wouldn’t be there if given a choice. As a writer of political science fiction, all I see is certain programs like unemployment being dismantled in favor of this one, and caps being placed in how many employees can be assumed by the government in attempt to balance the budget.
The reason I say this is despite all her effort with the book to quell the six myths associated with MMT that changing people’s minds on the deficit and government spending is almost an impossible task. She even admits this, recalling her work with the US Senate Budget Committee (Democratic staff).
Response to the Six Myths of Fiscal Spending
1. The federal budget isn’t a household budget,
2. Deficits aren’t a sign of overspending,
3. No taxpayer owns a portion of the national debt,
4. Fiscal deficits increase our wealth and collective savings,
5. Deficits being our stuff surplus,
6. Our entitlement programs are not running out of money.
I agree with Kelton’s book, though it gets technical at times; it reminds me of Star Trek’s replicator technology. I regret to inform you, Ferengi, with replicators want simply disappeared, as did the cash economy, because everything became free.
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