This book aims to drive the number of people who believe the deficit is a problem closer to zero.
We will show how MMT demonstrates that the federal government is not dependent on revenue from taxes or borrowing to finance its spending and that the most important constraint on government spending is inflation.
We are not like Greece. We are like Japan.
Stephanie Kelton, The Deficit Myth
When I was young, I had an uncle who gave me money. I asked him where he got his money, and he told me he had a money tree; he got it from his money tree… — Well, maybe Uncle Sam actually does have such a money tree.
Is this true?:
We are running out of money. In fact, we are broke. We ran out of money long ago.
Or, is this true?:
No, we are not running out of money. We can’t. Our government, because of the kind of money we have, can provide all the money we need.
OK… that’s the issue in a nutshell.
One side says that deficits are real, and matter greatly, and we are in super trouble.
Another side (a “new” side) says: have you been paying attention? We have been running deficits for a very, very long time, and we made it through just fine. And there is plenty more money where that came from.
This is the issue addressed by the book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton. I presented my synopsis of this book at the August First Friday Book Synopsis in Dallas (on Zoom).
Yes, I am quite aware that there are many people, including many economists, that reject this book out of hand. I included this section at the beginning of a major portion of my synopsis handout:
- A few words of introduction:
- this goes against traditional economic theory
- this theory has been criticized, rejected, condemned, and, yes ridiculed, by traditional economists
- more often and more critically by conservative economists; but plenty criticized by more liberal and progressive economists also
- yes, it has been criticized, but…has it been understood?
Here’s my thought; it is just common sense to understand an argument before you decide if it has merit, or it does not. My view is that this view does indeed have merit. And this book presents its case very clearly; I think, persuasively.
So, a little about Stephanie Kelton:
• Ph.D. in Economics. Chief Economist for the Democratic Minority Staff of the Senate Budget Committee, a post that she held in 2015 and early 2016, when she left that position to become an economic advisor to the Bernie Sanders campaign. Currently, professor at Stony Brook University
This book argues than any government with its own fiat currency is in a position to generate money that it needs. Generate: If the US Government can “make” (generate, print, enter in a ledger) money, is there any limit to their ability to do so? — The answer is yes…there are restraints, just not the ones you might think.
In my synopses presentations, I always ask:
- What is the point? With regards to the federal budget, the money is there already. It will always be there. Just use it.
- And I ask: Why is this book worth our time? Here are my three reasons for this book:
#1 – This book explains what federal deficits are; and why, in fact, they are not deficits at all.
#2 – This book explains the only real danger of spending too much government money – inflation.
#3 — This book offers practicable, implementable ways to put the (practically unlimited) money provided by the federal government to work for the good of all.
I always include a number of Quotes and Excerpts from the book – the “best of” Randy’s highlighted Passages. Here are just a few that I included in my synopsis handout:
• MMT (Modern Monetary Theory) radically changes our understanding by recognizing that it is the currency issuer—the federal government itself—not the taxpayer, that finances all government expenditures. Taxes are important for other reasons that I will explain in this book. • But the idea that taxes pay for what the government spends is pure fantasy.
In one sense, MMT is a nonpartisan lens that describes how our monetary system actually works.
• There’s a lot of talk about how everything must be “paid for” to avoid adding to the federal deficit.
• But have you noticed this never seems to be a problem when it comes to expanding the defense budget, bailing out banks, or giving huge tax breaks to the wealthiest Americans, even when these measures significantly raise the deficit? As long as the votes are there, the federal government can always fund its priorities. That’s how it works.
• If we wanted to, we could pay off the debt immediately with a simple keystroke.
• The fact that 21 percent of all children in the United States live in poverty—that’s a crisis. The fact that our infrastructure is graded at a D + is a crisis. The fact that inequality today stands at levels last seen during America’s Gilded Age is a crisis. The fact that the typical American worker has seen virtually no real wage growth since the 1970s is a crisis. The fact that forty-four million Americans are saddled with $ 1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won’t be able to “afford” anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of them all.
• Right now, and in the months ahead, the most fiscally responsible way to manage the crisis is with higher deficit spending.
• In practice, the federal government almost never collects enough taxes to offset all of its spending. Deficit spending is the norm, and everyone in Washington, DC, knows it. And so do voters.
• When the Wall Street banks needed trillions of dollars to survive the 2008 financial crisis, the Fed effortlessly conjured them into existence using nothing more than a keyboard at the New York Federal Reserve Bank.
• For one thing, it’s hard to keep the economy strong when most of the income goes to the thinnest slice of people at the top, who save (rather than spend) much of their income. Capitalism runs on sales.
• President Nixon’s decision to suspend dollar convertibility increased monetary sovereignty to the United States, forever changing the nature of the relevant constraint on federal spending. Under the Bretton Woods system, the federal budget had to be fairly tightly controlled to protect the nation’s gold reserves. Today, we have a purely fiat currency. That means the government no longer promises to convert dollars into gold.
• As Nobel Prize–winning economist William Vickrey put it, when the number of jobs is insufficient, “attempts to push [the unemployed] into jobs is simply a game of musical chairs in which local agencies instruct their clients in the art of rapid sitting.”
• Paul Ryan was asking Alan Greenspan whether he agreed that Social Security was in financial trouble and that moving to a system of private, Wall Street–managed retirement accounts would help address the crisis. “I wouldn’t say that the pay-as-you-go benefits are insecure,” Greenspan said, “in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.” …Uncle Sam can always pay! That was Greenspan’s point. That was Greenspan’s point.
• MMT is not a religion, and it’s not looking for disciples to follow some screed. What it offers is a realistic description of how a modern fiat currency works, along with some prescriptive ideas about how to transform that understanding into better public policy.
In my synopses handouts, after the best highlighted passages, I share the key points and insights from the book. Here are a few from this book:
- Some of the questions
- Is the federal government budget like other budgets – your household budget; state budgets;city budgets? – The answer is No!
- Is the US Government broke?
- Are Social Security, and Medicare, and…going broke?
- If the US Government can “make” (generate, print, enter in a ledger) money, is there any limit to their ability to do so?– The answer is yes…there are restraints, just not the ones you might think.
- This is critical to understand:
- monetary sovereign—countries, where the government is the monopoly issuer of a fiat currency.
- The main arguments that I present apply to any monetary sovereign—countries like the US, the UK, Japan, Australia, Canada, and others—where the government is the monopoly issuer of a fiat currency.
- Thus, there are issuers of currency and users of currency — MMT takes as its starting point a simple and incontrovertible fact: our national currency, the US dollar, comes from the US government, and it can’t come from anywhere else—at least not legally. This might involve minting the coins in your pocket, printing up the bills in your wallet, or creating digital dollars known as reserves that exist only as electronic entries on bank balance sheets.
- In other words, is the very idea of the deficit correct?
- This is critical to understand
- no fixed standard (e.g., the Gold standard) means that the government can “create” all the money it needs to/chooses to. — It’s also important that they don’t promise to convert their currency into something they could run out of (e.g., gold or some other country’s currency). And they need to refrain from borrowing (i.e., taking on debt) in a currency that isn’t their own.
- it just spends its currency into existence.
- The Myths:
- (the first myth) – the idea that the federal government should budget like a household. Perhaps no myth is more pernicious.
- The second myth is that deficits are evidence of overspending.
- The third myth is that deficits will burden the next generation.
- The fourth myth we’ll tackle is the notion that deficits are harmful because they crowd out private investment and undermine long-term growth.
- The fifth myth is that deficits make the United States dependent on foreigners.
- The sixth myth we’ll consider is that entitlements are propelling us toward a long-term fiscal crisis.
- The Myths and the Realities:
- MYTH #1: The federal government should budget like a household. REALITY: Unlike a household, the federal government issues the currency it spends.
- MYTH #2: Deficits are evidence of overspending. REALITY: For evidence of overspending, look to inflation.
- MYTH #3: One way or another, we’re all on the hook. REALITY: The national debt poses no financial burden whatsoever.
- MYTH #4: Government deficits crowd out private investment, making us poorer. REALITY: Fiscal deficits increase our wealth and collective savings.
- MYTH #5: The trade deficit means America is losing. REALITY: America’s trade deficit is its “stuff” surplus.
- MYTH #6: “Entitlement” programs like Social Security and Medicare are financially unsustainable. We can’t afford them anymore. REALITY: As long as the federal government commits to making the payments, it can always afford to support these programs. What matters is our economy’s long-run capacity to produce the real goods and services people will need.
- Maybe the author’s biggest idea:
- Guaranteed jobs for all unemployed…
- To supplement discretionary fiscal policy (the steering wheel), MMT recommends a federal job guarantee, which creates a nondiscretionary automatic stabilizer that promotes both full employment and price stability. — Several MMT economists have recommended that the jobs be oriented around building a care economy. Very generally, that means the federal government would commit to funding jobs that are aimed at caring for our people, our communities, and our planet.
And here are my six lessons and takeaways from the book:
#1 – The US — along with other countries with genuine monetary sovereignty with a fiat currency — really are different.
#2 – The US deficit is a myth.
#3 – We need good jobs for all — we need a federal job guarantee.
#4 – The limit to be placed is at the level of full economy; full supply, demand, employment. And the greatest of these is full employment. (Once this is reached, THEN inflation is a genuine worry).
#5 – A balanced budget for the US government is actually a bad idea; it has not been a help to the overall economy in the past.
#6 – Can you imagine an economy where… …all human needs can be more fully met, and we can be a global force for good.
If you are worried about the federal deficit; if you are worried about the new debt piling up during the Great Global Pandemic of 2020, this book might be worth pondering.
My synopsis, with my comprehensive, multi-page handout, and the audio recording of my presentation, will be available to purchase soon from our website. Click on the buy recordings tab above to search by title. Or, click here for our newest addtions.
(I am also putting my Zoom presentation on YouTube. Click here for this presentation).