The Deficit Myth
The leading thinker and most visible public advocate of modern monetary theory - the freshest and most important idea about economics in decades - delivers a radically different, bold, new understanding for how to build a just and prosperous society. Stephanie Kelton's brilliant exploration of modern monetary theory (MMT) dramatically changes our understanding of how we can best deal with crucial issues ranging from poverty and inequality to creating jobs, expanding health care coverage, climate change, and building resilient infrastructure. Any ambitious proposal, however, inevitably runs into the buzz saw of how to find the money to pay for it, rooted in myths about deficits that are hobbling us as a country. Kelton busts through the myths that prevent us from taking action: that the federal government should budget like a household, that deficits will harm the next generation, that deficits crowd-out private investment and undermine long-term growth, that entitlements are propelling us toward a grave fiscal crisis. MMT, as Kelton shows, shifts the terrain from narrow budgetary questions to one of broader economic and social benefits. With its important new ways of understanding money, taxes, and the critical role of deficit spending, MMT redefines how to responsibly use our resources so that we can maximize our potential as a society. MMT gives us the power to imagine a new politics and a new economy and move from a narrative of scarcity to one of opportunity.
Stats for nerds
14recommend
30mentions
19people
2020–2025years
77% recommend23% neutral
Mentions per year
What Hacker News says
- There’s a big problem with that. The “deficit” is just the liquid financial savings of the private sector.
The correct approach is to require all those people worried about the “Debt” to hand over any liquid savings they have in bank accounts or retirement funds. Since that is what is causing it by accounting identity.
After all if they consider it to be such a problem they should put their money where their mouth is.
Read The Deficit Myth by Stephanie Kelton to understand how the system actually works.
Amusingly a larger deficit means government has more space to spend, not less. People saving means they are not spending which means resources are left underemployed.
Debt to GDP is not a relevant concern in a free floating currency has Japan has demonstrated for decades.
- Thank you for elucidating the fact that US “borrows” in its own currency and so as long as we have monetary sovereignty (which we do to a great degree due to USD being the global reserve currency) we have no deficit problems (as long as we keep inflation in check).
I implore everyone reading this thread to read up on Modern Monetary Theory (MMT). Stephanie Kelton’s “The Deficit Myth” is a good place to start. Until more people have a better understanding for how the system works, they’ll continue to be confused and easily led astray by politicians who don’t have the best interests of most people in mind, but instead wish to rob us blind in a vain attempt to eliminate trade/budget deficits.
(Note: I’m very much for restoring domestic manufacturing as much as possible, including the use of highly targeted tariffs, industrial policy, R&D, workforce development, etc. but this is not what the current administration is doing, not even close).
- Read The Deficit Myth by Stephanie Kelton and watch the film Finding the Money to find out how this "debt storm" is neither debt, nor a storm.
- My understanding of MMT (unburdened by any formal econ training) is that government spending financed by debt in that government's own currency is OK if and only if the society has — or can quickly enough build — sufficient productive capacity to handle the increased demand that will be caused by the increase in the money supply. I found Dr. Stephanie Kelton's book The Deficit Myth to be a very-accessible explanation that made intuitive sense (which of course is always dangerous).
The perhaps-facile analogy is pump-priming, a.k.a. fiscal stimulus, summed up in the old Kingston Trio song Desert Pete: You come across a hand-operated water pump in a well in the desert (hah!), with a bottle full of water sitting there, and a note explaining: You can "borrow" the water and use it to prime the pump; once you get the pump going: "Drink all the water you can hold, wash your face, cool your feet | Leave the bottle full for others | Thank you kindly, Desert Pete."
But that only works if the pump is working and has sufficient "raw material" (water in the well). And if you drink most of the bottle of water (borrowing for consumption instead of for boosting productive capacity), then the pump won't draw water, and you'll angrily claim that priming it doesn't work. As Desert Pete warned, "Now there's just enough to prime it with, so don't you go drinkin' first. Just pour it in and pump like mad and, buddy, you'll quench your thirst."
The lack of acceptance of MMT among mainstream economists is of course a red flag. But then in medicine, Marshall and Warren asserted — correctly — that many common stomach ulcers were caused by Helicobacter pylori bacteria and could readily be cured with cheap antibiotics instead of with major surgery. They were scorned by mainstream physicians and surgeons protecting vested interests. And eventually they were awarded the Nobel Prize in Medicine.
So lack of acceptance isn't dispositive; as I read somewhere but can't find online, old economics ideas don't die out until old economists do. (Or maybe it was physicists?)
[0] https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...
- > MMT is a fringe theory.
MMT makes intuitive sense as long as you keep in mind its predicate assumptions: 1) The government borrows in the currency that it issues (dollars, pounds, yen), thus the goverment can inject more money into the economy at will — thus increasing "consumer" demand for goods and services; AND 2) there's enough slack productive capacity in the economy to meet the increased demand without causing price inflation.
Stephanie Kelton's book, The Deficit Myth, was a good read.
Disclaimer: I'm unburdened by any formal economics training at all (apart from what I picked up from antitrust law).
Quaere whether MMT critics are like Ptolemaic geocentric astronomers criticizing the Copernican / Keplerian model ....
- It feels a little odd of to me that MMT (with Stephanie Kelton's book "The Deficit Myth" a great example of explaining such) never comes up in these conversations.
