The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy

Edit added Oct 2023: I want to temper my previous remarks with regard to Warren Mosler's role in the development of MMT economics and raise my rating of Kelton's marvelous book to five stars.. Mosler is a very important contributor and influencer. After considerable research I believe now that he was perhaps a key person in the unraveling and understanding of opaque Central Bank-Treasury operations that can be boiled down to facts expressed as identities that underlie MMT. I'm now confident that Warren Mosler's fully belongs to be included in the list of important contributors to MMT economics and remains among the most important influences. I therefor wish to apologize to both Author Kelton and to Warren Mosler for carrying on a bit too much regarding what I thought at the time was an excessive focus on Warren. It was not. MMT economics is the most important development in economics since Keynes invented macroeconmics. It will have profound influence, for the better, in all our lives. It is just a matter of time until older economists see the light and recognize that they were all wrong. I want to caution any reader of few of negative reviews in this book. Theses reviews include critical mis-statements: e.g., reviewer "Yeah Yeah, wrote, " Miss Kelton makes the mistake of equating currency issuance with the creation of money. In advanced modern-day economies, they are not one and the same." Indeed they are not, and any representation that Author Kelton thinks they are is a misrepresentation! She understands well that new money is created by deficit spending and keystrokes. This has nothing to do with "currency" which is simply an alternative form of money supplied freely to banks on order in exchange for debiting their reserve accounts.. There is no money creation or destruction in this, just a change of form from digital to tangible... Several reviewers did not understand, and therefore confused, "inside money" created when banks make loans, with "outside" money created by the Fed when it prevents a Treasury check from bouncing. MMT economists do not confuse inside and outside money. These mistaken reviewer's knew banks create most of what we call M2 Money supply by making loans, but did not read carefully enough to realize when Kelton was referring to the money government creates through deficit spending. In any case, it is those reviewers who are confused, not Kelton. And she was so clear in her presentation that their is no reason for the reader to be confused. This is a beautifully written book that has the potential to bring correct understanding of government finances to millions who have no background in economics. Sadly there is one misstep that needs correction in subsequent additions. I am myself a serious student of economics, I am also a Ph.D. in another field. Correct attribution is critical to all engaged at intellectual boundaries. On, or about page 23, Kelton says plainly that Warren Mosler "is considered the father of MMT because he brought these ideas to a handful of us in the 1990s." It may have been Mosler who first put three capital letters together to form "MMT," and it may have been Mosler who first opened the eyes of a young Kelton, but that does not make him "the father of MMT." The danger here is that some careless reader from the media will paraphrase, and report Mosler as "the father of MMT." This could do a horrible disservice to Lerner, Minsky, Wray, Mitchell, and all those others who, before Mosler was born, laid the foundation, and others who came later and together with Mosler worked out every detail of what we now refer to as Modern Money Theory. I am a strong proponent of correct attribution. It disturbs me no end to hear Mosler described as "the father of Modern Money Theory." A correct attribution would in no way subtract from Mosler's important contributions. Would that author Kelton had written instead , " [We] considered him." Nevertheless, Stephanie Kelton's book is a magnificent accomplishment in that it is readable by the non-economist, and makes the truth clear. A country such as the United States, does not borrow and has no national debt. It has deficits, and these can be too big, to small, or just right. What appears to be borrowing , e.g., the auction of Treasury Bonds by the Treasury, is simply the exchange of one kind of Treasury obligation, money, for another kind of Treasury obligation,i.e., the promise to pay money, plus interest, in the future. The money itself is a creation of government, its value derives from public trust, the public's tax obligations, and economic productivity.

Professor Kelton’s important book shows, in a very accessible manner, some basic economic truths which have been buried in an edifice of economic theory, supported by appeals to apparently common-sense but inappropriate analogies. These truths are the core propositions of what is know as Modern Monetary Theory. The central truth that she demonstrates, is that government spending (in a country which issues its own currency) is not limited by its ability to tax or to borrow, as it is for an individual, or a household. The analogy of the Government needing to balance its books, just like any family, is deeply ingrained in political and common discourse. Anybody unconvinced of the lack of limits on government simply needs to look at the response to the Covid-19 crisis in the United States. If it had been suggested before the crisis that the Government could just mail out checks to the whole population, we would have been told that it was impossible and unaffordable. Clearly it was not impossible. It just required Congress to authorize it. There was no debate about how it would be financed, because there was no need. As a corollary to the proposition that government spending is not limited by its ability to tax or borrow, Professor Kelton argues that a deficit is not, in itself, evidence of overspending. As a professional economist, I can already hear the cries of many colleagues that this is magical thinking that implies that the government can spend whatever it wants in violation of its intertemporal budget constraint. This is not what is being suggested. The issue is whether the total of desired government spending and desired private spending exceed the productive resources of the economy. If they do exceed this limit, particularly in a relatively closed economy such as the United States, inflation will be the result. There is however, no direct relationship between inflation and the government deficit. Thus, she is not arguing that the Government can spend without limit, merely that the limit is defined by the capacity of the economy, and attempts to go beyond that limit will result in inflation. The next basic truth that Professor Kelton demonstrates is that the national debt is not a burden. It does not have to be repaid, as it is the counterpart to the net acquisition of financial assets by the private sector. Without a public deficit and a public debt, the private sector cannot collectively hold financial assets. Attempts to actively reduce the public debt through budget surpluses forces the private sector to reduce its assets or increase its borrowing, and eventually result in crises of private sector indebtedness. One of the central arguments of the book is that a political discourse which focuses on avoiding deficits kills debate on policies to address the real deficits: the good jobs deficit, the education deficit, the health deficit, the infrastructure deficit, and the climate deficit. Policies are disqualified as unaffordable or politically impossible, before they can be seriously examined. Fear of deficits and debt has been used as a means to argue against reforms which address the real deficits in society. Professor Kelton presents a coherent case that these real deficits can be addressed by public policy, and that “finance” is not the problem. Perhaps the most important proposal is the idea of an Employment Guarantee, whereby the Government guarantees a public service job (delivering useful services or building infrastructure for example), to all those who cannot find jobs in the private sector. If implemented this would mean that the private sector would be contracting not from a demotivated reserve army of unemployed with poor skills, but from a pool of employed workers. The reduction in lives wasted and opportunities lost, in addition to the increased productivity of the economy, would be enormous. Many details would need to worked out to ensure good management and governance of such a scheme, but it should not be dismissed as financially impossible. The ideas in this book are not difficult, but they do seem to go against much of what both professional economists and non-economists believe to be common-sense. In the words of Keynes, in his preface to the General Theory of Employment Interest and Money, “The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.” The irony is that many of the new ideas in this book are rooted in precisely the new ideas that Keynes was advocating. These ideas have been lost and urgently need to be recovered. For this reason, Professor Kelton’s book is so important and valuable.

Very enjoyable and easy to read. No graphs, no maths, just great ideas clearly layed out. Loved it! If you've ever been suspicious of why there's never money for what really needs to be done, you'll find the answer here. On the "negative" side: (mostly unanswered questions, nothing too bad about that) - Taxes remain a mystery as to their need and function, but that would probably need a whole other book to fully answer such a touchy and technical subject matter - If currency users are given permission by currency issuers to spend as needed within resource constraints... what happens then? - UBI (which is not mentioned in the book... tisk, tisk) and JG are often opposed... why? I see them as complementary... and affordable as per the MMT paradigm! Bottom line: GREAT BOOK!!!

This is a book that can (and will!) really change the way the general public thinks about the economy. Currently, we live in a paradigm of induced poverty. Most times you read people screaming “inflation” and you see some reviews here pointing exactly to that, but the reality is that the current problem is deflation, that is, there is too little spending in the economy. Unfortunately, classical economics is taught in almost all universities, which tells us that financial resources are scarce, but it is clear that isn't the case. Now there is no doubt that there are limits to spending, and that’s above all that MMT say. But these limits are in productivity, in human and physical resources, certainly not in financial resources. That said, we are in a situation of severe under-employment, so a state must do whatever it takes to achieve full employment. One way to do this (and this is a criticism of MMT) is not to issue new debt, but to tax the super-rich, who do not contribute anything to the real economy, but "drain" liquidity. There is inequality, this is the main reason for our economic situation. Anyway, this is a great introduction and people that use terms such as “money printing” have no idea what they are talking about.

The Deficit Myth de Stephanie Kelton renverse nos idées reçues : le déficit public n’est pas une menace, mais un outil puissant pour financer l’emploi, l’innovation et les grands projets, tant que l’on respecte les limites réelles de l’économie. Un livre clair, percutant et libérateur

O tema é polêmico e importante. O livro é dos mais relevantes nesta linha de pensamento. Mas parece propaganda. Eu esperava um texto mais técnico. Difícil de ler se você já não concordava antes de começar.

According to MMT, the sky is green