The Deficit Myth: Modern Monetary Theory and the Birth of


The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy I feel comfortable rating this one at 1 star, no possible interest based on economist John Cochrane s review at the WSJ, aptly titled Years of Magical Thinking Paywalled As always, I m happy to email a copy to non subscribers Like many of you, I d vaguely heard of Modern Monetary Theory aka Magical MT , but payed little attention to yet another economist s pipe dream It turns out to be worse than I thought Its central proposition states that th I feel comfortable rating this one at 1 star, no possible interest based on economist John Cochrane s review at the WSJ, aptly titled Years of Magical Thinking Paywalled As always, I m happy to email a copy to non subscribers Like many of you, I d vaguely heard of Modern Monetary Theory aka Magical MT , but payed little attention to yet another economist s pipe dream It turns out to be worse than I thought Its central proposition states that the U.S federal government can and should freely print money to finance a massive spending agenda, with no concern about debt and deficits Whee Sadly, the lack of analytical rigor in Prof Kelton s book is, well, remarkable In a book about money, the inflation of the 1970s and its defeat are astonishingly absent If spending can be financed by printing money, why not eliminate taxes altogether Kelton criticizes Sens Bernie Sanders and Elizabeth Warren for claiming that they need to raise taxes to pay for spending programs But then why raise taxes Taxes exist to decapitate the wealthy, not to fund spending or transfers We should tax billionaires to rebalance the distribution of wealth and income and to protect the health of our democracy Hmm What about all the countries that have suffered inflation, devaluation and debt crises even though they print their own currencies To Ms Kelton, developing nations suffer a deficit of monetary sovereignty because they rely on imports to meet vital social needs, which requires foreign currency The problem is that the rest of the world refuses to accept the currencies of developing countries in payment for crucial imports Imagine that Anyway, per reviewer Cochrane, the book devolves into an immense list of left wing spending policies If you could only feel her singular empathy for the downtrodden, if you could, as she does, view the federal budget as a moral document, if you could just close your eyes and need it to be true as much as she does, your Copernican moment will arrive Logic and evidence will no longer trouble you Heh FAIL I ve been following Stephanie Kelton for some time and I think she s one of the smartest people around The ideas in here are worth reading for anyone sucked into the deficit myth the idea that we have to balance the budget or that the government s budget works like a household I really appreciate how Kelton covers not just how the US budget works, but also how people on the Hill engage in pay for hackery when they know full well that they can just spend but that they need to show the CBO I ve been following Stephanie Kelton for some time and I think she s one of the smartest people around The ideas in here are worth reading for anyone sucked into the deficit myth the idea that we have to balance the budget or that the government s budget works like a household I really appreciate how Kelton covers not just how the US budget works, but also how people on the Hill engage in pay for hackery when they know full well that they can just spend but that they need to show the CBO that they are balancing the budget I also appreciate how she covers what MMT means outside of the US which is where my only beef with MMT comes from To me, the whole thing relies on dollar supremacy and dollar supremacy relies on empire and weaponry She talks a bit about that, but there could be a bitthere Still, the book does the job fully and I hopepeople take heed I found this book annoying to read The central tenet of modern monetary theory MMT is that a monetarily sovereign government, like the United States and maybe a few , creates currency and so cannot run out of it In particular, deficits caused by spending in excess of taxation isn t inherently a problem, so long as the spending doesn t cause inflation, which isn t caused by excess currency but by a lack of real, physical resources and production to meet demand This is definitely an inter I found this book annoying to read The central tenet of modern monetary theory MMT is that a monetarily sovereign government, like the United States and maybe a few , creates currency and so cannot run out of it In particular, deficits caused by spending in excess of taxation isn t inherently a problem, so long as the spending doesn t cause inflation, which isn t caused by excess currency but by a lack of real, physical resources and production to meet demand This is definitely an interesting and very initially non intuitive statement which seems like it would have far reaching consequences My annoyance is that the book repeats this exact explanation maybe a hundred times over the course of the book, without in my view really developing it further It feels like the book doesn t have a very high view of my intelligence and feels the need to really, really, really belabor the point.But that sstylistic What about the argument itself Do I believe that the US government can spend as it wishes, without even needing to tax the population at all except as an anti inflationary tool I can t say that I completely do Reading the argument feels very much like looking at a mathematical proof you ve spent ages on and convincing yourself that actually there s a much simpler approach which totally avoids all the work why didn t you think of it earlier In math, it s usually but not always that you did and it was wrong So I was very disappointed to find the book not really address this why is MMT such a non standard idea in economics In fact, the book regularly implies that all the non MMT economists are a bunch of idiots who can t see what s staring them in the face, which is something I found hard to accept at face value from a MMT book.Partly because the book feels the need to tell you that the government is the currency issuer and not the currency spender every other page, it doesn t get around to elaborating in enough detail about the other things For example, the book also proposes that the government provide guaranteed employment to all, at a federally set minimum wage say 15 hour when people lose a private sector job, they could get absorbed into one of these jobs, thus keeping them off of unemployment Paying the wages won t be a problem because the government can just create the money But how would this actually work Won t it be colossally difficult to match people from all sorts of industries to work which they actually know how to do If the workers are envisioned to only spend a couple months on the government job before returning to other employment, how will they have time to learn skills on the job How will they be able to organize into unions to apply pressure for better conditions Maybe I m uninformed, but it seems foolish to expect any employer, including the government, to improve worker conditions with no worker pressure In any case, there are a lot of details that it would have been interesting to see discussed, but we get none of it.In the same way, it would have been interesting if the book explored some of the consequences of the basic thesis For example, in my view, the argument that the rich should pay taxes because the money is needed to provide welfare services for all is rhetorically muchpowerful than saying that the government could provide welfare whenever it decides to, it just hasn t yet, and we should tax the rich just as an anti inflationary tool and also because we think inequality is bad for other reasons It might be true it just doesn t have the rhetorical power, because it weakens the connection between the rich and the poor as being members of the same society who must share the society s resources Similarly, in my view, saying the government has the awesome power to create money as it wants weakens the notion of the government as an agent of the people In the old view where taxation is the source of government spending, there is a sense that the people work together to direct their collective energy through their taxes one way people chip in to the collective endeavor is by paying their taxes But if the government has the superpower of spending whatever it likes, the balance seems to shift the government is doing various things, and we the people do not have a materially contributory role Of course, this isn t strictly true because people can still vote and engage in democracy in other ways but the rhetorical connection is still weakened compared to the old perspective Or maybe some other notion can take its place possibly, make the role of a vote and representationfundamental than taxation representation without taxation Whatever the alternatives may be, they have to be alternative and they have to be new, and so they need to be developed and discussed It doesn t happen in this book.Talking about these sort of things would have pulled the book slightly away from strict economics and into politics, where the idea that there is a right answer is evendoubtful But the world doesn t care about those academic boundaries, and I wish the book had taken a broader view, combined with aoptimistic view of the intelligence of its readers And I haven t even talked about how the book essentially ignores the question of every country out there which is not monetarily sovereign like the US or needs to have dollars on hand to pay for imports The book devotes less than five pages to this important aspect, and in those five pages basically says that modern capitalism, World Bank, IMF, etc have screwed over the poor countries and that sucks Unclear how MMT will help It felt a little ridiculous that so little energy was spent on so much of the world, especially since the introduction promised to talk about it, and also ridiculous how shallow the prescription was A critique of MMT itself not of this book, though many of the criticisms still land by one muchknowledgeable than me is at and a primer on MMT at Shorter, and you ll learn most of everything you would from the book I m not an economist, or even someone who is savvy about the topic of deficits One thing I have learned over the years is that conservative politicians rail about the deficit but only when the other side Democrats, Liberals, etc hold the reins of government Do a little research and find out for yourself which side usually runs up the deficit The author is clearly a proponent of MMT, and she knows the subject well, making this book a must read for an introduction to the topic. As I made my way through The Deficit Myth, I had to stop numerous times, because it felt like my political and ideological underpinnings were being shaken at their cores The idea that government spending should not be measured and debated in parallel with a family budget made sense to me, but I didn t understand how This book explains complex economics and political posturing in digestible termsIt is a book that has the potential to transform public opinion, if it is read So, I tell you today As I made my way through The Deficit Myth, I had to stop numerous times, because it felt like my political and ideological underpinnings were being shaken at their cores The idea that government spending should not be measured and debated in parallel with a family budget made sense to me, but I didn t understand how This book explains complex economics and political posturing in digestible termsIt is a book that has the potential to transform public opinion, if it is read So, I tell you today, go and read The Deficit Myth It Changes Everything Please check out the full review on Teatime Readingwww.teatimereading.com blog 2020 4 30 This book is probably gonna be the Piketty of 2020 Very easy to read, lots of good examples, simple enough language for any intelligent person to understand Kelton, Bernie Sanders economic advisor, proves how all the austerity of the decades of neoliberalism, including the handling of the eurozone crisis, was unnecessary and harmful.The state does not run out of money Money is not the bottleneck Deficits do not matter Output capacity matters What matters is inflation And inflation can be This book is probably gonna be the Piketty of 2020 Very easy to read, lots of good examples, simple enough language for any intelligent person to understand Kelton, Bernie Sanders economic advisor, proves how all the austerity of the decades of neoliberalism, including the handling of the eurozone crisis, was unnecessary and harmful.The state does not run out of money Money is not the bottleneck Deficits do not matter Output capacity matters What matters is inflation And inflation can be controlled, if you tax what you want to curtail Print and spend on green energy, tax SUVs.A must read This book is gonna cause a revolution in economics A New York Times Bestseller 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 societyStephanie 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 countryKelton 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, crowd out private investment, and undermine long term growth, and that entitlements are propelling us toward a grave fiscal crisisT, 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 Stephanie Kelton is an economist, an economics professor, and a proponent of modern monetary theory MMT I ve been interested in MMT for a while, and I read a chapbook by Warren Mosler, often described as the originator of MMT Mosler was persuasive, but also dense and confusing, and I reserved judgment What s MMT Briefly, it is the belief that governments which issue their own currency fiat money should never worry about debts and deficits, as long as the economy has the real material Stephanie Kelton is an economist, an economics professor, and a proponent of modern monetary theory MMT I ve been interested in MMT for a while, and I read a chapbook by Warren Mosler, often described as the originator of MMT Mosler was persuasive, but also dense and confusing, and I reserved judgment What s MMT Briefly, it is the belief that governments which issue their own currency fiat money should never worry about debts and deficits, as long as the economy has the real material people, goods, resources it needs In the acknowledgments at the end of the book, Kelton thanks her editor, John Mahaney for cutting out charts, graphs, and jargon, and constantly reminding her of her readers interests and needs This review is a love letter to Mahaney, because this is the book I needed I know I m not alone.Using plain language, simple analogies, and clear explanations, Kelton makes an absolutely compelling case for MMT, and I can t find fault with her logic Basically, she walks us through the facts of money, asking one crucial question If the government creates the money, then we can only pay it back in taxes, because we only got it from the government in the first place One of her lovely examples is the game of Monopoly if the bank doesn t distribute money at the beginning of the game, there s no game She doesn t go into Monopoly s fascinating history, however Kelton is a realist She goes into the reasons we still need taxes, the reasons why it s important to manage inflation, and the limitations of MMT doesn t apply to U.S state and local governments, doesn t apply to countries not in control of their own currency She patiently and clearly refutes myths, explains wrong headed thinking, and builds her case Toward the end of the book, she starts talking about other deficits the U.S lives with because of our unswerving belief in federal money deficits I m intimately familiar with most of her statistics about education, health care, infrastructure, etc., but I find it fascinating to think of them as deficits which could be addressed with a different theory of government money.Don t be put off by negative reviews from conservative economists this is radical thinking indeed though not partisan and it s going to ruffle feathers and frighten horses I m thrilled that it made the NYT best seller list, which I don t think would have happened pre coronavirus She mentions the coronavirus briefly in the introduction, but the book was written before the U.S started handing out multiple trillions of dollars in stimulus funds, mostly to the people who need it least.If you are at all interested in rethinking how money works, this is the book for you The Deficit Myth is an important game changer in the world of economics My university degree was in this field, but in the days of Milton Friedman and monetarism there was no understanding of the critical themes that Stephanie Kelton teaches My days trembled at the sound of Margaret Thatcher, comparing the economy to her own house budget never spendthat you earn.Ms Kelton s teaching is that, for an economy that has control of its own money such as the US and the UK , this is untrue Th The Deficit Myth is an important game changer in the world of economics My university degree was in this field, but in the days of Milton Friedman and monetarism there was no understanding of the critical themes that Stephanie Kelton teaches My days trembled at the sound of Margaret Thatcher, comparing the economy to her own house budget never spendthat you earn.Ms Kelton s teaching is that, for an economy that has control of its own money such as the US and the UK , this is untrue The essence is that such an economy can spend its way through troubles and that it simply needs to understand a country s aims and then finance them The example of Kennedy s mission to get a man on the moon is central, but the crucial point is that unemployment can be eradicated by using money that can be supplied by the Federal government.Deficits are irrelevant Treasuries held by the Chinese offer no problem as they merely convert green into yellow with a little interest thrown in.Of course, this is right The objections to the theory result in the moves towards practice.First, economic theory used to be known as political economics which represented the way that nations wanted to develop Even if the theory expounded here is understood by some, will it be by enough and will the political nature of economics allow it to be introduced This brings a second issue, understood by those, like Richard Murphy and myself, who want to see taxation run better, with the eradication of tax havens and a focus on how tax can improve nations MMT Modern Monetary Theory, the centre of the book could be seen to argue that tax is irrelevant as funding from federal government does not need it Tax becomes a secondary issue, useful for showing how money is sucked away when needed e.g when inflation may be rising the key constraint on MMT and also as an aid to the allocation of resources amongst the population This is a political economics issue of the highest order.The third issue is how to implement the critical methods of running an economy in this way to ensure full employment, better use of resources, keeping inflation low etc when the old system keeping budgets etc at a macro level are no longer relevant The book offers up a number of suggestions.The fourth issue is how countries without such freedoms can work in such a world e.g from those in the EU that have given up their national rights to their own money to nations pegging themselves to the and how government areas below federal or national function For example, Texas does not have control over its money and has to budget like the rest of us How does it work in an environment where a Federal government might be seen to be taking over states rights This is an important work MMT is not new but The Deficit Myth will add an important framework to its future momentum.All three areas are important and difficult to make good TL DR The Deficit Myth by Stephanie Kelton explains a revolutionary finance theory in easy to understand terms It places the focus of government finances back where it belongs on helping citizens Highly Recommended.Disclaimer The publisher provided a free eARC of The Deficit Myth in exchange for an honest review.For the full review and others, visit Primmlife.com Review The Deficit Myth How many times have you heard people try to compare the government s finances to that of a household TL DR The Deficit Myth by Stephanie Kelton explains a revolutionary finance theory in easy to understand terms It places the focus of government finances back where it belongs on helping citizens Highly Recommended.Disclaimer The publisher provided a free eARC of The Deficit Myth in exchange for an honest review.For the full review and others, visit Primmlife.com Review The Deficit Myth How many times have you heard people try to compare the government s finances to that of a household Many of my conservative friends say that money coming in has to equal money going out because that makes sense It s how a family budgets For state and local governments even for some foreign national governments this analogy works But for the U.S federal government and any national government that issues its own currency, this analogy fails according to advocates of Modern Monetary Theory MMT In short, MMT is a theory of government deficit Proponents of this philosophy tell us that thinking about the federal government s budget acting like a household budget is wrong In The Deficit Myth, Stephanie Kelton explains MMT by debunking six common myths about U.S federal finances This radical approach to government finances could change the country forever Whether for better or worse, I ll leave that for the experts, but The Deficit Myth convinced me thatpoliticians should give some MMT policies a chance.Stephanie Kelton addresses six myths about federal government spending in The Deficit Myth The federal government should budget like a household Deficits are evidence of overspending Deficits burden the next generation Deficits crowd out private investments, undermining long term growth Deficits make the U.S government dependent on foreign governments Entitlements propel the U.S toward long term fiscal crisesDr Kelton devotes a chapter to each of these myths and explores in detail why each is false As evidence of her arguments, she uses history, basic accounting, and her experience in government The first, most basic part of her argument requires understanding the difference between a currency issuer, like the federal government, and a currency user, U.S citizens You see, unlike you or I, the government can print money out of thin air, or rather by typing out a command on a keyboard at the Federal Reserve.Everyone knows this fact, but economists of most stripes think this MMT fantasy And to be fair, it really does sound too good to be true After all, if we can just print money, what stops the government from printing continuously Dr Kelton answers that in the book in detail by pointing out how economists have erred in their economic predictions Just as she starts with myths and goes on to disprove the myths, Kelton describes the ideas of MMT s critics and then shows the flaws in their arguments The whole book is written in terms that I, not an economist, could easily understand The Deficit Myth by Dr Stephanie Kelton becomes available from Public Affairs Books on June 9th, 2020.8.5 out of 10


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About the Author: Stephanie Kelton

Stephanie Kelton is an American economist and academic She is currently a professor at Stony Brook University and was formerly a professor University of Missouri Kansas City.


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