The Deficit Myth
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 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, crowd out private investment, and undermine long-term growth, and 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.

The Deficit Myth Details

TitleThe Deficit Myth
Author
ReleaseJun 9th, 2020
PublisherPublicAffairs
ISBN-139781541736184
Rating
GenreEconomics, Nonfiction, Politics, Finance

The Deficit Myth Review

  • David Wineberg
    January 1, 1970
    We’ve wasted a century looking at government as if it were a family or a business. It isn’t. As the monopolist controlling American currency, the government doesn’t ever have to worry about running out of money. It can always fund social security and Medicare, and many other programs besides. Instead of fiscal deficits, we should be looking at the deficits in society, because we can do everything to alleviate them with our currency power and expanded deficits. This is the essence of the powerful We’ve wasted a century looking at government as if it were a family or a business. It isn’t. As the monopolist controlling American currency, the government doesn’t ever have to worry about running out of money. It can always fund social security and Medicare, and many other programs besides. Instead of fiscal deficits, we should be looking at the deficits in society, because we can do everything to alleviate them with our currency power and expanded deficits. This is the essence of the powerfully shocking The Deficit Myth, economist Stephanie Kelton’s book on Modern Monetary Theory.Written without a mathematical formula or spreadsheets to bamboozle the reader, this most readable book lays out how America came to this point, and how very much more it could do for itself if it would just open its eyes to it. Kelton is a proponent of Modern Monetarist Theory, MMT. She learned from Warren Mosler, who pieced it together over a lifetime of observations. She has been researching and speaking about it for decades, with little evidence of success. Kelton says America does not use and does not need taxes to fund its operations. Taxes simply create demand for the sovereign currency. All Americans need dollars to pay taxes at all levels. Without that necessity, no one would care for American money. Taxes do allow governments to provision themselves without the use of force, she says. But if the government manufactures the currency, it doesn’t need the tax money to operate day to day. It just creates dollars as it goes. That’s how it works today, and taking things to the next level would create wealth and comfort for all. Here’s the part that requires rewiring brains: Fiscal surpluses suck money out of the economy. If surpluses persist for too long, eventually the economy will hit a wall, she says. Less money circulating means slower business, and added debt for non-government entities, which they can’t pay off. In six major recessions, each was preceded by a period of balanced budgets. If surpluses take money out of taxpayers’ hands, fiscal deficits spread the wealth outside the government to the private sector and to other countries. (Instead, current wisdom says government sending crowds out other investment.) Deficits naturally drive interest rates to zero, she says. While not an MMT economist, I learned this the hard way (is there any other) in the 2008 financial crisis. When the Fed pumped a then incredible seven trillion dollars into the economy by magically creating new dollars it handed out to banks, I reasonably figured this would dilute the currency and cause it to fall. Interest rates should therefore rise dramatically, because US money would be worth so much less. You can’t suddenly print seven trillion additional dollars without it affecting the currency, I believed. History shows the dollar has gone only one way – up, and interest rates have gone only one way – down. This is Alice in Wonderland, unfathomable and upside down. But it’s the way things really work, not the way things are taught. Our lying eyes are all that keep us from the safety, security and prosperity that the world’s most powerful currency provides in the form of expandable deficits. It didn’t always work this way. History demonstrates how constrained the country was under the gold standard, when money could only be issued if there was gold stored somewhere to back it. It made growth minimal, and recessions frequent. (It’s why kings of olde had to borrow from international financiers to fund their wars.) American banks used to issue their own dollars, and when they failed, the money disappeared. FDR broke away from the gold standard and Nixon killed it, freeing the Fed, which was only invented in 1913, to manipulate the dollar and interest rates as needed. The Fed was given the monopoly.The Fed has since learned it can inflate its own balance sheet without damaging the economy, which seems to have never occurred to anyone before. Or they would have used it instead of struggling with outdated tools in every recession. Monetarists claimed to be able to manage the economy and deficits by throttling or increasing the money supply. Fed Chairman Alan Greenspan thought unfettered capitalism would allow him to sit on the sidelines and watch the economy grow controllably forever. This creeping evolution of fiscality also incorporates monopoly power over the currency, but pathetically, no government has taken advantage of that power except in crisis.It’s not just the budget deficit, Kelton says. The trade deficit is only a negative factor if the government’s fiscal deficit is smaller than the trade deficit. Otherwise it is harmless. The business of the trade deficit shrinking the economy is a leftover from the gold standard constraints. The trade deficit not only loudly proclaims the wealth of the USA, but provides US dollars to exporting partners, raising their standard of living as well as America’s. Focusing on reducing the trade deficit is not only a waste of time, it is harmful, as tariffs hurt American exporters, importers, producers and consumers alike. It is tariffs that shrink economies, not trade deficits.All federal spending is done the same way – the Fed credits the appropriate bank accounts. Gold is not shipped, nor are hundred dollar bills. It’s all done on a keyboard at the New York Federal Reserve. Nobody waits for taxes to be paid first. It’s the same in most countries that have their own currencies. So Japan and the UK operate the same way, and could use their currencies to boost everyone if they chose to. Countries that are users don’t have that power. The most notable mess that creates can be seen in Europe, where euro nations cannot print their own money. Ironically, the euro itself is a solid candidate for enlarging fiscal deficits for the good of all, but the European Central Bank is totally unwilling, so the power goes unused, and all the countries suffer the austerity of trying to keep their deficits within 3% of GDP. With the coronavirus pandemic, they are desperate to spread some wealth, but they can’t. And America is afraid to do more than send a small check to everyone – one time only. Finally in 2015, Kelton was invited to be the chief economist for Democrats on the Senate Budget Committee. She was invited, almost of course, by Bernie Sanders, one of the few who gets it. Deficit spending has the power to change government completely, and by extension, the lives of all its citizens. And all at no additional cost. It is, or should be, the privilege of being American. But Democrats are as hard a sell as Republicans.Kelton knew she would have a hard time on the Senate Budget Committee, and she was right. Getting this message through the skulls of senators who were elected on budget slashing and deficit reduction platforms is no small task. Kelton and Mosler demonstrated the near impossibility with a Congressman.She and Mosler called in a favor and met for an hour with a member of Congress. He squirmed uncomfortably at the facts they presented, until 45 minutes in, when the light suddenly came on. He got it. But he said he could never say it himself. He couldn’t be the voice of reason, the man with the solution, who stood out from the consensus (even if the consensus was clearly taking the country in the wrong direction). He would rather fit in and live the lie. Is there anything else voters need to know about their political parties?Kelton says: balance the economy, not the budget. The fiscal deficit is not nearly as critical as the welfare deficit, the healthcare deficit, the education deficit, the infrastructure deficit…. Medicare for all would not bankrupt the country, it would free up trillions to be spent on other things, saving many individuals from personal bankruptcy and others from death. It would boost the economy.There is risk in spending more freely. The biggest risk is inflation. The economy must be monitored to ensure the spending doesn’t exceed the country’s capacity to produce. That would create an inflationary spiral, cheapening the currency and causing interest rates to rise. So leaving the spending part in the hands of the politicians is not viable. Kelton calls for an automated response, like unemployment insurance, which expands in hard times and contracts in good times, without interference from Capitol Hill. She prescribes a guaranteed federal job. Anyone who wants a job could work for the government at a livable wage, with benefits. This allows them to keep looking for other work while gainfully employed, a huge advantage. It lets the government build out infrastructure, community works, hospitals – anything that needs people power. And it keeps everyone employed. Because one of the more idiotic aspects of they way things run now is the NEED for unemployed people. The Fed maintains there is a natural level of unemployment which varies with inflation. In order to maintain proper inflation, the Fed wants to see a certain percentage unemployed. So America has never had real full employment, because it thinks that is bad. Some Americans need to suffer if the country is to prosper, is their modus operandum. Kelton says an “automatic stabilizer” of a guaranteed federal job will do far more for the economy and keep it going right, producing at full capacity.I was surprised she didn’t go farther and discuss a universal basic income, which has not only shown to stimulate business and lower poverty, but is also profitable to the government because all the entitlement programs would go away, with all of their applications, interviews, investigations, denials, prosecutions, appeals and bureaucracies. Maybe next book.The USA will stay mired in the doom and gloom of the current recession only because its leaders want to, not because it has to. There should be some advantage to being an American, and not have to suffer to the same extent as countries that don’t have powerful currencies. Expanding the budget deficit costs nothing and grows the economy positively. For all the decades of crying that deficits hamstring our children, no one is suffering from the record of deficits of World War II or Vietnam or the Reagan ballooning. The truth is federal deficits are not only good, they are important tools, and yet, we fight to avoid them.I can’t imagine a more exquisitely timed book. Just when the coronavirus pandemic has destroyed much of the economy, as unemployment soars, millions are behind on rent or mortgages, the government is fumbling around with squirts of help here and there, and mostly for giant corporations (again). Now is clearly the time for MMT to shine. A universal basic income will clearly not only not hurt the economy, it will demonstrably rev it up. A guaranteed federal job would do the same for working age Americans. Not using this no-cost advantage is criminal.The Deficit Myth is about the most hopeful book you can read right now. The more people who understand this, the sooner America can regain its world-beating stature.David Wineberg
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  • Peter Tillman
    January 1, 1970
    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": https://www.wsj.com/articles/the-defi... (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": https://www.wsj.com/articles/the-defi... (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.
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  • Milind Hegde
    January 1, 1970
    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 more, 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 more, 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's more stylistic. 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 much more powerful 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 representation more fundamental 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 even more doubtful. But the world doesn't care about those academic boundaries, and I wish the book had taken a broader view, combined with a more optimistic 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 much more knowledgeable than me is at https://jacobinmag.com/2019/02/modern..., and a primer on MMT at https://www.vox.com/future-perfect/20.... Shorter, and you'll learn most of everything you would from the book.
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  • Gea
    January 1, 1970
    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.
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  • Mehrsa
    January 1, 1970
    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 bit more there. Still, the book does the job fully and I hope more people take heed.
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  • Zoltan Pogatsa
    January 1, 1970
    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.
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  • Chaitanyaa From Teatime Reading
    January 1, 1970
    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...
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  • Debbie Notkin
    January 1, 1970
    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.
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  • Jeff Kaye
    January 1, 1970
    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 spend more that 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 spend more that 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.
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  • Eric
    January 1, 1970
    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 that more politicians 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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  • Justin
    January 1, 1970
    ***I was granted an ARC of this via Netgalley from the publisher.***We all have been told about the dangers of the USA deficit. If it gets too large then our children will bear the burden and that is a sign that we are spending irresponsibly. One party wants to tax the rich to solve the problem while the other wants to cut funding for social problems. However, in the book, The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton, seeks to dispel those my ***I was granted an ARC of this via Netgalley from the publisher.***We all have been told about the dangers of the USA deficit. If it gets too large then our children will bear the burden and that is a sign that we are spending irresponsibly. One party wants to tax the rich to solve the problem while the other wants to cut funding for social problems. However, in the book, The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton, seeks to dispel those myths and show how the deficit is an asset, not a threat. She does a good job at breaking down the deficit issue into 6 myths, dedicating a chapter to each one, showing why that particular myth was not true. Kelton has this book to be easy to be digested by someone who has no economic background which is the idea because the book's purpose is to get the reader to try to imagine an America where the question is not 'How do we afford this?' but where we prioritize the welfare of our citizens. Rating: 4/5 stars. Would recommend to a friend.
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  • Gergo
    January 1, 1970
    Important topics discussed but the style is really annoying:-The book seems to argue that everyone is an idiot not understanding how the system works (particularly money creation and public debt). -MMT is the solution to everything, we were just blind not to see it before.Actually the ideas offered here are not new, MMT is just a brand created to help selling them (which is fine with me).I think a better, shorter, more objective write-up on the topic is from Ray Dalio, and it is free to download Important topics discussed but the style is really annoying:-The book seems to argue that everyone is an idiot not understanding how the system works (particularly money creation and public debt). -MMT is the solution to everything, we were just blind not to see it before.Actually the ideas offered here are not new, MMT is just a brand created to help selling them (which is fine with me).I think a better, shorter, more objective write-up on the topic is from Ray Dalio, and it is free to download and read:https://economicprinciples.org/downlo...
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  • Shriram Venkataraman
    January 1, 1970
    Most of soc dems and leftists already know that we can run massive deficits as the US government controls the dollar and we can't go bankrupt. Give it as a present to your liberal friend who is misinformed. If your friend is a right winger, don't worry about it. They are lost cause.
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  • Robert
    January 1, 1970
    It has been about a week since I finished reading The Deficit Myth and I have not gone more than a few hours without thinking about it. By that measure, it is an excellent book. Every article, essay, or paper I read about economics or markets is now shaped by this book. Many times I find myself driven mad by an author's clear misunderstanding of how government spending works. I have The Deficit Myth to thank for that.My view on government spending and economics in general has very much been alte It has been about a week since I finished reading The Deficit Myth and I have not gone more than a few hours without thinking about it. By that measure, it is an excellent book. Every article, essay, or paper I read about economics or markets is now shaped by this book. Many times I find myself driven mad by an author's clear misunderstanding of how government spending works. I have The Deficit Myth to thank for that.My view on government spending and economics in general has very much been altered by this book. The main argument of the book is that the constraint on government spending should be inflation, not the government deficit. The more I think about this argument, the more it seems correct to me. Uncle Sam, or any monetary sovereign, can print as much money as he pleases. Even most critics of increased government spending will use inflation as an argument against it. In the first few chapters of the book, Dr. Kelton does a great job of laying out her arguments and the supporting evidence. My issue with the book, and the reason I am rating it 4 stars instead of 5 come in the last few chapters. Modern Monetary Theory as it is laid out early in the book is a view on how we should think about government spending from a monetary sovereign. What it is not, is a prescription of what ails our society today. In the last few chapters, Dr. Kelton lays out what she sees as the deficits that really matter and what she would do to fix them. The issues and answers are laid out as though they are natural extensions of Modern Monetary Theory. In reality, however, they are Dr. Kelton's opinions.I do not disagree with the deficits that she lays out as being the real problems in our society and I do not have a problem with her including her opinions and prescriptions in the book ("the Birth of the People's Economy" is in the subtitle of the book after all.) But they are laid out in the book as though they are natural extensions of Modern Monetary Theory and I think that is incorrect. Two people can agree that the proper constraint on government spending is inflation, but disagree on whether a federal jobs guarantee is good policy. If you buy into the idea that what matters, when determining how much and how the government should spend, is the economy's ability to absorb the spending, then it should follow that infrastructure and education spending should be higher. As long as the funds are not wasted, building out infrastructure and increasing education should both increase the productive capacity of the economy, therefore increasing its ability to absorb spending. The other deficits and arguments are more of a moral type that incomes should be more equal, democracy should be more well shared, and the government should do more to combat climate change. Again, I would agree that these are all real problems in our society and I agree that when debating how to solve these issues, the deficit should not be discussed. However, these are not primarily economic problems. They are societal problems and people can disagree with how, or whether they should be combated for many non-economic reasons. In the case of a federal jobs guarantee, in particular, determining what jobs we would have people do will be a very difficult task. Also, I believe that if we were to immediately increase the incomes of many people through government decree, that would lead to inflation, at least in the short term. Such a policy would be very difficult to design well. If you believe the main argument of the first portion of the book, paying for it would not be the issue. But the fact that we can pay for it does not automatically make it good policy and that is how it is framed in the book.My final takeaway from this book has little to do with the book itself. For years, I have judged MMT by what I have read from its critics. Many of whom, I imagine, won't take the time to read this book. We have all heard it referred to as "Magic Money Tree" and read articles claiming that it calls for no restraint on government spending. So my advice is don't judge a theory by its critics. Take the time to read and learn from those you think you disagree with, you might find that you are in the wrong.
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  • Budd Margolis
    January 1, 1970
    Stephanie Kelton explains that at first, the very concept of Modern Monetary Theory will naturally be met with confusion and disdain as MMT flies in the face of our traditional beliefs that the Government's deficit is the same as a household budget. It is not and as she explains how things work, one begins to understand how MMT can work and applies to the economy and our concept for Democracy that benefits the citizens rather than corporations. Eventually, the "Cassandra" effect takes over and o Stephanie Kelton explains that at first, the very concept of Modern Monetary Theory will naturally be met with confusion and disdain as MMT flies in the face of our traditional beliefs that the Government's deficit is the same as a household budget. It is not and as she explains how things work, one begins to understand how MMT can work and applies to the economy and our concept for Democracy that benefits the citizens rather than corporations. Eventually, the "Cassandra" effect takes over and one see's the light. MMT is not perfect or a cure-all, it has to be managed but could be very useful and would benefit all nations who control their sovereign currency.There are many examples with statistical support of the MMT and understanding how our deficit system works indicates that there is the capacity to do good but our politicians choose otherwise.Balancing the deficit usually precedes a recession or depression. The way we look at imports is also wrong and NAFTA and the renegotiated hardly different USMCA, and other agreements, have caused inequality to increase. Too much wealth hoarded and held by too few does not improve our economy.We can find $80b for the military without hesitation or much discussion but each and every cent of the Social Security EARNED ENTITLEMENT is fought over? Kelton makes this material easy to digest and one is left with a better understanding of where we are as a country, economy and most importantly as a democracy. Thinking about the deficit as a shock absorber which helps to smooth out the economies path makes sense.Well worth the effort but do stick with this past the forward and first two chapters and the logic will become apparent. Highly recommended!
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  • Matthew Hall
    January 1, 1970
    This is the book I wish I'd had when I first learned about MMT a few years ago. Instead of wading through numbers and percentages and bafflingly gnomic economic screeds from men in pantaloons, Kelton provides a clear, concise description of, and argument for both the descriptive power of MMT and a Federal Jobs Guarantee.That descriptive sense is incredibly important. For too long, we've unthinkingly internalized economic nostrums like "government needs to learn to live within its means" or "how This is the book I wish I'd had when I first learned about MMT a few years ago. Instead of wading through numbers and percentages and bafflingly gnomic economic screeds from men in pantaloons, Kelton provides a clear, concise description of, and argument for both the descriptive power of MMT and a Federal Jobs Guarantee.That descriptive sense is incredibly important. For too long, we've unthinkingly internalized economic nostrums like "government needs to learn to live within its means" or "how will we pay for [x]" or "but the dEbT!!!" What Kelton so effectively conveys is that these nostrums are just a narrative reinforced by those in power. That narrative of austerity and lack of resources, like all narratives, can be changed. We can instead offer a narrative of how sovereign currencies are created and spent by society and by the government.It also reinforces for me the utter absurdity that shrouds "Economics" as some kind of wise, time-tested science of settled truths. It's really little more than abstruse philosophical tracts arguing semantics. Don't worry if someone has a PhD from a fancy school and discusses the unalloyed truth of supply and demand-- the truth is that from Adam Smith to David Ricardo, Karl Marx all the way up to Karl Polanyi and Milton Friedman, what seems like solid, indisputable math is based on enlightenment and 19th century texts that are a) not necessarily ideologically clear and b) written by a bunch of old-timey white dudes with silly outfits and silly hair cuts. It's easy to feel intimated by Reply-Guys on the internet or Fox News. I think this book goes a long way towards breaking down whatever perceived "expertise" people have in talking about economics and governance and in turn creates an accessible approach for non-experts to make the case for government spending on ourselves.
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  • Eric Bottorff
    January 1, 1970
    Highly recommended for anyone who wants to understand MMT, government spending, and what the actual restrictions are on government policies. Definitely one of the best macro books written for a public audience in the past decade.If you are already familiar with this material, you will probably not learn much new, though having all of this in one place, and so clearly explained, is always intellectually clarifying/helpful. The best parts of the book are the core chapters in which Kelton debunks s Highly recommended for anyone who wants to understand MMT, government spending, and what the actual restrictions are on government policies. Definitely one of the best macro books written for a public audience in the past decade.If you are already familiar with this material, you will probably not learn much new, though having all of this in one place, and so clearly explained, is always intellectually clarifying/helpful. The best parts of the book are the core chapters in which Kelton debunks some common myths about the debt, taxes, spending, etc--I will likely be assigning these chapters of the book to my Principles of Macro course going forward. The last two chapters on the "real" deficits of our economy and building an economy that work for the people are solid, if not exactly original (though she makes no claim to be, in all fairness). And, as with her MMT colleagues, she makes a compelling case for a job guarantee on the grounds of both economic stabilization and basic morality, though I remain unconvinced that it would stabilize inflation (not saying it definitely wouldn't, just that I am less sure of this than she is). So basically: a must-read for anyone interested how to create a just economy, and how government fiscal and monetary policy actually work.
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  • Youshay
    January 1, 1970
    A must read for all Americans, especially right now. MMT and the debunking of the deficit myths are pivotal in creating a better federal govt budget. Knowing the real limits of fed spending will undoubtedly change the way average Americans view adding to the deficit. A better future is not a pipe dream. MMT guarantees that the tools are there, however the wielder of the tools (congress) don't use them and if they do it's usually not in the interest of the average American. Breaking down all the A must read for all Americans, especially right now. MMT and the debunking of the deficit myths are pivotal in creating a better federal govt budget. Knowing the real limits of fed spending will undoubtedly change the way average Americans view adding to the deficit. A better future is not a pipe dream. MMT guarantees that the tools are there, however the wielder of the tools (congress) don't use them and if they do it's usually not in the interest of the average American. Breaking down all the myths chapter by chapter one begins to get the sense that not only can we create a more robust country, it's not even as hard as we thought. Once the book is finished it becomes apparent that we can do much better as a country, and at this point, armed with the knowledge of how to get there it seems like only a matter of time and effort.
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  • Aisha
    January 1, 1970
    I recieved a free copy from netgalley in exchange for an honest review. This book introduces an entirely new concept for me as someone who isn't an economist. The book presents is clear terms the idea of the federal deficit being unimportant due to the fact that the US produces it's own currency and therefore can fund any programs its needs to without worrying how to pay for it. It takes a lot of what I teach in my classroom as an economic teacher and flips it. While I feel like I need to read a I recieved a free copy from netgalley in exchange for an honest review. This book introduces an entirely new concept for me as someone who isn't an economist. The book presents is clear terms the idea of the federal deficit being unimportant due to the fact that the US produces it's own currency and therefore can fund any programs its needs to without worrying how to pay for it. It takes a lot of what I teach in my classroom as an economic teacher and flips it. While I feel like I need to read and learn more before introducing these concepts into my classroom this book is a great starting point. The chapters are set out in a logical way and the examples provide help clarify the points.
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  • Grant
    January 1, 1970
    An absolute must read for anyone who wants to argue better when it comes to government spending and how to bust myths surrounding the economy.
  • Yannick M
    January 1, 1970
    Read this instead https://www.vox.com/future-perfect/20... Read this instead https://www.vox.com/future-perfect/20...
  • Peter
    January 1, 1970
    Modern Monetary Theory (MMT) is all the rage—at least on the internet—since the 2008 financial debacle, and Stephanie Kelton is its Pied Piper. While teaching economics at the University of Missouri, Kelton served as an advisor for Senator Bernie Sanders during his 2016 campaign for the Presidency. She is now on the economics faculty at Stony Brook University. Kelton's short but sweet book—The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy (2020)—is the most complete Modern Monetary Theory (MMT) is all the rage—at least on the internet—since the 2008 financial debacle, and Stephanie Kelton is its Pied Piper. While teaching economics at the University of Missouri, Kelton served as an advisor for Senator Bernie Sanders during his 2016 campaign for the Presidency. She is now on the economics faculty at Stony Brook University. Kelton's short but sweet book—The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy (2020)—is the most complete exposition of MMT. It's an easy book to read: short (under 300 pages) and written in "soccer mom" style with anecdotes about people and places she's seen on her hunt for truth. Fortunately, it also offers tasty food for thought, though, as you'll see, I remain skeptical and suggest reading it as part of your study of the broad issues raised.Early Influences on MMTKelton tells us that MMT is derived from the Chartalist school of monetary theory. Chartalism had some earlier proponents but it first arrived in The State Theory of Money (1905) by German economist Georg Friedrich Knapp. A member of the German Historical School, Knapp was interested in the history and function of different monetary systems, with special attention to fiat money vs. "metallism." Knapp argued that money did not arise as a way to improve the efficiency of exchange, the still-common view. Rather, it came to being as a way for the state to finance its activities. The connection between Chartalism and MMT is direct but space doesn't allow elucidation here.As a general rule, if a point of view hasn't gotten legs in well over 115 years, it probably is a fringe view to be put on the shelf labelled "quackery." But Knapp was only the beginning, not the end, of MMT.What Is Modern Monetary Theory?MMT is neither Modern, nor is it Monetary, nor is it a Theory. It is not Modern because it is a straightforward extension of the message in John Maynard Keynes'General Theory of Money, Interest and Prices (1936) and of the later message in Abba Lerner's 1948 Functional Finance, to which Kelton refers. It is not Monetary because it fails to make the important distinction between Federal debt finance and money-creation by the central bank—only if the central bank monetizes federal debt does that distinction disappear. Of course, that's what MMT proposes.It is only arguably a Theory because a distinctive characteristic of a theory is that it is testable and no tests are proposed, though historical experience suggests contrary evidence which Kelton lightly dismisses. Underlying MMT are some truths that both Kelton and Mainstream economists would readily accept:1. The chief characteristic of a healthy economy is that all of its real resources (plant, equipment, materials, and labor) are fully utilized, that is, the economy is at "full employment."2. The rate of inflation is the best indicator of national finances being out of balance. Wise policy limits inflation to an acceptable range, not necessarily zero but not high enough to create high transaction costs such as widespread resort to barter exchange.3. The federal budget is important in dividing the output of the economy between private goods and public goods—entitlements, education, defense, health care, and so on. In a fully employed economy increased government spending must be accompanied by a diversion of resources to the production of public goods and away from production of private goods. The federal budget is one important mechanism.There is one startling conclusion from MMT. For a nation with "monetary sovereignty," meaning that it issues its own currency and the value of that currency floats relative to other national currencies, the size of the federal deficit (or the level of the national debt) is irrelevant to economic health. A corollary is that a country like the U. S. can spend any amount it chooses on public goods—health care, education, welfare, housing and food allowances, infrastructure, national defense, and so on—so long as the red light of inflation doesn't flash. There is no danger point at which the federal deficit or the accumulated national debt become excessive, until inflation emerges. So much for the politicians who decry the size of the federal deficit. So much for the silly devices that supposedly limit Congressional power over the deficit: PONGO in the House, which requires cutting spending or raising taxes to finance new programs; bye-bye to the Byrd Amendment, the Senate equivalent of PONGO; Ta-Ta to the silly annual exercise of raising the national debt limit. The alchemist Isaac Newton would have appreciated this new world.MMT AlchemyThe alchemist Isaac Newton would have appreciated this new world. But how does the alchemy work? Normally one thinks that unfettered issuance of federal debt to finance a budget deficit could ultimately result in the possibility of default. Look at Greece in 2010: government debt had exploded —mostly to provide employment and benefits to the population—in the decade since the Euro became Greece's currency. But when the international financial crisis hit in 2007-2008, the Greek government found its tax revenue (in Euros) so reduced that it could no longer service its existing debt or issue new debt to pay for retirement of maturing debt. And the European Central Bank balked at providing financing because the agreement creating the Euro Agreement had failed to establish a mechanism for rescuing member-nations in trouble. How could there ever be trouble?When Greece eliminated the drachma it gave up its monetary sovereignty—it no longer issued its own currency. If it had not done this it could have paid its bills and its debt service: the Greece central bank would simply monetize the government's debt, that is "print money" to induce investors to willingly shift from Greek bonds to Greek drachmas. The only important effect would be that the investors would now hold government debt (drachmas) that didn't pay interest.And so the United States, the country with the greatest monetary sovereignty in the world since Nixon put an end to dollar-gold convertibility in 1971, can always pay its bills by monetizing Treasury bills, notes and bonds—or just by directly issuing money. Assumptions Underlying MMTEvery "theory"makes assumptions about the underlying conditions that make it applicable. An important assumption underlying MMT is that the central bank will monetize the national debt if private investors or foreign governments begin to repudiate it. Monetization is not a costless decision—some political sovereignty is sacrificed to the goal of maintaining monetary sovereignty. That's because The Federal Reserve is a creation of Congress and subject to laws enacted by Congress. The political choices—the options available to Congressional lawmakers—will be limited if monetary sovereignty is the primary goal. Among those limits are that the U. S. can never adopt a fixed exchange rate system, and it can never have an independent monetary policy. MMT would eliminate the Federal Reserve System. There has been some experience with monetizing the debt in the U. S., and the Federal Reserve System developed a dim view of it. During and after WWII there was a formal practice of monetizing the national debt: the Treasury forced upon the Federal Reserve System a practice of "pegging the bond rate." The interest rate on federal bonds was kept below its equilibrium level and, to prevent bond rates from rising, the Fed was forced to purchase government bonds, that is, to monetize the debt. The result was a significant increase in growth of the money supply and in aggregate demand, accompanied by the emergence of inflationary pressures that were quelled by price controls and rationing. In 1951 the Treasury-Federal Reserve Accord ended that practice, and since then the Fed has eschewed debt monetization. Without an Act of Congress requiring monetization, the Fed is unlikely to return to its pre-1951 practice. This alone suggests that MMT is a revolutionary idea. There is a second—hidden—assumption underlying MMT: that the economy has significant unemployment, i.e. that the initial state of the economy is consistent with that also assumed by Keynes and Lerner, who also argued that significant unemployment was the background required for benign increases in the federal deficit. To Keynes it was perfectly appropriate for government to borrow heavily when there was excess national saving, i.e. a deficiency in aggregate demand that resulted in significant unemployment. In fact, for many that was Keynes' only message. In the same vein Abba Lerner argued for use of both monetary and fiscal policy to eliminate excess saving and restore full employment: monetary policy should keep the interest rate at the level required to induce an "optimal" amount of investment; fiscal policy (spending and tax changes) should be aimed to absorb excess saving and create full employment.These forerunners of MMT assumed significant unemployment as an underlying condition. Is this true of MMT as well? I believe the answer is a resounding "YES." As Kelton says, the limit on "printing money" or issuing bonds for deficit finance is reached when inflation becomes a problem, and that happens when an economy is fully employed and straining for more. But she also believes that the U. S. labor force has chronically been underemployed so MMT won't induce inflation, it will just create more employment. As evidence for excess unemployment Kelton points to the five percent unemployment rate number that has been widely accepted as "full employment," and she points to the many workers who say they want a full time job but can only find part-time employment. But Mainstream economists have identified a variety of reasons why there might be unemployment at "full employment. Kelton pooh-poohs these.MMT and the Function of Taxes MMT makes the surprising claim that taxes have nothing to do with national government finance. What-Ho, you say! Well, Congress, she claims, doesn't work by levying taxes and then spending. It does just the opposite: it spends and then it brings part of that money back as taxes. Taxes don't finance spending—Spending finances taxes!! This is sophistry: it really makes little difference which way you describe it, but Kelton's way puts a spin on taxes that mentally reinforces a separation of spending from taxes. Are taxes simply a fabrication, a sleight of hand separated from financing government but created to enhance the value of money issued by the government? Yes, Kelton would argue, but wisely she sees that taxes do serve important macroeconomic functions. Perhaps foremost is that income taxes can be levied at different rates on citizens in different economic categories: the one-percenters can be taxed at high rates and the very poor can be taxed at low rates or even negative tax rates. Thus, taxes can be a mechanism for reducing economic inequality.In a similar vein, excise taxes can be used to increase the cost of some goods ("sin" goods) and reduce the cost of others ("merit" goods). That is, they can be used to alter the choices made by consumers in a (presumably) positive direction. The Economic Consequences of MMTSuppose we drink the Cool-Aid and believe that we can finance out of whole cloth all the proposals that Kelton whispered into Bernie Sanders' ears. I suggest that there is no free lunch—the bill still needs to be paid. But instead of paying it by debt/money, it might be paid by future problems.The easiest prediction is that a massive public program will emerge to provide free health care, free education, income and/or job guaranties, whatever sparkles. America will again be the land of the free. We won't have to increase taxes to finance this—it will all be financed by some form of national debt, either bonds or money—but there will be significant increases in taxes for other reasons. Certainly one-percenter (and lower) income taxes will increase, not to finance the new public spending but to prevent the inflation that will result when the new public spending is added to the existing private spending, all of it financed by "money." So this new spending is not a freebie: someone pays for it even if they aren't paying for it. In short, we will have to increase taxes to maintain a healthy economy—to divert production from now-private goods to the new public goods—thus avoiding the red flag of inflation. No new news there!So now we're in the brave new world of MMT. What next? Do we perpetually glide along the happy path of this new economy? For a variety of reasons, I suspect not. It's impossible to be specific about what might happen, but here's a general description. Eventually this happy world of ever increasing money supply, national debt, and taxes will experience a hiccup. Perhaps our citizens and the world no longer want to hold so much U. S. money and debt: perhaps a new international reserve currency takes the place of the dollar, forcing a sharp increase in money supply to pay debt off; perhaps we run out of the ability to increase taxes to tamp down demand because incentives to work and innovate are dulled by high taxation; perhaps national priorities change and a new public good constituency arises but we can't or won't pare down the existing public programs to make way for them. When that hiccup comes—and it will—we will be out of options and monetary sovereignty might become untenable.Then the foundation of MMT disappears and we are left with no way to oput the toothpaste back in the tube. The result is some combination of inflation cum financial collapse that launches the U. S. into a limbo of divisive choices and internal chaos. There is a long list of countries that have moved along the MMT path, introducing large new public programs and monetizing the debt issued to pay for it. Weimar Germany in the 1920s and Venezuela today are just two extreme examples (Kelton pooh-poohs these). The lesson from history is that the humane sensitivities that lead to MMT—concern for the disadvantaged and a belief that public goods are starved to advantage the rich—should be very carefully thought though before a leap. The Deficit Myth is a helpful part of that process, but it's the very beginning and extremely far from the end. There be Monsters here!
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  • Kumail Akbar
    January 1, 1970
    I was really looking forward to this book after having followed Professor Kelton on twitter, and after seeing the praise for this book there. However, this turned out to be even more disappointing than I could have imagined. When reading a book written by an economist, it is fair to expect the author to bring to their writing the methods usually employed by the same when publishing in journals. It is fair to expect the author to propose a model and cite its assumptions and limitations, to show h I was really looking forward to this book after having followed Professor Kelton on twitter, and after seeing the praise for this book there. However, this turned out to be even more disappointing than I could have imagined. When reading a book written by an economist, it is fair to expect the author to bring to their writing the methods usually employed by the same when publishing in journals. It is fair to expect the author to propose a model and cite its assumptions and limitations, to show how it is a better model than all others by comparing other models, to evaluate all available data, to carry out a historical analysis and to engage with prior models and theory that may be pertinent to what they bring to the table. But apparently that was too much to expect from this book. Let me state up front what I found interesting about the book. Her statements about what MMT is – the ‘correct’ way of looking at spending and deficits by a monetary sovereign are interesting. Her anecdotal example of people preferring to abolish the national debt but not abolish US treasury’s – a statement mostly about framing – is interesting. Her reframing of public deficits as a positive – an injection of capital from the government to the rest of society – is interesting. Her arguments regarding inflation only clocking in when a society’s spending starts to outstrip its capacity are somewhat interesting. Her reasoning that a monetary sovereign can wipe its debt out with a key stroke and citing Japan as an example are definitely worth thinking about. Her assertion that taxation exists to create demand for a currency and has a positive side benefit – siphoning resources away from the wealthy was interesting. Her proposal for a federal job guarantee and ‘automatic’ stabilizers for the economy other than by monetary mechanisms piqued my curiosity, and will do the same for any reader. However, none of these are evaluated in a remotely objective or scientific way. The author sets the stage early for a very slanted approach to this book when she begins with framing MMT as a necessity for her preferred positive outcomes (such as the Green New Deal, etc.). Suggesting these early on should already raise an eyebrow - if the monetary mechanics described are true and paint an accurate picture of reality, you would not need to peddle potential positive uses of the mechanics, the truth itself should suffice. But no the author is setting the stage for people who prefer the positive outcomes to focus away from critically examining her arguments as apparently, this theory alone would guide us to the desirable policy outcomes. The mechanics of MMT as described (and repeated ad nauseum) are as follows – a monetary sovereign cannot run out of a currency it itself prints, that the choice of unemployment is arbitrary and that the Federal Reserve maintains a level of ‘slack’ in the economy and that the only real risk is that of inflation which can occur when a society starts exceeding its productive capacity. True, technically a monetary sovereign cannot run out of a currency it prints. But is there no limit to printing? Nope acknowledges the author. Great, then what is the limit? Just not what Fed has arbitrarily chosen because of its faulty reasoning. That is a valid starting point, but then what is a more accurate limit? We are never given an answer except a vague – 'when the slack (supposedly full employment as defined by the author) is removed'. Meanwhile, no attempt is made to thoroughly examine any relevant historical evidence (such as the Weimar republic – which is dismissed in the last few chapters without adequately demonstrating how an MMT-esque approach would not lead to a Weimar style hyperinflation). Her other arguments also do not seem to be robust nor evaluated critically. A government can in principle ‘wipe out its debt’. But what happens the day after? If society can see a debt being wiped out by a keystroke, especially repeatedly, would it continue to treat that country’s bonds the same way? Would other countries continue to do the same? There may be merit to the argument when considering the case of the United States today, given the status of its currency but can *every monetary sovereign* get away with this? Not really. Markets and societies will respond and recalibrate with different responses to behaviors different from the status quo, an idea that the author never seems to consider. The claim that governments use taxation to create demand for currency, is another such argument. If this is true, then a state without taxes or extremely low taxes should not be able to create demand for its currency. This is never considered; we should simply take the author’s assertion at face value. Her notion of a job guarantee as a magic fix for unemployment and other economic woes is another woefully underexamined thesis. She does not seem to consider a dynamic employer market can price in a government job guarantee, that assumptions such as 'people unemployed for long durations are unemployable whereas if they had alternative employment with a job guarantee they wouldn’t be so' seems laughably static. What are the chances that a dynamic job market starts treating people on a government job guarantee the same way it treats those unemployed for long stretches? No that is simply impossible because it would not fit her neat model. The whole notion of a federal job guarantee comes without any specifics regarding its operations and seems to not consider the possibility of government inventing ‘make work’ nor does it consider historical examples such as those of conscription (oy vey, the Road to Serfdom creeping up!). Both would ‘end chronic unemployment’ on paper but would someone truly want make work or conscription and even if they do what exactly would their net contribution to society be? No examination of this takes place, all we get is an assertion that local governments can invest more in ‘well-paying jobs’ such as care giving, etc. as they know what communities need. Is there any consideration of alternatives to a job guarantee, such as a UBI? No that does not get talked about. How about the opportunity costs of a government employment guarantee, such as the possibility of reduced entrepreneurship and risk taking? In her world view a hotelier, a banker or a coal miner losing their job would somehow fluidly transition into nursing and paramedic care simply because the government guarantees that they could do so, whilst the rest of the economy continues as is because well ... er ... ceteris-peribus, duh. The whole thesis sounds laughably bad once you start picking at it. The rest of the book rambles on about her personal experiences with people in power who can influence or change policy before turning into what sounds like a summary of Stiglitz’ The Price of Inequality, coupled with extra chapters on climate change and a green economy. Are those interesting enough on their own? Maybe, but those are issues that have been talked about at length elsewhere. Does a thorough history of monetary and fiscal policy ever get discussed? Nope, unless you consider cherry picked examples to show where the author’s priors are confirmed in specific instances (Roosevelt’s New Deal, Kennedy’s space plans, etc.), and cases where conditions facing the economy are ignored and her political and intellectual opponents painted as devils with insidious intentions (Reagan, Thatcher, inflation and other economic issues of the 70s, 80s, etc.). The final chapter then seems to come full circle about how MMT does not come with a policy prescription, it is only an interpretation of a mechanism – which makes you wonder what the point of most of the book was.Overall, a severe disappointment. If you want to be well informed on what MMT proposes, there are better articles (and hopefully much better books) out there. Rating: 2
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  • Razi
    January 1, 1970
    Read it in 2 days and I am a slow reader with very bad eyesight. Someone moaned about inflation in an Amazon (UK) review so here is my review in response to that complaint: Yes, as a one star reviewer says "paper currency has been around for long time" and its excess causes inflation. Of course it does but the whole globe, every single one of the billions of humanity, are in dire need of more stable currencies like £ or $ as local currencies collapse under IMF and World Bank-imposed policies and Read it in 2 days and I am a slow reader with very bad eyesight. Someone moaned about inflation in an Amazon (UK) review so here is my review in response to that complaint: Yes, as a one star reviewer says "paper currency has been around for long time" and its excess causes inflation. Of course it does but the whole globe, every single one of the billions of humanity, are in dire need of more stable currencies like £ or $ as local currencies collapse under IMF and World Bank-imposed policies and huge public and private debt in those countries. It would take decades to have too much of sovereign currencies like £ or $. Inflation has been extremely low in sovereign currency issuing countries for decades in spite of low interest rates. Now is the time to use the power of £. The value of a sovereign currency is directly linked to a nation's productivity and clout as a reliable, stable society, able and willing to lead the world. Austerity creates infrastructure and human capital deficit and in medium turn would destroy the nation's ability to lead, diminish the clout its sovereign currency holds and impoverish the whole world by creating a fiscal vacuum. Contrary to popular Thatcherite wisdom, taxes pay for nothing in reality. Their main purpose is to keep inequality in check and stop individuals getting so rich that they would control governments for their own personal gain (something that's happening everywhere as a direct result of low taxes). Taxes burn money to control inflation. Imports distribute a rich nation's prosperity worldwide while controlling inflation at home. This is the main purpose of the foreign aid budget as well. Burn excess money through taxes, imports and foreign aid. If these mechanisms for recirculation of excess money are effective and robust, a sovereign currency issuing country can create as much money as it wants. Create money, invest in people and infrastructure, burn the rest through taxation and imports/ foreign aid. No inflation and more prosperity at home and everywhere else. Our human capital and infrastructure deficit alone would swallow trillions of pounds while creating millions of job, educating everyone, paying off tuition fees debts. This would take the super-rich tax dodgers off the gravy train, the ones who have become rich enough to buy both political parties and are influencing politics everywhere. Expect a lot of resistance from these mega-rich puppet masters but redistribution is the idea whose time has come. This book could create a revolution because Thatcherite politicians on both sides of the political divide would not let anything change without a fight. And one more thing: Margaret Thatcher was the biggest liar this country ever produced. £ is ours not "other people's money" , our only super power. Battered and bedraggled in recent decades but it still holds enough clout to make us prosperous and restore our station as a leading nation. Use this influence before it is lost forever and with it would go our prestige as a nation.This is a very timely book. Classical econimics became irrelevant after decoupling of $ from gold by Nixon at the end of Bretton Woods (1971). An unpegged sovereign currency depends only on the ability of a nation to keep its hegemonic influence, does not rely on price of gold or any other currency for its own value. This was something new, a game changer but we are still playing the game using concepts from classical economics because the change is entrenched in our economic system with many a billionaire relying on the old order of things to keep hold of their wealth. A country with unpegged, independent and sovereign currency can spend all it wants. Such nations don't have to run their budgets like households. They can borrow all they want as they can pay back all with a few keystrokes. They don't have to rely on exports to earn "foreign exchange" as their currency itself IS the foreign exchange that other countries strive to earn. As long as money stays in circulation performing its fundemental fuction as a utility for exchanges, as long as excess is burnt efficiently (exported, taxed, invested, spent, given away and paid in "interest"), there is no limit to what a country with a sovereign currency can do.There is a one star review here by someone who hasn't read the book and the Right Wing bias is evident from their diatribe. No $ or £ are totally different from Argentine pesso ($) or Vanezuela bolivar (Bs.). Those two are not unpegged sovereign currencies nor do the countries' sovereign debt is in their own currencies but is in $ mostly. $ being more stable, increases the amount of debt these countries hold when their currency goes down. UK or USA are not subject to any such foreign influence.
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  • James
    January 1, 1970
    If you’re going to read this book, don’t worry if you come away feeling like Gertrude Stein after she visited Oakland.Although I was disappointed in this book, there were some good points:First, I listened to the Audible audio book, read by Professor Kelton. She has a pleasant reading voice, even at 1.5X. I especially enjoyed when she imitated teenagers and children talking about monetary theory and macroeconomics.Second, it was funny. Maybe not intentionally so, but it was funny. My father used If you’re going to read this book, don’t worry if you come away feeling like Gertrude Stein after she visited Oakland.Although I was disappointed in this book, there were some good points:First, I listened to the Audible audio book, read by Professor Kelton. She has a pleasant reading voice, even at 1.5X. I especially enjoyed when she imitated teenagers and children talking about monetary theory and macroeconomics.Second, it was funny. Maybe not intentionally so, but it was funny. My father used to joke whenever he got a new box of checks in the mail, "I have lots of checks so I must have lots of money!" This book reminded me of my father's jokes. It was also funny when Professor Kelton talked about the time the national budget was accidentally balanced during the Clinton administration, then talked about the Great Recession. I don't think she meant to imply causality, but there you go. And the whole “yellow money/green money” thing is a hoot! "Red fish/Blue fish" redux. Unfortunately, it wasn't all yucks and impersonations. Here's the bottom line: Modern Monetary Theory isn't modern, nor is it monetary, nor is it a theory. More properly, it's "Keynesian Deficit Spending Fiscal Policy Hypothesizing." But I'm lazy, so let's stick to "MMT."Although my education in economics led me to classical liberalism, I recognize that socialism and classical liberalism have in common the desire to lift the poor to the highest level of well-being possible. The problem with socialism and its idiot cousin, communism, is that both rely on the eternal benevolence of others. Socialism relies on the state's wisdom and benevolence, while communism relies on everyone involved becoming angels. (I remember my freshman Poli Sci class when this became obvious to me. I burst out laughing. Even as a callow 18 year old I knew that people weren't angels and were unlikely to become so in a million years, much less over night, after the terror of the proletarian revolution ended).Anyway, MMT says the government can never run out of money as long as it retains the sovereignty to print its own currency. This is true.It's also true that deficit spending, i.e., government expenditures exceeding government revenues (usually taxes), is not necessarily a bad thing. The problem is knowing when to stop. You have to know when to stop or you catch a bad case of inflation. They didn't know when to stop in Weimar Germany. Or in Argentina. Or a few other places around the world. More of a problem is when someone without the intellect or wisdom to understand the limitations of deficit spending gets some political power, he or she is likely to think he or she can pay for any number of colorful new deals with this unlimited supply of funds, and convince armies of even less sophisticated followers that the only reason the government doesn't take care of everyone is because it's run by mean people.The book itself is overly repetitive and falls into the "Underpants Gnomes" trap of knowing what you want, knowing what you'll do, but not having any clear and logical plan in place to get there. (South Park: "Collect underpants", "?", "Profit." That "?" part is pretty important.) Professor Kelton seriously overreaches after the first three chapters; she stops being an economist and becomes a politician -- a Bernie Sanders socialist politician, which is what MMT is designed to support. I won't waste any time on her politics - either you believe that stuff or you don't.I thought this book could’ve benefited from one last, brief chapter, consisting only of the words, “Just kidding.” But no.
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  • Keith Wheeles
    January 1, 1970
    Highly recommended. For years I have followed Friedman's thinking that 'inflation is always and everywhere a monetary phenomenon' (more money supply, higher inflation) - but I have been puzzled by the Fed pouring money into the economy over the past decade without any inflation (as Keynes said 'pushing on a string' - the velocity of money has slowed). This book shifts my thinking to managing to an inflation target/limit rather than a money supply target. But my big two takeaways are:1. FISCAL po Highly recommended. For years I have followed Friedman's thinking that 'inflation is always and everywhere a monetary phenomenon' (more money supply, higher inflation) - but I have been puzzled by the Fed pouring money into the economy over the past decade without any inflation (as Keynes said 'pushing on a string' - the velocity of money has slowed). This book shifts my thinking to managing to an inflation target/limit rather than a money supply target. But my big two takeaways are:1. FISCAL policy should be managed to an inflation target/limit rather than a budget surplus/deficit. The question of the limits of government debt is an interesting one ('This Time is Different' by Reinhart and Rogoff is a quantitative historical exploration of those limits). The only limit to debt (for a country with independent control of its own money supply) is general faith in the currency. There are limits, as Reinhart and Rogoff's historical overview illustrates. And there seems to me to be risk associated with attempting to manage up to, but not beyond, such an uncertain point before it becomes a vicious cycle of losing faith. (But all macroeconomic targets involve uncertainty and some level of risk.)2. Reinforces the centrality of 'consumers' (in the macroeconomic sense) in discussions of income inequality in the US. Income equality gives outside political, legal, and social power to a small group - very bad thing. But having so much of the country's income pass into the hands of the wealthy ALSO cripples traditional macroeconomics. The wealthy have a low marginal propensity to consume - if you give a low-income person an extra dollar they will spend it in their own community on necessities of life, feeding the lifeblood of businesses who employ people like themselves. This is the underlying mechanism that makes the 'fiscal multiplier' work. But if you give the same dollar to a wealthy person (through a tax reduction, for example) they are more likely to save it, or invest it in a start-up, park it offshore, or buy luxury goods. America has a staggering and unsustainable level of income inequality, and it making the economy fail by destroying middle-class consumption (which in turn, along with foreign competition, is destroying middle-class jobs).
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  • Miguel
    January 1, 1970
    There is almost a cottage industry that exists to rail against MMT, and judging from the usual suspects who are most apoplectic about it there stands a very high probability that the ideas underpinning MMT should be valued based on those voices alone. Kelton is often upheld as a spokesperson, or at least one of the most well-known MMT adherents, and since one of the main MMT criticisms is that there is not a definitive theory this book does provide some cover, albeit a very cursory and a general There is almost a cottage industry that exists to rail against MMT, and judging from the usual suspects who are most apoplectic about it there stands a very high probability that the ideas underpinning MMT should be valued based on those voices alone. Kelton is often upheld as a spokesperson, or at least one of the most well-known MMT adherents, and since one of the main MMT criticisms is that there is not a definitive theory this book does provide some cover, albeit a very cursory and a general one at best. Kelton makes a strong case for heavier federal fiscal policy and expenditure and at the end of the book culminates in a full throated jobs guarantee proposal and a bit of detail on what would be involved in such a program. After reading the book I do have to side with those that are still a bit unconvinced about the actual mechanism and sausage making – that is, what’s actually under the hood for the MMT engine. It seems that relying on inflationary pressure is not the safest guardrail to be running the economy. And in terms of monetary policy, the book definitely feels a bit thin. There’s not a lot of discussion on interest rate policy and in terms of proposals like “letting the central bank buy up government bonds in exchange for bank reserves”, or phasing out issuance of Treasuries – these explanations don’t appear to be rock-solid defensible. In the afterward Kelton says that she was persuaded by her editor to leave out charts and equations on the cutting room floor – this seems to be an unforced error given all of the criticisms lobbed that it’s not a fully baked theory. And of course tax policy is not as fleshed out and convincing as many would like. In spite of that criticism, the book serves as a great reminder that government spending is not the same as personal or local state spending, and it’s an interesting lens on how fiscal policy should be viewed against such retrograde ideas like the gold standard. Kelton points out the many mistakes made in the past on fiscal policy and we’ll likely see made again in not dealing sufficiently with economic downturns and continuing inequality.
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  • Andrei Balici
    January 1, 1970
    The perfect way to describe this book is by comparing it with an earthquake. Just like a massive seismic shift, Stephanie Kelton manages to tear down to pieces landmarks that have been around for decades and centuries: the generally accepted economic theories. From the rubble, however, everything gets rebuilt: a people’s economy, free from the old limitations that allowed us to build structures so shock-adverse in the first place.“The Deficit Myth” presents the case of the Modern Monetary Theory The perfect way to describe this book is by comparing it with an earthquake. Just like a massive seismic shift, Stephanie Kelton manages to tear down to pieces landmarks that have been around for decades and centuries: the generally accepted economic theories. From the rubble, however, everything gets rebuilt: a people’s economy, free from the old limitations that allowed us to build structures so shock-adverse in the first place.“The Deficit Myth” presents the case of the Modern Monetary Theory. As Wikipedia defines it, MMT “is a heterodox macroeconomic theory that describes the currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.”I find it weird that MMT is so controversial. Under its fundamental and necessary condition of monetary sovereignty, all these must logically follow: a government can never run out of money, its fiscal deficit doesn’t matter and, shockingly, fiscal surpluses suck money out of the economy. There is a caveat though: every fiscal policy must take into account inflation and the resources within the real economy. At its core, MMT is about replacing an artificial (revenue) constraint with a real (inflation) constraint to promote prosperity and wellbeing.The problem of politicizing money is something which I wish was touched upon in this book. Sure, MMT describes the case in which governments issue non-convertible fiat currencies, but how does it compare to fixed exchange, fully convertible monetary system like the gold standard? I guess I will have to do more reading on this one…Kelton doesn’t just drop the bomb on the status quo: with the new MMT lenses, she starts proposing policies that seem very powerful, meant to help people out of poverty and overall increase the living standards to all of us.Very engaging, not very technical, concise and clear: “The Deficit Myth” is a much-needed gateway into the world of MMT. It certainly made me watch Warren Mosler’s interviews and Prof. L. Randall Wray’s lectures. My favourite so far this year!
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  • Hugh
    January 1, 1970
    I don't often read non-fiction and even more rarely do I read about the economy or finance. That being said, this book blew my mind! I can understand being put off by the author's repetitive style (although some of these are difficult concepts) and her very liberal beliefs for how and where the US Government should be spending its money (although I happen to agree with her ideas). I can even understand the reticence to buy in to Modern Monetary Theory and the way it turns most US economic thinki I don't often read non-fiction and even more rarely do I read about the economy or finance. That being said, this book blew my mind! I can understand being put off by the author's repetitive style (although some of these are difficult concepts) and her very liberal beliefs for how and where the US Government should be spending its money (although I happen to agree with her ideas). I can even understand the reticence to buy in to Modern Monetary Theory and the way it turns most US economic thinking on its head (although the author’s step-by-step introduction to how she arrived at these MMT conclusions convinced me).However, some of the facts the author presented astounded me.For example, I did not know that the entire national debt was made up of US Treasury securities, the oldest of which can be 30 years old. Most of it is bills and notes lasting 2 to 10 years. It is not a loan in the conventional sense. This means that politicians complaining that we are leaving debt to our children and grandchildren or that these “loans” will come due some day in a way that the government can’t repay are either ignorant or lying. Oh, and the government itself owns a huge amount of this debt, meaning that we owe it to ourselves.Also, I did not know that our taxes aren’t collected by the IRS or Federal Reserve. By that I mean that the money that you pay to the IRS isn’t funneled into some big account to be redirected by the government to pay for something. Instead your money is deleted. It is taken out of the economy.I found both of these assertions so incredible, that I’ve actually been working to verify them. Of course, emailing questions about the inner workings of money in the government isn’t easy, but I’m hoping to find some answers eventually.Anyway, I recommend this book. It was eye opening especially regarding how much our politicians either don’t know about how the US government handles money or how much they think we don’t know.
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  • Max
    January 1, 1970
    Overall this book makes a very good case for the first and easier half of MMT. It makes little attempt to deal with the larger challenges of implementing it, which is a shame.The book gives an overview of Modern Monetary Theory (MMT) which points out that governments which issue their own currency and borrow in that currency too can *always* find more money to pay for what they want, because they can "print" more. This includes the US and the UK, but not EU countries which share the Euro and not Overall this book makes a very good case for the first and easier half of MMT. It makes little attempt to deal with the larger challenges of implementing it, which is a shame.The book gives an overview of Modern Monetary Theory (MMT) which points out that governments which issue their own currency and borrow in that currency too can *always* find more money to pay for what they want, because they can "print" more. This includes the US and the UK, but not EU countries which share the Euro and not many developing countries which borrow in US dollars. Tax doesn't fund government spending, it just soaks it back up so there isn't too much demand in the economy which could lead to inflation. There seem to be two problems with this argument which the author glosses over. The first is that in an open economy, some of this spending will drive imports, which will either progressively devalue the currency, making the nation poorer, or will lead to foreign ownership of the nation's assets. The author assumes that foreigners will only choose to hold government bonds, which the government can always afford to fund, but provides no evidence that foreigners will not choose to purchase real assets too, leading to a situation where progressively the country runs out of real assets to trade for its imports.The second problem is inflation. The author points to this several times: if government spending (net of tax) coupled with non-government spending and imports is more than the economy can accommodate, there will be inflation. Two 'solutions' are offered for this: wage and price controls, and not worrying about it because the economy is almost never at full capacity. That's it. The author does see that inflation is a problem in theory, but seems to practice magical thinking in believing that it won't happen in practice.
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