Linda Wainwright on a dissenting voice
The Deficit Myth by Stephanie Kelton published by John Murray
This book provokes a shift in perception that is difficult to unsee. Kelton is a leading proponent of Modern Monetary Theory (MMT) and was Chief Economist for the Democrats on the Senate Budget Committee with Bernie Sanders from 2014-16.
MMT is a description of how money actually works. Her premise is that a sovereign country which issues its own fiat currency can always meet its financial commitments. These commitments are constrained by ideology and not access to finance to “pay for” whatever expenditure is being debated.
MMT provides a framework for a people’s economy – one that works for everyone and not just for the well-resourced few. Kelton suggests that it is not the budget that needs to be balanced but the economy, defining a balanced economy as supporting sustainable, stable prices and full employment. She warns that we should be worried about inflation and not the size of the government’s budget deficit.
The book outlines the many functions of taxation (interestingly, not to pay for services but to ensure an equitable distribution of the wealth a country produces), ways of controlling inflation and dealing with trade tariffs (automatic right to a job guarantee to counteract the economic and social ravages of unemployment). Kelton outlines the real deficits which are important to address in both the USA and UK, such as deficits in healthcare, employment, education, infrastructure, climate, and democracy.
The book is very timely in this current period of vicious trade wars and yet another round of austerity. Listening to the all too familiar cries of “living within our means” and “but how will we pay for it?” is a constant reminder that the traditional economic theories are firmly entrenched in the government and banking world mindset. It would appear that condemning millions of people to the miseries of the fallout of orthodox fiscal and monetary policies is just the price of doing capitalism.
Surely, it’s time to look at alternatives and build a balanced economy which benefits all of us. Where is the voice of dissent? Why are governments and economists so focused on demonising the budget deficit? Why is Kelton dismissed and mocked by orthodox economists? What happens if Kelton is right…?
So here’s the “sophisticated” version of the Magic Money Theory, or “Print as much money as you like”. If the UK was entirely self-sustaining, ie no need to export or import, MMT might be possible. It isn’t and never will be. We borrow widely and continuously, so the value of our currency is constantly varied by how it compares with other currencies. As ever, the real golden rule is “you can borrow as much as you want, providing others will lend to you – and you are willing to accept their terms.” Go check what happened to Venezuela, Zimbabwe and Weimar Germany.