Notes from Stephanie Kelton's The Deficit Myth - daseme/mutation Wiki

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Thesis

What would it look like if the government overcame the deficit myths [the concept of having to maintain a household budget] and started budgeting like a currency issuer instead of pretending that it needs to pay for its spending just like the rest of us? pg. 242

From the Introduction

First Myth: The idea that the United States federal government needs to budget like a household is pernicious... "MMT demonstrates that the federal government is not dependent on revenue form taxes or borrowing to finance its spending and that the most important constraint on government spending is inflation." pg. 9

Second Myth: "It is possible for the government to spend too much. Deficits can be too big. But evidence of overspending is inflation, and most of the time deficits are too small, not too big."

Third Myth: Deficits will burden the next generation. Ronald Reagan was one of the wort perpetrators of the myth that we would saddle our children with too much debt, because it's powerful political rhetoric. "As a share of gross domestic product (GDP), the national debt was at its highest - 120% - in the period immediately following WWII. Yet, this was the same period during which the middle class was built, real media family income soared, and the next generation enjoyed a higher standard of living without the added burden of higher tax rates... Increasing the deficit doesn't make future generations poorer, and reducing the deficit won't make them any richer."

Fourth Myth: "...deficits are harmful because the crowd out private investment and undermine long-term investment... government deficits eat up some of the dollars that would otherwise have been invested in private sector endeavors that promote long-term prosperity. We will see why the reverse is true - fiscal deficits actually increase private savings - and can easily crowd-in private investments." pg. 10

Fifth Myth: "Deficits make the United States dependent on foreigners [China and Japan as they hold large quantities of U.S. debt]... this is a fiction that politicians wittingly or unwittingly propagate, often as an excuse to ignore social programs desperate need of funding. Sometimes this myth has used the metaphor of irresponsibly taken out a foreign credit card. This misses the fact that the dollars aren't originating from China. They're coming from the U.S. We're not borrowing from China so much as we're supplying China with dollars an then allowing them to trade those dollars in for a safe, interest-bearing asset called a U.S. treasury. There is absolutely nothing risky or pernicious about this. If we wanted to, we could pay off the debt immediately with a simple keystroke."

Sixth Myth: "Entitlements are propelling us toward a long-term fiscal crisis. Social Security, Medicare, and Medicaid are the supposed culprits... Our government will always be able to meet future obligations because it can never run out of money. The money can always be there. The question is, What will that money buy? Changing demographics and the impacts of climate change are real challenges that could put stress on available resources."

The fact that 21 percent of all children in the United States live in poverty- that's a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America's Gilded Age is a crisis. The fact that the typical American worker has seen virtually no real wage growth since the 1970s is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loans debt is a crisis. And the fact that we ultimately won't be able to 'afford' anything at all if we end up exacerbating climate change and destroy the life on this planet is perhaps the biggest crisis of them all.

These are real crises. The national deficit is not a crisis.

"THE CRIME OF the tax bill signed by Trump in 2017 is not that it added to the deficit but that it used the deficit to provide help to those who needed it least. It has widened inequality, putting more political and economic power into the hands of the few... We should tax billionaires to rebalance the distribution of wealth and income and to protect the health of our democracy."

"Modern Monetary Theory gives us the power to imagine a new politics and a new economy. It challenges the status quo across the political spectrum with sound economics, and that is why it is generating so much interest... we can afford to invest in health care, education, and resilient infrastructure."

As COVID-19 spread across the globe, Stephanie Kelton wrote: "The federal deficit, which was expected to top $1 trillion before the virus became a threat, will likely skyrocket beyond $3 trillion in the months ahead. If history is any lesson, anxiety over rising budget deficits will lead to pressure to reduce fiscal support in order to wrestle deficits lower. That would be an unmitigated disaster. Right now, and in the months ahead, the most fiscally responsible way to manage the crisis is with higher deficit spending." pg. 13

Chapter 1 Don't Think of a Household

In the book Soft Currency Economics, Warren Mosler "reasons that the government doesn't go around looking for someone else to pick up the TAB [tax and borrowing], it just spends its currency into existence." - pg.23

*The Federal Government "spends its currency into existence" - in other words, by printing money or making money available, it puts money into circulation and money in circulation leads to a healthy economy.

Mosler: "The tax isn't there to raise money. It's there to get people working and producing things for the government." Kelton: "To get the population to do all the work, the government imposes taxes, fees, fines, or other obligations. The tax is there to create a demand for the government's currency. Before anyone can pay the tax, someone has to do the work to earn the currency." In discussing Mosler's home currency of giving his children his business cards in reimbursement for doing their chores, Kelton points out: "That's when Mosler had his epiphany. The kids hadn't done any chores because they didn't need his cards. So, he told the kids he wasn't requiring the to do any work at all. All he wanted was a payment of thirty of his business cards, each month. Failure to pay would result in a loss of privileges. No more TV, use of the swimming pool, or trips to the mall. It was a stroke of genius. Mosler had imposed a 'tax' that could only be paid using his own monogrammed paper. Now the cards were worth something." - pg.25

Chapter 2 Think of Inflation

Milton Friedman: "inflation is always and everywhere a monetary phenomenon." What he meant was that too much money is the culprit in any inflationary episode. If prices weren't stable, it was because the central bank was trying to force the economy to create too many jobs by allowing the money supply to increase rapidly. pg. 48

Keynesian economists believed that expanding the money supply was a perfectly legitimate tool for central banks to use in pursuit of low unemployment. pg. 48

Instead of giving the Federal Reserve discretion to trade lower unemployment for higher inflation, the central bank should be forced to accept the fact that a certain amount of unemployment was necessary to keep inflation stable. As we will see, MMT contests this framework. pg. 49

The central bank is treated as independent in the sense that it gets to pick its own inflation target and decide for itself what maximum employment means. Like most central banks, the Federal Reserve has chosen a 2 percent inflation target. pg. 49