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

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

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

MMT: Let me start with a definition: “Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency they fully control, are not operationally constrained by revenues when it comes to federal government spending. Put simply, such governments do not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of rising national debt.”—Investopedia The word “heterodox” means outside the mainstream. And MMT is indeed not mainstream when it comes to an understanding of the U.S. budget. Perhaps that is why I decided to learn more about it. Clarity Several years ago, I read a few articles about MMT. Those articles gave me enough of an understanding that I stopped worrying about the U.S. national debt. When I attempted to explain to others why the deficit itself isn’t a problem, they responded with skepticism. I decided to educate myself further and, coincidentally, my son recommended this book as a beginning to understanding MMT at a deeper level. He was correct about this being a cogent explanation of a complex topic. Kelton explains the theory, but she also clarifies why it is difficult for most people to understand the concept. Fundamentals The concept is simple, and the above definition of MMT contains the answer—money issuers do not have the same constraints as money users. Our households, businesses, and state and local governments are money users. We have to earn or borrow money before we can spend it. That is known as the (TAB)S in the governance world: Tax And Borrow before Spending. For the money issuer, however, the formula is S(TAB). The truth is, the U.S. government doesn’t have to tax or borrow at all if it doesn’t want to do so. We will always have taxes, but they are not used to pay for federal government spending. Instead, they are used to manage the U.S. economy. Taxe policies are used to transfer wealth, encourage certain kinds of investment or production, and discourage other activities such as corporate parking their earnings overseas. Honesty I believe that Kelton and the other economists who embrace MMT are correct. There is no reason that we should expect the federal government to manage the budget the way money users are required to manage their budgets. When a federal politician claims that we “can not afford” a particular program or demands to know how we will pay for it, they are either ignorant of the advantages of a money issuer or counting on us not understanding the situation. The federal government can fund whatever it chooses to. The politician may believe that a particular program is not good policy, but to claim we can’t pay for it isn’t very ethical. There is a Limit There is a limit to how much money the federal government can pump into the economy. That limit is inflation. When the inflation rate, caused by an inability of the private sector to produce the goods and services in demand, is too high, then the government should stop spending, start taxing, and watch that employment is at the appropriate levels. The key is employment and how many dollars are chasing the goods and services. In a perfect world, we would have full employment, production at capacity, and taxes that keep all that in balance. Of course, that will never be the case, so there will always be fluctuations in government policies. Too Long Kelton has done an excellent job of explaining how the U.S. federal government budget works. Also, she explains trade deficits and how the feds do not borrow money from other countries (Japan and China have not lent us money despite what you hear in the popular press). Kelton does all this with precise, easy-to-understand language. She also presents the details in a logical fashion that should make sense to any layperson interested in learning about a modern, fiat currency-issuing government. She should have quit writing at about Chapter 6, which explains the final myth. The last two chapters are a vision of programs Kelton would fund through the federal budget. That changes the conversation from a technical discussion of MMT to a political debate about our society. I believe that will negate the essential concepts of MMT for those with different priorities for the federal budget. Four Stars The bottom line is that those concerned about the federal deficit should read this important treatise on Modern Monetary Theory. Those with more conservative thoughts on how government should be involved in the economy might want to skip the last two chapters. As I mentioned above, we can all become more honest by understanding that we can fund anything we need or want to support as long as we keep inflation under control. Instead of claiming we cannot afford a program, we can come clean that we do not believe in that kind of program. Honesty and accuracy are a good thing in my book! If the author had left out the last two chapters, this would have been a 5-star review.

How does the US Federal Government raise the money it spends to run its programs, conduct its wars and pay out unemployment benefits? It taxes and borrows, right? No, says this author, that's not how it really works. Since the Federal Government issues its own "fiat" currency -- "prints" it, as it's usually put -- it can never run out of money, so it really doesn't need to either tax or borrow. It can just spend. For a variety of reasons including the fact that that's the way it's "always been done", it taxes and borrows anyway, except when there's a crisis. That's when it really cranks up the virtual printing presses and simply spends without benefit of bothering to pretend to raise the money. That's what much of the spending to bring the Great Recession to an end by the Obama administration (and the very tail end of the Bush administration) was all about -- pumping trillions of dollars into the banking system with emergency transfusions that were nothing more than electronic transactions at the Federal Reserve of NY. "Quantitative easing", which pumped further trillions into the economy over a period of several years up until 2013, had the same idea. The Federal Reserve did not raise these funds through either taxing or borrowing -- it simply credited all the necessary bank balances, and that was that. This idea is the key one behind Modern Monetary Theory, of which Stephanie Kelton is a prominent exponent. She has no time for arguments that Social Security is going to run out of money unless it's cut back, or that we lack the money to rebuild our decaying national infrastructure of roads and bridges and airports, or that we can't fund some version of health insurance for all. When we need to, just print it, she says. The real limit is running out of resources -- that is, running out of additional productive capacity -- not running out of money. An important caveat to the above is that this model only works for central governments of countries that have have their own sovereign fiat currencies AND have a history of paying their debts (particularly if they want to sell debt instruments to foreigners). So, this excludes the Eurozone countries that don't have their own individual currencies, but rather a shared one. It excludes places like Venezuela and Argentina and Zimbabwe that can't borrow in their own currencies because of their weak economies, high inflation and lousy credit. It excludes countries that use another country's currency, like El Salvador and Panama and Ecuador that use the US dollar. And it excludes governments that are not in charge of their country's currency, such as state/provincial and local governments. Kelton does NOT think that governments should stop taxing, however, for several reasons such as: One, taxes help to redistribute income and wealth to limit inequality, which she thinks is not only corrosive to democracy but is also bad for the economy, because as inequality rises, the great mass of consumers will simply have so little money to spend that the economy starts sputtering from a lack of aggregate demand. Two, taxing the population ensures that consumers don't consume so much of the economic output of the country that there are not enough resources allocated to government to carry out its functions. Three, the need to pay taxes motivates people to work more. (This is not one of her stronger arguments). Four, targeted taxes help to raise the price of products that have negative, costly side effects that are not otherwise priced into the product, such as cigarettes, fossil fuels, and alcohol -- with the increased price helping to discourage consumption of these products and offset the cost of curing the damage they cause. The counter-argument to the "print more money whenever you run short" argument is that doing so will trigger inflation, with too many dollars chasing too few goods and services. Inflation is taken to be a bad thing for most people, especially on the grounds that it erodes buying power for those on fixed incomes or who have too little market power to keep their incomes rising at the same or faster rate as inflation. Her answer to the inflation argument is simple: the US economy always runs with some amount of "slack", that is, some amount of unemployed human and capital resources, which of course is true. The real involuntary unemployment rate in the US is about 10% today, in these Covid times. So, she says, print money up until the point that you see inflation above some acceptable threshold such as 2%, and then ease up on the presses. But in the process, you will have brought into production a large part of not only the unemployed, but also those who are no longer counted as unemployed because they have simply given up on finding a job. The added 5-10% of production -- forever -- will largely pay for those expanded government programs AND will increase the productive capacity of the economy further by making it more efficient through creating, for example, a national transportation infrastructure that actually works well, a health insurance system that covers everybody, and an education system that is better resourced. Embedded in the idea of managing to the optimal amount of slack in the economy is that the real hard limit on how much a country can consume is how much much it produces (ignoring the effect of trade). The combined use of goods and services by government, consumers and business investment can'be be more that the goods and services produced. Trying to consume more just results in rising prices a.k.a. inflation. So, Kelton says, worry about the country using up all its resources of productive capacity, not about accounting entries. So, for example, Social Security won't "run out of money" until the ability of the economy to produce can't keep pace with the resources required by the program, not when some magical balance in the Social Security fund runs dry. There's more to the book than this, of course, notably the idea of a federal jobs guarantee, which is more controversial, but her core idea is the one above. Her arguments are very Keynesian, in the main, in that she is advocating that it is part of the role of government to stimulate the economy through added spending when aggregate demand is too low and therefore resources are sitting idle. The only difference -- which is a big difference -- is in saying the government doesn't necessary need to pretend that it's financing itself with a budget that pays for all these expenses through taxes or borrowing by selling bonds. Her argument also draws on the experience such as that of the FDR era in the US in the 1930's, when programs such as the Civilian Conservation Corps directly employed masses of Americans in carrying out public works projects, such as building infrastructure in parks. This theory makes sense at a high level, but whether it's a good idea to provide a guaranteed job to all who want one, at a minimum of $15/hr, by hiring job-seekers directly, or instead to do it by spending through 3rd parties such as private social service agencies and construction companies building roads/bridges and the like is highly debatable. All in all, this is a very refreshing book, and has caused me to look through a different perspective at how we finance government and how we might therefore be able to fix our shredded safety net, infrastructure and public services. Even if you disagree with some or all of her thesis, this book will challenge you to think a lot more deeply about the role of national governments -- in the US and other country with a similar strong sovereign currency -- and how to finance what they do.

As I wrote in “THE MANIFESTO” in my book, Magister Templi: "I’m okay with Marxian Economics, but as you know it is largely ignored. I am also cool with New Keynesian Economics and Modern Monetary Theory. In fact, I would like to suggest that my readers check out “Modern Monetary Theory”. I think these three schools of economic thought make good sense. What I hate is the theorists who act like the Human Race should serve the Economy, rather than the Economy serving the People." Well, what do you know? Dr. Kelton treats that very issue in this splendid book! The Federal Government should not budget like a household. A household can’t print money. Uncle Sam will never go broke. Deficits are not evidence of overspending. A government deficit creates a surplus someplace else. Most of the time deficits are too small, not too big. Deficits will not burden the next generation! Deficits are not harmful because they crowd out private investments – because they don’t. A country’s deficits do not make it dependent on foreigners. Entitlements are not propelling us toward long term fiscal crises. The government can never run out of money. Hungry children, a crumbling infrastructure, financial inequality, student debt, and climate change are the real crises. Dr. Kelton is absolutely brilliant. Now I am what they call Right-Brained – that means I come down on the Creative/Intuitive side of the spectrum – but I have no trouble in following the flow of her reasoning. She explains things quite simply – and brilliantly too. The world always moves forward. Our way of viewing everything changes for the better. The so-called Austrian and Chicago Schools of Economics, and their backwards way of thinking, of looking at things, is totally obsolete and should have been abandoned decades ago. Their old-fashioned reasoning went out with the Gold Standard, and it’s never coming back. Time, and everything else, marches on! – I knew the creation of 401(k)s over what we had before ripped off the American worker; I didn’t need this author to tell me so. As if you couldn’t tell, Dr. Kelton had won me over before I got to the middle of her book. Part of Modern Monetary Theory is to recommend a number of programs that would make life better for everyone. Her recounting of the many attacks on entitlement programs just makes me angry. They’re called entitlements because we’re entitled to them! Yes, we are! Because there’s a cap on Social Security taxes, rich people who earn over $137,700 don’t have to pay their fair share. If the rich paid their fair share Social Security would last forever. To be honest, Dr. Kelton offers a different solution than I do. For any of my readers still living in the dinosaur age: it is unwise to revert to the Gold Standard because the countries with the most unmined gold are South Africa and Russia. Reverting back to the Gold Standard would make them Super-Powers … and the US wouldn’t be! Let me also add that Free Trade is a lie and delusion. What the entire world should insist on is Fair Trade instead.

Back after the 2008 crisis, I had lost my job and was sitting around unemployed and I started to get interested in economics for the first time in my life. The reason was that for all my life to that point the broader economy had not really broken down during my lifetime. I had long considered myself a Marxist from the experience of being a worker at the point of the spear in the service economy. In food service you see the menu price and you know your price and there’s a huge discrepancy between the two. I had a sense that in the shadow of that crisis that we were bounded by only being to push at the edge of the status quo. The bailouts, both TARP and ARRA were real money that had to be paid back, so the democratic-led government in 2010 and through pressure from their political opponents, started to roll back the funding that was on offer through the state. “Austerity” was the name of the game and big debts were scary and more important than the mass of Americans who were still without jobs in the economy that had been showing “green shoots” every quarter for 18 months. I was unemployed and reading as much as I could about economics and especially the crisis. There were scores of books written by commentators and economists trying to get their hands around just what happened and why it happened. But it was not the first crisis. I eventually found myself making my way through Keynes and Minsky – with some understanding but not 100% of it. Keynes had some integrals I just skipped over and hoped that he was explaining all of them in the text. It was during this time that I came up with what I thought was a fairly novel idea that the household metaphor that politicians used was completely wrong. The government lives forever, I said, and it creates money. A worker is constrained in the money they have and the only way to get more is to work more even if the can temporarily increase their spending by borrowing they eventually have to pay it off (or pass down the debt once they die). I created an imaginary currency called “EdgarBucks” and knew my biggest problem was making sure that people accepted these “EdgarBucks”. My insight about the fallacy inherent in the household fallacy was not novel it seems. While politicians and many economists talked about spending money being the constraint, there was a then little-known school of thought who had fleshed out the idea that money is not the constraint in the economy, but real resources are that constraint. You cannot run out of money if you are a currency issuer, but you can run out of factories. It brings to mind Keynes looking at idle workers and idle factories and realizing that you can have suboptimal equilibria where resources are underutilized. But what this little-known school of thought had done was flesh out that idea, and it has a name – Modern Monetary Theory (MMT). The basics of MMT are that the real constraints are the real economy and in the book Professor Kelton works through the implications of the idea that money is more a record keeping device than some sort of fetishized commodity through simple, easy to understand metaphors. What is dangerous through the world as described through MMT is inflation and not debt, and the way to pull that back is to increase taxation. Also embedded in the structure is a call for a Job Guarantee to make sure that people have and can spend money. I personally am not for a Job Guarantee but lean more towards a Basic Income, but that is outside the realm of this review but I think within the realm of possible debates, so MMT is not strictly dogmatic. I was receptive to the ideas of MMT because I was not a slave to the old orthodoxy and especially because I thought that the old orthodoxy was in a large part to blame for not preventing and not really being able to predict the crisis of 2008, I was ready to throw it all out and find an explanation for how capitalism worked and if possible how it could be made better for people if we were going to keep putting off the eventual worker’s revolution. MMT was, and still is centered on a couple of institutions like UMKC and Bard College in the US and has a couple of figureheads like Professor Kelton but also Warren Mosler and Scott Fullwiler. Despite this, MMT punches above its weight in policy discussion because it has many passionate adherents in both the blogosphere and on Twitter. It is, to me, also inherently commonsensical as we are not constrained by the amount of a shiny rock in the vaults of the Federal Reserve in New York or in Fort Knox. I was sitting, unemployed though the summer of 2011, smart and a hard worker and ready to be put to use so I could get money to pay my rent but no one was answering my applications. It was confounding and scary and just a total failure of policy because there were tens of thousands of people like me who wanted to work. But I was reading. The biggest problem for me when I was learning more about different economic schools in terms of learning about MMT was that there was no centralized place to start learning about it. People would talk about it in blog comments and you would ask where to go for more details and they would send you a link to a pdf or a self-published book on amazon and that did not inspire a lot of confidence. If someone was asking where to start to learn about Marxism you could point them to many different publishers who had put out versions of the Manifesto but this was like if the only resource available was Marxists dot org. What “The Deficit Myth” does is not just synthesize the ideas of MMT in a simple and easy to read format, but it also formalizes the school as something to be taken seriously by readers of levels. And for that reason, it is an especially important and necessary book.

This is a necessary book that makes it crystal clear even for non-economists why we should not fear state deficits. One fundamental point is made and made clearly: A government's budget is NOT the same thing as the housewife's, contrary to what too many people think. There is absolutely no reason why it should be balanced by year's end, and the idea that deficits are run at the expense of future generations is completely misguided, based on not understanding how a government's budget works, how it is fed (no, not by taxes!) and what the real impact of state expenditures are on the economy (no, they don't displace private investment!). If what you have just read in the parenthesis of the above sentence surprises you, then this is a book for you. Put on top of your list of books to read this year. You'll find it's an eye-opener, you'll never think of government budget deficits in the same way again. A clear exposition, no complex graphs, it's a highly enjoyable read. Mind you, it's not a complete exposition of the problem as rightly indicated in some customer reviews here. It merely says that you can run government deficits with no worries and no problems as long as the economy is not overheating. How do you know that? Simple, watch out for price inflation. If that happens, reign in the deficits, start balancing the budget! What the book does not tell you is why a government can run huge deficits - the case of the United States and most developed countries - and yet not experience inflation. Because that's another can of worms. To explain that would require a deep dive into macro-economics and institutional economics. Yes, the exploding derivatives markets are a big part of the explanation. Basically, the stock markets are gambling casinos draining the extra cash created by government deficits, mopping up any excessive demand in the goods and services markets. As a result, you have no (or very low) inflation. Blame the super-rich! However, to prove that latter point, you really need to write another book. Maybe the author of this one will oblige in the near future, or maybe someone else will (institutional economists and Thomas Piketty are doing a valiant job to try and come up with the answers). For now, this is an excellent introduction that clarifies the issue and hopefully helps to spread the word among non-economists that deficits are not the disaster they are supposed to be. And that they are not to be avoided at all costs.

Miss Kelton is obviously highly intelligent, and an excellent writer, which makes this book an easy read. Thus, the 3 star rating. Unfortunately, like all MMT economists, Miss Kelton makes the mistake of equating currency issuance with the creation of money. In advanced modern-day economies, they are not one and the same. MMT economists further suggest that the governments of advanced modern-day economies create all the money that flows throughout an economy. They most definitely do not. While she clearly has a hard left political agenda, I don’t think she’s intentionally trying to mislead her readers; I believe she was simply taught something that isn’t so and then had it reinforced by being told the same by others. After well over a decade of working with people at all levels of economics and finance I’ve come to the realization that this misunderstanding of how money is created and propagated throughout an economy is so common that even a very large majority of professional economists, academics, strategists, and financiers believe it to be so. Equating currency issuance with the creation of money describes a system that is over 2,000 years old, has not existed in developed markets for decades, and currently only exists in lesser developed emerging markets and frontier markets. Contrary to popular belief, Modern Monetary Theory is archaic. It’s true that any government can print as much of its own currency as it wants in order to satisfy the obligations that are in its own currency. Contrary to what MMT economists seem to believe, I don’t think there are many economists of any kind who would disagree with this—it’s not some brilliant, new discovery. However, developed market governments today, including those with stable sovereign currencies, like the US, the UK, Canada, etc. don’t do it because it’s been tried over and over again for centuries and has always ended in financial and economic calamity. Put simply, the money that flows through the US economy is created in the private banking system. Not by the Treasury, not by the Fed, and not through some secretive process developed by the Treasury and the Fed that occurs out of the public’s view. In fact, it’s almost certainly happened right before your very eyes. Specifically, when a bank makes a loan it simultaneously creates a deposit, and, voila, money has been created. So, why can’t US banks just create as much money as they want into perpetuity? There are a number of reasons, including: 1.) banks have capital and liquidity restrictions imposed by the Federal Reserve that limit the amount of assets, including loans, that they can hold relative to their regulatory capital and 2.) markets impose natural restrictions during periods of relative calm because even though the bank creates the money, when someone defaults on their loan the bank still incurs a loss---a few too many losses eating into the bank’s capital and the bank will fail. All of this said, what the Federal Reserve CAN do is lend money to the country’s private banks. HOWEVER, this only creates what are called “reserves” that are reflected on both the Fed’s and the private banks’ balance sheets. Importantly, these reserves cannot be loaned out by the private bank. So, while these newly created reserves are technically newly created money, they do not serve as money that will ever flow into the US economy. This is the same process by which the Fed purchases USTs or other fixed income securities. The Fed pays for the securities that they buy from the selling bank by creating an offsetting balance on the Fed’s balance sheet that pays a fixed rate of interest to the seller. In attempt to prove to the reader that the Federal Reserve and Treasury DO create money out of thin air that eventually flows into the economy, Kelton points to an interview where Ben Bernanke says, in reference to the Fed’s assistance to private banks during the 2008/09 financial crisis, “It’s not taxpayer money. We simply use the computer to mark up the size of the account”. What Kelton doesn’t point out, or perhaps doesn’t realize, is that Bernanke was referring to the type of loan I just described above. She also quotes Alan Greenspan without noting that in the same statement he was warning that simply printing money out of thin air to fulfill obligations is risky and potentially inflationary. The point to take from all this jibber jabber I’ve just written is that one should be very careful in drawing any conclusions from MMT economists’ explanations. Many, if not most, of their policy recommendations are based on theories and explanations that are entirely detached from economic, financial, political, and social realities. Keep in mind that one of their foundational premises, that all the money that flows throughout an advanced modern-day economy is created by the government, is simply untrue. The fact that they believe that MMT is an accurate description of how a modern-day monetary system works is troublesome. The fact that the policies prescribed by MMT economists have been tried time and again over a period of centuries and failed time and again over this period is a bit disturbing. This is not to say that Miss Kelton’s book isn’t worth reading. Indeed, she certainly offers some interesting insights into financial and economic theory, it’s just that one has to tread very carefully lest they fall into the same trap of falsehoods that MMT economists have. I could continue with the explanations of all the problems with MMT, but I’m tired of typing and my brain hurts, so I think I’ll stop here. Thanks for reading

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

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

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

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

According to MMT, the sky is green