Stephanie Kelton, (2020) The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
Some of us read the book, some of us read a review on the LSE web site, and some of us watched Stephanie Kelton's lecture titled "But who's going to pay for it?" . Here are my notes on her response, in very simple terms, to 5 big questions, which I'm translating from US to UK context: 1) What is government deficit? Government spends £10m to build a hospital Of that £10m, government takes back £4m in taxes So gov. deficit = -£6m while 'the economy' eg construction company building the hospital) has +£6m 2) What is the national debt? Government issues £6m in treasury bonds/securities Investors buy the bonds, which show as numbers on a balance sheet. National debt = total assets in the form of bonds. 3) Why are American's so worried about being in debt to China? US pays for Chinese goods in $$ China uses the dollars to buy US bonds. Debt to China = the bonds they've paid for. If China doesn't want to buy US bonds, they can just keep the dollars and the government can create more. 4) Do we have to pay it back? You can wipe off the debt by eliminating securities. But paying off the national debt (eg when Clinton did it) results in increased household debt (mortgages, credit cards etc) and results in recession and depression. 5) What can we afford? Governments can create as much money as they want if it's to pay somebody to create assets - resources for the public good. Assets could be homes, solar panels, care facilities, theatres, parks, educational provision…. All of which can be produced as long as there's spare capacity (raw or re-cyclable materials, space, and above all, labour). The only situation where unlimited money creation leads to inflation is where there's competition for these resources (including full employment). Positive Money agrees with much of the MMT analysis but the differences between them seems to be mainly about the role of banks in relation to money creation. This has implications for what needs to change and how.