Key Messages
Uncovering A Revolutionary Money Theory: How The Deficit Myth Can Help Us Achieve Bigger Goals
The Deficit Myth provides a valuable insight into a new approach to money.
Instead of holding on to outdated economic ideas, this book suggests that we move towards modern monetary theory for our financial decisions.
This way of thinking about money is much more dynamic and flexible, allowing us to take on ambitious projects such as Medicare for all, a Green New Deal and high-quality public education for all children in the country without falling into debt.
The book looks at different perspectives on modern monetary theory in detail and provides clear examples of it in action.
It debunks traditional assumptions regarding government spending that often overwhelm politicians who want to make the big changes our world needs.
From understanding how international trade works to learning where money actually comes from, this book provides invaluable information on how modern monetary theory can unlock unprecedented opportunities.
Governments Needn’T Worry About Deficit Spending Or Going Broke — But They Must Consider Inflation
The traditional economics model treats the federal government like a big, complicated family household when it comes to budgeting.
In other words, they believe that if the government wants to buy something, such as a public health system, it has to either make money from taxes or borrow money by issuing bonds.
This is known as the taxing and borrowing precede spending (TABS) model.
However, the Modern Monetary Theory (MMT) argues that this way of thinking is outdated and simplistic.
It points out that while households use money, governments actually make money – this subtle distinction makes all the difference!
The key message from MMT? The federal government should not be budgeted like a household.
With currency-issuing capability comes monetary sovereignty which means that governments don’t need to worry about earning money in order to finance different projects or initiatives – they can just simply make more of it!
This concept is known as spending before taxing and borrowing (STAB) model.
Essentially, instead of having to collect taxes or issue bonds beforehand in order to purchase something, the government can just spend the money first and then reap any benefits afterwards given proper inflation management.
Mmt Makes A Case For Government Spending–But It Must Be Monitored For Inflation Risks
When it comes to crafting fiscal policy, understanding the role of deficits and inflation is key.
According to modern monetary theory (MMT), government should view spending and taxation as tools for creating balanced economies rather than methods for keeping a perfectly balanced budget with zero deficits.
The idea that deficit spending doesn’t matter has been hotly debated in recent years, especially by politicians.
However, while deficit spending doesn’t need to be completely abandoned, an eye must be kept on inflation going forward.
Inflation occurs when prices gradually rise which consequently makes money worth less over time.
If the government puts too much money into circulation by exercising too much spending power, it can truly cause inflation.
This could be detrimental if the economy experiences a downturn.
In order to avoid this kind of inflation, taxes can be raised on those who are hoarding money in order to draw it out of circulation.
MMT argues that making fiscal policy should focus more on averting inflation due to deficit spending rather than worrying about whether or not a budget will have a deficit or surplus – ultimately stressing the importance of monitoring and controlling inflation over overseeing deficits.
The National Debt Is Not As Scary As It Seems: The Benefits Of Modern Monetary Theory
The national debt may seem daunting and foreboding when viewed from the towering National Debt Clock located on West 43rd Street in New York City — its digits steadily ticking up, the personal share section pushing toward $50,000.
But this number doesn’t accurately reflect the danger that many politicians claim it does.
When government wants to raise money it sells US Treasury bonds, which are counted as debt but are effectively saved dollars designed to earn interest over time.
From Modern Monetary Theory (MMT) standpoint, these dollars injected into the economy should not be considered a looming problem looking for its cure.
Instead, they should be thought of as a kind of asset available to the private sector.
This means that there is actually no actual threat posed by a rising national debt in terms of economic stability or recession potential — something made abundantly clear throughout history if we observe how each time governments have worked hard to pay down their debts they have plummeted straight into an economic crisis shortly thereafter.
In essence, this means that a growing national debt poses no actual threat to our economy.
The Myth Of Crowding-Out: How Government Deficits Can Benefit Our Collective Wealth
MMT economists have a different take on the “crowding-out theory”.
They believe that, far from being a villain, the government’s deficit spending actually has the potential to create collective wealth.
To understand this concept, it can help to think of two buckets.
One stands for the US government, and one stands for everyone else in the private sphere.
The water in these buckets represents the total money supply.
The government’s taxing and spending moves this water back and forth between them.
If the government has a balanced budget, every drop of water poured out must be pulled back in taxes.
This leaves no extra water in the private bucket.
But if there is a deficit, then the government uses its power as a currency issuer to pour even more money into everyone’s bucket than what is taken out through taxes–essentially making everyone richer by increasing their pooled wealth!
The key here is making sure that additional pooled wealth benefits all citizens equally.
Universal spending programs such as public healthcare or education will benefit people who need it most while cutting tax rates for those with high incomes will only add to larger inequalities of wealth across society.
However done properly, understanding how our deficits become our collective wealth can be extremely beneficial and empowering!
Money Is No Object When It Comes To Funding Entitlement Programs – Invest In Resources Instead
Paul Ryan, a conservative congressman, thought Social Security was too expensive and called Alan Greenspan to testify about it.
Surprise!
Greenspan gave an optimistic counter-argument and told the congressman that if the government wanted to fund the program, they could simply make more money for it.
This of course has serious implications for all entitlement programs.
All entitlement programs are sustainable regardless of cost and/or tax changes if there is political will.
In fact, safety benefits from services like Social Security, Medicare, and Medicaid don’t have fiscal constraints at all; they depend entirely on US currency issued by the federal government.
The main limit to sustainability isn’t financial but in our actual productive capacity; everything we need to power larger benefit entitlement programs needs material resources and funding.
Investments into areas such as health care research and infrastructure can promote quality of life while curbing inflation – making them great investments both socially and economically.
All this taken together means that yes – we can indeed make Paul Ryan’s dreams come true: All entitlement programs are sustainable if we want them to be!
The True Meaning Of Winning And Losing In International Trade
When it comes to international trade, it’s easy to focus on the notion of “winning and losing” – with one country coming out ahead while the other is left behind.
But the facts tell a different story: International trade isn’t always a zero-sum game where one country must emerge as a victor.
Sure, there are instances when one nation runs a bigger trade deficit than another and ends up with less money in their wallets.
This does lead to economic issues such as domestic industries facing closure – just think of it as water leaking from one bucket to another if you like metaphors – but solutions don’t have to depend exclusively on tariffs and trade wars for example.
In fact, a better approach would be for countries to tap into its natural resources and use economic policies such as a federal jobs guarantee program to pour more water into the domestic bucket even when faced with export deficits.
This is beneficial not only for job creation but also helps make economies stay strong and competitive into the future.
At the end of the day, we should remember that despite perceived losses associated with deficiencies in international trade – there are also many good things that come out of foreign trading relationships.
As much as imports represent money going abroad, they also mean valuable goods, services and resources being brought home too!
Politicians Must Focus On Real-World Problems, Not Just Budgets And Balance Sheets
There is a phrase that has come to the forefront of deficit-related conversations among economists and political players: “the deficits that actually matter are the ones out in the real world.” This statement means that rather than obsessing about budget deficits and balance sheets, our focus should be on the actual problems facing us.
Take job creation for instance.
The United States has suffered from high unemployment since the 2008 recession, with many small towns worse-hit than others.
Moreover, when jobs exist, they often aren’t paying well – making it difficult for people to build financial security through savings.
And this is just one example of a deficit being experienced in America; there are numerous other issues we face today – from health care to education opportunities and infrastructure planning.
A lack of access or resources can lead to real, tangible problems which only get bigger if ignored.
MMT thinking may not provide all solutions to all of these challenges at once but it can sure go a long way towards leading us closer to resolution if put into practice.
With Mmt, We Have The Power To Turn Our Dreams Into Reality
When President Kennedy declared in 1961 that America would land a man on the moon within ten years, he didn’t worry about how to pay for it.
He merely mentioned the price and focused on the goal.
This is what Modern Monetary Theory (MMT) encourages us to do as well – free ourselves from worrying about money and concentrate instead on our desired outcomes.
Essentially, MMT states that since governments are able to create more money at will in order to cover expenses, they should set aside concerns regarding budgeting when it comes to creating social programs that can benefit the public.
With this kind of power at hand, governments can utilize resources towards aims such as instituting a federal jobs guarantee so that even those out of work can receive pay and its numerous benefits, fighting climate change through buying up high-emission infrastructures or investing in renewable energy sources to create a carbon-neutral economy – all without having to worry about where the funds are coming from.
In conclusion, MMT gives us the privilege to reorient our attention away from unreal cost constraints and look towards a bigger goal – one that we create ourselves by using what is at our disposal; namely the material resources available in our real world economy.
Wrap Up
The Deficit Myth by Stephanie Kelton is a must read for anyone curious about the economic system.
In it she makes the case for Modern Monetary Theory, which essentially argues that monetarily sovereign governments can spend as much money as they want, provided it does not exceed their resources or cause inflation.
This invites solutions that are bolder than what our current economy allows.
The main conclusion of this book is simple – our economy need not be guided by outdated rules of conventional wisdom, but instead can benefit from an understanding of how the true mechanics of money and currency works.
With insights gained from The Deficit Myth, government leaders, economists and businesses can find new ways to tackle grand challenges beyond their wildest imagination.
