Book review: The Deficit Myth by Stephanie Kelton

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton

Store: How are you going to pay for that?
Me: By making up money.
Store: Sir, you’re not a government.

In the Deficit Myth, Stephanie Kelton attempts to outline how governments actually spend money, what that means, how decision-makers (and the broader public) fail to understand how government money works, and outlines a new way to think about debts and deficits. It all comes under the banner of Modern Monetary Theory (MMT).

There’s a line in the final chapter of The Deficit Myth that essentially sums up the book.
“We are no longer on a gold standard, and yet much of our political discourse is still rooted in that outmoded way of thinking.”
MMT is essentially how fiat currencies operate, yet most of our “the economy is like a household budget” thinking is rooted in the past of the gold standard.

From that point of view, the book is less about making the argument for MMT but rather it is trying to make everyone wake up to reality. This does lead to quite a bit of repetition throughout the book which I note some reviewers were critical of.

Which leads me to a few criticisms. The first is that many of the ideas, such as addressing social inequality and funding for social needs (schools, healthcare, welfare), are things I support but don’t necessarily come under the banner of how the economy works. Kelton is tying these things together, which may be something that is supported in the wider MMT literature but not here. This is especially critical given the fact that not all currencies are fiat in nature, so not all countries/economies could utilise MMT.*

Another criticism was the jobs guarantee. The concept had me immediately thinking of David Graeber’s Bullshit Jobs. Kelton does little to dispel this assumption, referring to external works and how they would be community needs (bottom-up) driven. There isn’t really any argument made for this versus a Universal Basic Income or Unemployment Benefits set at just above the poverty line. I’m not against the idea though. As she discusses, this could be used to address a lot of society’s needs and could address a lot of externalities like environmental issues.

My biggest criticism was that MMT wasn’t addressing one of the key problems with the growth/capitalistic economy on a finite planet. There are assertions MMT could address issues like climate change, but there is an assumption that the economy can keep growing. While there are implications that it would be similar to Richard Denniss’ arguments around the shape of the economy changing (growth that isn’t consumptive), there were explicit statements of growing the economy and merely reforming capitalism.

I’ll finish on a positive note because this is a book well worth reading. Something that MMT and The Deficit Myth highlights is how political government spending is. There is always enough money to wage war or give a trust-fund kid a tax cut so they can post even more photos on Instagram of them eating gold flake pizza. But if we start talking about finding money for addressing poverty or funding schools so they can afford books printed this century, then suddenly it is all about “How are you going to pay for that?” It shows that those choices are always ideological. Politicians don’t want to help the less fortunate, they don’t want to have a social safety net (health, education, and income), they want to court power instead. They have literally chosen to let people die (both from lack of resources and in the wars they wage).

* A common critique I’ve seen of MMT is that the countries who have fiat currencies and can utilise printing of money are the same countries who have exploited the poorer nations who can’t use MMT. This ends up being another way to create inequality between nations, handing more power to rich nations or a body like the EU. This is a point covered in Jason Hickle’s The Divide.

Edit: Have to add this great little video from the late David Graeber. It covers one of the points and graphs Kelton has made in her lectures. I’ll be reviewing Graeber’s book on debt sometime soon.

Comments as I was reading:
There was a good point made about government fiscal policy. Essentially, most sovereign governments already utilise MMT for the stuff they want to spend money on. They use the “debt is bad” or “household budget” argument to justify doing the stuff they don’t want to do.

So as Richard Denniss pointed out in his book (and elsewhere), governments always seem to have money for their policies but not for anything the public wants.

Or put another way: government money is political. There is always enough money for anything we’d like to see happen, just politicians who don’t want to do that (and are ideologically opposed to it). People in poverty is a choice a politician has made. People dying from lack of healthcare or hospital resourcing is a choice a politician has made.

I like the description of MMT being how a fiat currency operates while most behave like we still have a gold standard.

Criticism:
MMT has some good ideas about unemployment being used to control inflation, despite that being supposition and at the expense of the most vulnerable in society. But, the jobs guarantee doesn’t really address unemployment or social security so much as offer potentially offer “make work” or “bullshit jobs”. She doesn’t go into a lot of detail in the book (papers are listed though) what the jobs program would entail.

Another point is that MMT is still looking to grow the economy. Higher consumption is still the goal. So it is still firmly in the camp of “capitalism: yay!!” Reform rather than change. Which means it is not addressing the problems raised in The Divide and finite resources.

Kelton does have a USA centric argument. MMT is argued as being awesome and able to solve lots of problems. Except not all countries have fiat currencies.

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