It may be hard to imagine an easy-to-read, page turner on economics and fiscal policy, but The Deficit Myth is just such a book. It may be because conversations about the deficit are at the forefront of the news as we contemplate another round of coronavirus stimulus spending or because the author, Stephanie Kelton, speaks in plain language and accessible analogies such that even a non-economist can understand. Either way, this book is sure to provide much to discuss when we’re able to start having cocktail parties again.
The Deficit Myth looks to Modern Monetary Theory (“MMT”) in an attempt to shift our understanding—and therefore, our current discourse—about the national debt. The author begins the book by making a pivotal distinction between currency issuers (like the US, Japan, the UK, etc.) and currency users (everyone else). The difference, she argues, is that currency issuers do not need to worry about if they can pay for something. They print the money, so of course they can always have enough. In contrast, currency users like you and I have to balance our budget (i.e., make sure we make more than we spend). Viewed this way, the arguments about the deficit—that the government can only spend what it collects in taxes –is a misplaced argument. Instead, she says the better discussion is whether or not we have enough people and resources to absorb the additional spending and thus, not cause inflation to spiral out of control. To support this analysis, she points in part to the massive spending the United States undertook in response to the Credit Crisis and the lack of inflation over the intervening decade. Under this theory, unburdening ourselves from the misplaced emphasis on the deficit and instead, focusing on the impact we want to have with the spending— and the subsequent analysis of the inflationary impact— could lead to better fiscal policy and a better society for us all. To be clear, the author does not suggest that we should spend ourselves into oblivion. Too much of a good thing can be too much. Instead, she argues that these self-imposed limits are not real limits and therefore, cause us to make poor policy decisions based on a misplaced focus.
The book goes on to use MMT to address several other “myths” that we see in newspapers on an almost daily basis. Namely, that government spending harms the next generation by saddling it with exorbitant debt payments, that government borrowing leaves less for private investment because there is only “so much” credit available, and that programs like Social Security and Medicare are on the brink of collapse. Whether you find her arguments compelling or not (and there are lots of critics of MMT), the book is sure to provide food for thought and refresh the tired dinner table discussions you’ve been having with your family while quarantining over the last year.