Stephanie Kelton on Modern Monetary Theory and The Deficit Myth

In a Nutshell: Whether you like it or not, the US is operating in a modern monetary theory (MMT) framework when it comes to fiscal and monetary policy. The trillions of dollars that have been injected into the economy since 2008 to support the economy have been approved by both Democrats and Republicans. In today’s podcast, I talk to MMT’s leading authority and its most articulate spokesperson, Professor Stephanie Kelton. You don’t have to agree with every aspect of MMT to appreciate how it’s challenging preconceptions about debt and deficit spending.

Guest: Stephanie Kelton, a leading authority on MMT and the author of one of the definitive books on the subject, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.

My Key Takeaways:

The government is not a household. According to MMT, any country that can create and manage its own sovereign currency doesn’t have the same budgetary constraints of businesses, families, or individuals.
Inflation is the key constraint. MMT doesn’t argue for unlimited deficit spending. What it does say is there is room to run significant deficits when you have your own sovereign currency AND inflation is under control.
MMT is only as good as the politicians pulling the levers. Most experts agree that MMT’s framework for describing how the governmental accounting system works is accurate. Where views differ is whether we can become so “indebted” that people lose confidence in the system and it all starts to unravel faster than we can fix it. So much depends on the character and intentions of the politicians in charge to use this power of the purse to benefit all of society, not just favored cronies.

Also Learn:

What are the big “deficit myths” that Stephanie believes we need to work through in the U.S.
How MMT views the Fed’s traditional role of adjusting interest rates to speed up or slow down the economy.
What lessons we can learn from 1970s stagflation, Paul Volcker, and the Bank of Japan as we rethink the relationship between inflation, interest rates, and sustained economic recovery.

Complementary Episode: Since I talked to cryptocurrency expert Nathaniel Whittemore last year, Bitcoin soared to over $40,000. Much like MMT, even if you’re not an enthusiast, you owe your clients a reasoned perspective on what could be coming next. Listen/read here.