The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy

...a thought-provoking new work by Stephanie Kelton, leading evangelist of the modern monetary theory school of thought. Kelton is a razor-sharp writer, making accessible to noneconomists what can be technically challenging material in other hands. Smashing shibboleths of conventional economic wisdom, the author is unafraid to point out that the emperor has no clothes ... She argues passionately for a more progressive economy, starting by flipping the script on how we conceive public finances and monetary policy. While written as polemic, The Deficit Myth is theoretically sound, though occasionally politically naive ... Modern monetary theory is an interesting alternative lens to better understand the constraints facing central banks and treasuries of some of the world’s leading economic players, but it should not be understood as a pain-free end to the budget constraint on economic policy. Death and taxes remain inevitable.

As the name implies, MMT is a set of newish ideas that maddeningly reopen a question that you’d think only a novice stoner or seven-year-old would dare ask: Where does money come from, and what does it do? MMT argues that money is a legal and political construct and that limits to government spending are not monetary and only mildly economic; they are primarily political ... The idea is that a basic understanding of how money works, of MMT precepts, could empower any citizen to fight for a better world. But this will only happen once we reconcile what the country is capable of and what the people are willing to do ... it-diminishing government? Are we willing to stop shoveling resources into the military (and its domestic paramilitary offshoot, police departments) and start diverting them to working-class communities? If everyone deserves to be safe, housed, and prosperous, let’s instruct the Federal Reserve to start marking up some different accounts.

Ms. Kelton, a professor of economics at Stony Brook University and senior economic adviser to Bernie Sanders’s presidential campaign, starts with a few correct observations. But when the implications don’t lead to her desired conclusions, her logic, facts and language turn into pretzels ... How much does this add up to? $20 trillion? $50 trillion? She offers no numbers. How is it vaguely plausible that the U.S. has this much productive capacity lying around going to waste? In a book about money, the inflation of the 1970s and its defeat are astonishingly absent ... By weight, however, most of the book is not about monetary theory. It’s rather a recitation of every perceived problem in America ... Much of The Deficit Myth is a memoir of Ms. Kelton’s conversion to MMT beliefs and of her time in the hallways of power ... Ms. Kelton does not grapple with the vast and deep economic thinking since the 1940s on money, inflation, debts, stimulus and slack measurement. Each item on Ms. Kelton’s well-worn spending wish list has raised many obvious objections. She mentions none. Skeptics have called it 'magical monetary theory.' They’re right.