The 2021 Tansley Lecture featuring Stephanie Kelton

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
Deficits matter, but not in the way we’ve been taught to believe. This is especially true in Canada, where many think that deficits brought the country to the brink of bankruptcy in the 1990s and that recent federal deficits risk repeating the mistakes of the past. Underlying these worries is a belief that deficit spending is like running up credit card debt: it can easily get out of hand and burdens future generations. This reasoning lies behind arguments that we can’t afford to take decisive action on climate change, find a solution to the water crisis in Indigenous communities or address countless other policy problems. These are myths. Deficits can be used for good or evil. They can enrich a small segment of the population, driving income and wealth inequality to new heights, while leaving millions behind. Or, they can be used to sustain life and build a more just economy that works for the many, and not just the few.
JSGS was pleased to welcome Stephanie Kelton:
Stephanie Kelton is a professor of economics and public policy at Stony Brook University and a Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research. Her most recent book, The Deficit Myth (June 2020), became an instant New York Times bestseller. She is a leading expert on Modern Monetary Theory and a former Chief Economist on the U.S. Senate Budget Committee (Democratic staff). Professor Kelton advises policymakers and consults with investment banks, and portfolio managers across the globe.

[@detectiveofmoneypolitics]

Economic investigator Frank G Melbourne Australia is still watching this informative content cheers Frank

[@cyberont]

Talk doesn't actually begin until 11:23, you're welcome.

[@stephen_pfrimmer]

Thanks for asking about Bancor. And thank you Dr Kelton for explaining. I hope next time she could develop that more. Bancor would not be a currency, right?

[@Herbwise]

At 20 minutes Stephanie talks about buckets which includes the ideas of flows and feedback loops.

[@Achrononmaster]

@1:13:00 I would agree fiscal planning (aka. government budgets) should be inflation scored, for now. But that's only because scoring the *_real sustainable resource constraints_* (the only true constraint we should care about) is very hard --- it requires ecology experts among many others, and involves big uncertainties. But in the near future that is what government fiscal policy should target, not inflation, because low inflation does nothing to guarantee real natural resources are not being depleted.

[@herbwiseman9084]

When you think it through, inflation is always caused by supply shortages - energy, food and housing - but it is also a transfer of assets to those who own the energy, food and housing systems from ordinary Canadians.

[@ivanchernenko9879]

An interview she did on Feb 8, 2024 titled “Was MMT right about inflation?” at 12:25 she says, “We are getting real GDP numbers that are eye popping”---She is ignoring the elephant in the room which is, how much debt was incurred to get those “eye popping numbers”? In 2023 the US government borrowed $3.2 Trillion, of which only $2.4 Trillion of GDP was recorded. The remaining $800 Billion generated ZERO economic activity whatsoever. She talks about the “multiplier effects” yet every 5 year period since 2006, GDP grew by much less than the increase in the debt which means that money vanished without generating any GDP activity. We would have been far better off taking the entire $3.2 Trillion borrowed and spent it entirely on battle tanks and aircraft carriers. We would have gotten at least $3.2 trillion in economic activity from such wasteful spending and that is with no economic multiplier effect, which is pretty hard to do. This consistent, horrific economic multiplier effect of less than 1, for the last 18 years goes against MMT theory. This theft from the US populace shows that government cannot, and should not manage all but the smallest amount of public money since they are evaporating money in a way that not even the Mafia could do.

[@Herbwise]

I once suggested to Jagmeet Singh that instead of trying to balance the budget using the resources of businesses and people that he should pivot to using the federal budget to balance the economy - using the budget on behalf of people and businesses. At about 20-25 minutes Stephanie addresses this. Jagmeet seemed to like this idea. Unfortunately he has since pivoted to a tax-the-rich programme which perpetuates the mythology that actually undermines the goals of the NDP. During WWII, the first governor of the Bank of Canada, Graham Towers, was asked about the growing debt. An MP asked if it was correct to consider the federal debt growing because of the war as a private sector asset. Towers agreed that it was. The finance minister at the time, J. L. Ilsley, who led the Canadian delegation to Breton Woods, then mused if that is the case how do we make the debt an asset of the people? Since then I believe that we have done some of that with our pension funds that invest in Canada Bonds and t’bills not to mention the deficits and debts related to universities, colleges, health care, airports, the St. Lawrence Seaway, highways, etc.

[@sebvansteijn7227]

'Debt' as an asset of the people? My pension is a debt?

[@Herbwise]

@@sebvansteijn7227 Pension funds like CPP buy bonds and T’bills until they find another investment.

[@susanmercurio1060]

@@sebvansteijn7227 : According to MMT, the debt of the state takes a burden off the private sector, so in that way, it becomes an asset.

[@herbwiseman9084]

@@sebvansteijn7227Your pension is your asset not a debt. It is a govt liability.

[@Rob-fx2dw]

This MMT idea of deficits being a surplus for the private sector instead of debt burden brings out the people who are ignorant enough to not understand that government debt does not have to be paid for when the reality is it is a debt imposed on the public. It is debt incurred by government politicians on behalf of the public which the public will have to pay for when the borrowed money has to be paid back and nobody in their right mind lends money if there is no payback. It all matures in time and has to be paid back by the taxpayers because government does not pay it's own debts. If it did or could then you would be able to tax the government instead of the government taxing you. That does not happen.

[@jeff__w]

24:58 Robert Mundell A name that should be better known in the history of economics, referred to by Greg Palast as the “evil genius of the Euro.” From _The Guardian_ article [26 Jun 2012] of the same name: _[Robert] Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)_ _"It's very hard to fire workers in Europe," he complained. His answer: the euro._ _The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession._ _"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."_ _He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace - or the plumbing._ The euro, then, _by design_ removed fiscal policy as an option for those countries that adopted it-in other words, contrary to how Wynne Godley (and now Stephanie Kelton) framed it, it was a feature, not a bug.

[@eduardoguzmanzapater1949]

"...,private businesses can't do it,..": but she certainly knows banks are doing it all the time. Wall Street-vetted MMT has to be about saving the obsolete banking privilege that is at the root of each crisis, including this one. The real myth is private credit. I suggest listening to/reading Richard A. Werner.

[@gg3675]

She means private credit creation to pay down their own debt. Werner's argument that this is technically possible is correct, but his example is the self-dealing Barclays/Qatar scandal which pretty obviously was *possible* but also probably *illegal.*

[@thomasd2444]

ProfSteveKeen & Richard Vague (see KZbin) know Private Debt

[@josephlee2318]

Cute Love your hair

[@Achrononmaster]

@1:02:40 local state governments do not need to be fully constrained by local tax revenue either, the Federal government can allow them to operate accounts at the central bank with an overdraft. The moral hazard does not exist provided the receipts are sent in and the CB has enough accountants to conduct the oversight. Also, before a recession, not after, states can be given block grants per capita, and chances are that can prevent a serious recession (which is always ignited by rising _private_ debt, not public debt), along with a Federally funded locally administered job guarantee (automatic counter-cyclical stabilizer). That's as fair as anyone can reasonably expect before inter-state trade balances are taken into account.

[@user-nf9xc7ww7m]

How about making states/provinces as currency issuers? Or better yet, each municipality can be its own currency issuer. This would revitalize towns for sure. Counties could buy its municipal currencies, states could buy those county collective municipal, etc.

[@susanmercurio1060]

I saved this lecture to share with people who ask about MMT or misunderstand it.

[@thomasd2444]

A good visual can help some also, Susan MMT in Minsky at the 2nd Poznan MMT Summer School 2022 kzbin.info/www/bejne/eqCwgZ99atCahKc . Macroeconomic Dynamics and Energy In Minsky Poznan Summer School 2022 . kzbin.info/www/bejne/Y2GQXo1_p89qq6s .

[@gorgeousgeorge3947]

No inflation? UK house prices are up 197% since the Millennium. Excessive monetary spending ends, as it always has done, with inflation. Inflation is a disease of monetary excess. Money will find a home, if not in productive assets, then in speculative ones like property and equities. The inflation in both of these markets is horrendous. Yet, in the early stages, the asset rich regard inflation as a good thing and rejoice at their rising 'wealth'. This boom has been going on for some years already. Eventually, monetary inflation forces yields lower and increases prices for basic necessities. We are starting to see that right now in the UK and US. The inflationary flower has blossomed. The next stage will be more dangerous still as public expenditure is ramped up to stimulate further demand. These long-term stimulus programmes will not be easily revocable. Inflation sinks very deep roots. And MMT's answer? Just spend more. In an inflationary environment you have no choice but to spend more - on everything. MMT is a ruinous philosophy and there's nothing modern about it. It's an old heresy restated. In the latter stages of an inflationary boom, the poorest and most vulnerable are the first to suffer. Tenants are evicted. Some even starve or freeze to death as they can no longer afford food and warmth. That's only the beginning. Then comes the bust and a rapid deflation of asset bubbles. Credit contracts. Production slumps. Businesses fail. Unemployment sky rockets. More rents and mortgages go unpaid. Markets everywhere stall. Growth collapses completely. The answer according to MMT? Crank up the printing press and intensify the monetary death spiral. Have we forgotten the lessons of history? Apparently so. Stephanie Kelton has no answer to this fundamental problem - you can't just 'spend more' with a debased currency into collapsing productive output. In the latter stages of an deflationary spiral, growth can't be stimulated at any price. MMT can't even anticipate early-stage inflation, much less do anything about it. It is a ruinous philosophy that must be vigorously contested.

[@bashful228]

MMT doesn’t ignore inflation at all. you need to understand the difference between monetary policy (throwing money into the economy at the level of banking sector through QE) and fiscal policy (spending on things average people need to make their lives better and more affordable; public health, transport, conservation, unemployment /disability/retirement benefits,…)

[@gorgeousgeorge3947]

​@@bashful228 MMT doesn't deal with inflation at all. The money thrown at the banking sector through bailouts and QE found its way into credit and lending, inflating asset prices. High asset prices are directly contingent upon the availability of cheap credit. More recent waves of money printing have found their way directly into people's pockets and inflated the prices of household staples. The problem is that an excess money supply and increased government spending does nothing to address runaway prices. In fact, government needs to cut spending and central banks need to raise interest rates, limiting the availability of cheap credit. This will drive down demand and lower prices across the board. Better a sharp contraction now than prolonged stagflation or, worse still, hyperinflation and a full-blown currency crisis. That's the choice that confronts us and for governments to pretend otherwise is utterly dishonest.

[@bashful228]

@@gorgeousgeorge3947 "The money thrown at the banking sector through bailouts and QE found its way into credit and lending, inflating asset prices. High asset prices are directly contingent upon the availability of cheap credit." You don't say? What makes you think QE is the same thing as spending money into the economy directly on the massive health, infrastructure, social equity, environmental deficits that are so harmful? Hint: it isn't the same thing at all. Your example has absolutely nothing to do with MMT, which is a lens to better understand macroeconomics - not a prescription for managing the economy. If MMT is in the slightest way prescriptive, you'll not that every single MMT scholar or advance advocate is highly critical of the neoliberal approach to economic management that involves throwing money at the 1%/bankers/wall-street-tycoons. I suggest if you understood a bit about MMT you'd be less vitriolic about it. Try reading Kelton's book. stephaniekelton.com/book/ our watching any of the downs of videos here on YT interviewing her or presentations and lecture by her. there are dozens of others who are MMT scholars too. MMT is flow & stock and double accounting consistent, more than you can say about the neo-classical economics of MMT critics.

[@gorgeousgeorge3947]

​@@bashful228 "What makes you think QE is the same thing as spending money into the economy directly on the massive health, infrastructure, social equity, environmental deficits that are so harmful? Hint: it isn't the same thing at all." It is exactly the same. In the case of the banks, money printing finds its way into credit and inflated asset prices. In the case of direct spending into the economy, money printing finds its way into favoured sectors and industries. Both are inflationary and both are bad. Public and private expenditure are not the same in their economic effects. If you or I can't afford something, we think better of it. We cut back and economise. When Governments are short of cash, they print, borrow, print again and tax. Unrestrained public expenditure causes inflation. Private expenditure does not. MMT is merely an old heresy restated. It cannot deal with inflation and any economy that pursues it will ultimately become inflationary because inflation is the only restraint upon the issuance of new currency. I dismiss MMT out of hand.

[@herbwiseman9084]

MMT is how it works NOW. You are conflating fiscal policy and politics with MMT. She NEVER advocates spending unlimited amounts. She ALWAYS says spending is constrained by the resources available to be purchased OR - WAIT FOR IT - YOU WILL GET INFLATION. So you notion that spending causes inflation is incorrect and unlimited spending is NOT what Kelton advocates. You may want to actually study the issue instead of making up stuff.

[@mecom3450]

Baocor 1:09:14

[@1Skeptik1]

The "peoples economy" aka socialism. We just NEVER wise up. MMT is socialism with a fresh coat of paint. Irony? Stephanie is one of the richest Economist from United States. According to our analysis, Wikipedia, Forbes & Business Insider, Stephanie Kelton's net worth $5 Million. (Last Update: January 13, 2024) Ms. Kelton has pockets loaded with capitalist dollars while she champions socialism for profit. Socialism is a political and economic system wherein property and resources are owned in common or by the state.

[@ianmackie1322]

That's probably the most vacuous piece of criticism I've ever heard.

[@1Skeptik1]

​@@ianmackie1322 ad ho·mi·nem? Come on, you can do better than that. One of us is an idiot.

[@Achrononmaster]

!1:15:00 wrong answer! (Or only half the story!) If Fed rates go up that's inflationary, it's not deflationary, least not when the government debt is more than 30% of GDP. That's because high rates (a) push up forward prices (directly inflationary) and (b) pay net interest to bond holders --- aka. basic income for people with money. Again, highly inflationary. Raising rates does little to stop credit expansion, since the propensities for borrowers to spend vs savers to borrow roughly cancel each other out, the only market significantly effected by Fed rates changes is housing, and that's downstream of most consumer spending, so does not inflate most other prices or wages. And when rates go up savers do not need to squirrel away as much of their income, they can spend more and bank less now the interest is higher, or alternatively they'll meet their saving targets faster. So there's no direct line from higher rates to contraction of credit. More like the opposite through the interest-income and forward-pricing channels. So when Stephanie answers this question she's implicitly conceding the argument on rates effects, which is incorrect. Lead with the fact most mainstream economists agree with MMT that higher rates on government debt injects more cash into the economy which is a huge inflationary bias --- and the worst kind, since all this basic income goes to the wealthier folks and pensioners, not the working poor or unemployed who are likely not holding Treasury securities.

[@Achrononmaster]

@44:00 huh? It's easy to write a macroeconomics textbook that is fully MMT consistent (I've written several), it's even fun, way more fun than PK or Neoclassical or Austrian, because you get to critique all those rivals, which is delicious.[^] But it's a Minsky Textbook Problem: _anyone can write a textbook, the problem is getting others to read it._ [^] Writing MMT is non-boring, which is what makes it easy. When you realize macroeconomics is highly out-of-equilibrium you have a vast richer space of ideas to write about, like Steve Keen does. Imagine being stuck in NAIRU land? It's dead boring. You get a lot of tedious mathematics telling you how to compute some stable equilibrium state, which will never exist in real world. I can't imagine a worse sort of study. But MMT completely flips this on its head. The mathematics needed to do real MMT dynamics is complex system theory, and hardly anyone is doing it right now, all Mosler, Wray, Mitchell and Kelton do is the accounting and a little point estimation. So they've left the next generation of MMT students an enormous space to work in and find novel and original policy ideas. Here's just one; when you have a currency-issuing monopoly there is no free market, but the policy space available allows governments to create quasi-free markets, but also more, they can create fair markets too. But how? No one has really examined optimum dynamics (zero unemployment, sustainable output, stable prices) in this sort of currency monopoly system. MMT only says this is possible, it is does not tell you how (although Argentina's Jefes limited job guarantee program is empirical support for the "how?" at a mesoscopic scale). The HOW question involves politics (Argentina's Jefes program was cancelled by idiot ruling class elitist neoliberals, a purely political decision). That's the cool thing. MMT forces you to consider politics and human social psychology. That leads back to things Marx, Ricardo and Smith got right (labour is exploited, its an unfair market), and enables you to shed what Marx & Smith got wrong (Marx got the source of the price level wrong, since in his day gold standard mentality was the mind-set, hence unemployment is difficult to avoid, which is today inapplicable, and Adam Smith got the money story completely wrong, although he eventually understood fiat currency).

[@Rob-fx2dw]

All from a guy who supports the MMT idea that deficits don't matter and they don't have to be paid off when the reality is they are constantly being paid off as the Treasury securities that were sold to fund them actually mature and the borrowed money has to be paid back to the person who bought the Treasuries in the first place.

[@Rob-fx2dw]

I note you still can't address the facts that I have pointed out as fatal flaws of MMT . Like these :- Some of the Fatal Flaws of the MMT ypu seem so keen to promote :- Claiming taxes put a value and get acceptance of the currency when the history of economies that have a currency that failed through inflation and became worthless despite taxes. There were 30 or more cases in the last 80 years - even their own governments dumped the currency. The only rational conclusion one can make is that TAXES Do Not put value into or get acceptance for money . Claiming the government is the monopoly issuer of money when private banks who are privately owned and run create money when they make loans and those loans create most of the money in the economy. Claiming taxes destroy money when taxes are re spent and the evidence in the record of government finance show that without taxes the budget deficit would have been always in a deficit almost as large as the total of government spending. Claiming money raised from Treasury bond sales to the public is not used by government to fund the budget. If it wasn't and taxes weren't also used then there would be no money to spend. Claiming sectoral balance shows the government deficits are a surplus and a saving for the private sector which they do by ignoring the debt burden that falls on the private sector because of the bonds that fund the deficit.

[@Achrononmaster]

@32:00 very important to name & shame at this stage. Others who are "intellectuals" but thoroughly dishonest are finance gurus like Nassim Taleb, who has a huge following. Unlike Krugman and Summers, Taleb has a more open mind but also online clout with libertarians, and yet he is mislead by the neoclassicals. I think he is worth engaging --- not because he's smart enough to see MMT is correct, (he probably isn't, too biased by cryptocurrency lunacy) but just on the off chance he could see the light, because his big audience of libertarians need educating. They think like Austrian Schoolers, and think governments have to get the hell out of the way or otherwise "minimize harm," = precautionary principle, failing of course to appreciate the harm is being done precisely because politicians do not understand the monetary system and the purpose of coercive taxation, the correct purpose being to create the harm [aka. unemployment] only to _completely_ eliminate the harm [hire all the unemployed the tax liability created], for public collective purpose.

[@bobby33x97]

Why are so many Jews pushing MMT...HHHmmmm....???

[@BodyByBenSLC]

You know what first peoples would really appreciate? Give them the land back. No takers? Thats what I thought.

[@Rob-fx2dw]

MMT is fatally flawed set of ideas. Some of the clear flaws are :- Claiming taxes put a value and get acceptance of the currency when the history of economies that have a currency that failed through inflation and became worthless despite taxes. There were 30 or more cases in the last 80 years - even their own governments dumped the currency. The only rational conclusion one can make is that TAXES Do Not put value into or get acceptance for money . Claiming the government is the monopoly issuer of money when private banks who are privately owned and run create money when they make loans and those loans create most of the money in the economy. Claiming taxes destroy money when taxes are re spent and the evidence in the record of government finance show that without taxes the budget deficit would have been always in a deficit almost as large as the total of government spending. Claiming money raised from Treasury bond sales to the public is not used by government to fund the budget. If it wasn't and taxes weren't also used then there would be no money to spend. Claiming sectoral balance shows the government deficits are a surplus and a saving for the private sector which they do by ignoring the debt burden that falls on the private sector because of the bonds that fund the deficit.

[@jovianr9498]

@elmartillogrande I recommend not feeding the trolls, it wastes your time and provides them with encouragement and emotional gratification.

[@RobertsMrtn]

It does seem to me to be flawed. It seems to be based on the idea that governments can pay for what they want by simply printing money. It is a basic rule of life that you don't get something for nothing.

[@Rob-fx2dw]

@@RobertsMrtn Corerct. You don't get something for nothing and pretending someone does from government is just a huge lie.

[@Rob-fx2dw]

@@RobertsMrtn Yes - Anyone promising me something for nothing is a promise I don't expect to come true. In fact I expect it to be just the opposite which is something that as and when applied has served me well. !

[@19battlehill]

U know what Stephanie never talks about?? Private debt or the fact that commercial banks make 85% of all money. And unlike a Govt that can print fiat and pay its bills --- citizens can't.

[@Rob-fx2dw]

She can't talk about that because it shows her theory is rubbish. Just like her inability to answer why she says taxes put value into the money hwen they failed to put any value at all into the money of 30 or more countries over the past 100 years where inflation made the money utterly worthless despite taxes. Even their own governments ditched the worthless money and used someone else's.

[@herbwiseman9084]

She leaves that area to Steve Keen and Richard Vague. The issue is assets and liabilities. And that makes it more complicated and could distract from the message she is working on. The banks creation of credit money are what Wray calls money things. There is a hierarchy of money and Kelton does talk about that. You need to expand your listening and reading to get to those things.

[@Rob-fx2dw]

@@herbwiseman9084 You say "The banks creation of credit money are what Wray calls money things. ". The reality is Wray in typical MMT style denies what money actually is and divides it up into different 'things' when in reality in the economy it is all the same because nobody cares if something is bought or sold or owed in what money came from anywhere. The reality is all of the government designated sovereign money in economies today such as is fiat credit based money backed by and equivalent amount of debt. It is all interchangeable. Be honest do you ask or does anyone if something is paid for in money from one source or another or just accept it or pay it when it has to be paid? Does Mosler ask if a price of anything is in "money things" or not when he buys something ? Admit it if you do ask what money is being used to pay for things or get paid for things you sell ? Thing money, credit money, government money? Admit that you are either not being honest if you string people along with that idea of some money being a different from other money in the economy. Tell me where taxes put value into the money in all of the instances where inflation made the money worthless even if you believe it was external debt that made it so ? The reality is it did Not because it is proven by historical fact that the idea is just rubbish like any idea that falls down when tested in the economy it is not so. Example:- Someone has a theory that noise makes petals on flowers open so they test it like Charles Darwin actually did test. Of course he being a scientist actually tested it and the result was it did not happen so he saw the theory was rubbish because it was proven so by the facts of the test which showed it's failure. The test of value being put into money or acceptance being achieved for money is a similar failed theory because the test already applied to it shows it failed. Why can't you accept that proof.

[@Rob-fx2dw]

@@herbwiseman9084 You say "the issue is assets and liabilities". In respect to financial assets the fact is the government does NOT and cannot create assets without creating liabilities at the same time. Nobody can and nobody does becasue the creation of financial assets is tied to creation of financial liabilities. If you don't know that then you have missed the biggest lesson of the GFC where financial assets (mortgages) were created along with financial liabilities and when the financial liabilities were not honoured (failed mortgage payments which were not honoured) the financial assets fell like a stone in water. MMT does not recognise this understanding of financial realities so it will fail inevitably and taht becomes evident when it is applied to history as I have shown. .