I have some interest in Stephanie Kelton's book ‘The Deficit Myth'. My name is on the back cover of the UK edition, after all. So it is pleasing to bite that it has made it to the main Guardian editorial column today. The review there concludes with this paragraph:
What is depressing is that rather than educate the public, politicians instead continue to serve up deficit hysteria. Economics too often resembles religion rather than science. Much of what counts as economic theory is doctrine, supported by a belief, not evidence. Prof Kelton's book is not a bible. It does not peer deeply at how an economy expands capacity. Some question whether she has simply repackaged an older Keynesian economic story. But she has succeeded in instigating a round of heretical questioning, essential for a post-Covid-19 world, where the pantheon of economic gods will have to be reconfigured.
That, I think, undersells the book. If it was repackaged Keynes (and most Keynesians seem to be amongst the most violent opponents, so I tend to disagree) it is the Keynes they forgot.
And what the review does not make clear is that what is really powerful is that MMT is Copernican in that it turns our beliefs on their heads. And what we believe about economics really matters.
If we believe there is no taxpayers' money because the government creates all money the whole political narrative changes.
If we appreciate that we spend and then tax then we change the whole ‘how are you going to pay for it' agenda, for good.
Whilst if tax is not about revenue raising (and it isn't) then it takes on a policy, and so ethical, dimension few have previously imagined.
This is not just about rearranging the pantheon of economic gods. This has real implications, here and now. And that is what matters.
We can change the world for the better. MMT helps explain how that is possible. That's decidedly radical.
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Did you mean to say “If we spend and tax we change the whole ‘how are you going to pay for it’ agenda, for good.”?
I have edited in case I was too cryptic
That’s the problem of trying to race through a lot of posts
4th last paragraph: you possibly meant “spend and tax” or “spend then tax”? Half way through the book – very readable and powerful.
Aaaaagggghhhhhh….I reversed
I agree with your last paragraphs whole heartedly.
The Guardian silence on this book (which I have now read) and now its luke-warm ‘approval’ is very dis-heartening. What is wrong with Viner and her crew? For goodness sake!!!!
And I’m sorry to get all class conscious here but many middle class I talk to simply deny that MMT can be.
When the cheaper paperback comes out, I can tell you what I will be buying friends and family for Xmas!!
The big message is for me (and as I put in a review on you know where) MMT is a factual reality that is actually a politically neutral power that the State has. The only caveat or limitation on its use is the political nature and intention of the GOVERNMENT in charge of that State power at any time and whether they want to use it or not or promote it. Does a Government have the imagination to use it (Kelton makes a lot of this and rightly so)?
Yes – there will be other limitations and consequences/causes and effects from MMT that will have to be handled properly – trade, currency speculation and others that have been mentioned here but nothing that a genuinely pro-active Government NOT bowing to markets for a change can handle.
But this is the bit I don’t understand about MMT – everyone potentially benefits – people, companies, shareholders – so why the fear, why the refusal to countenance it – even in the more supposedly educated classes?
It’s got to be better than the merry-go-round economy we have put up with for so long.
Thanks
” Economics too often resembles religion ” ===now that strikes a chord. I’m trying to read some critical reviews of Ms. Kelton’s book to help my understanding’ God, the adversely critical ones are both deliberately misleading & lack academic discipline ( one of her frustrations ) For example. I’ve just read one Robert Murphy of Mises Institute – OK not a natural supporter. of course. But his review rabbited on about inflation & Venezuela. & ended with his take on the Job Guarantee Scheme He says it’s not a proper guarantee scheme if it can’t sack ” drunken workers ” or those ” who are simply awful workers “..Don.t know who he.s been working with, Picking up on your recent pop theme. he could do with listening to REM ” Losing my religion ”
Do any of us know any adult adverse criticisms that can help with some of the less easily -digested parts of MMT understanding ?
I throw the request open…
Stephanie Kelton does a really good job of explaining MMT (no disrespect to anyone here BTW).
Buy it and digest it.
And do – if you can – what I am doing – buy it for others. The paperback will hopefully be much cheaper
My two kids will get a copy each and I will write a little front piece for them telling them that knowing about MMT helps them to raise their expectations of their Government. And if their Government does not want to use MMT to help its people, then that Government’s existence has to be questioned.
OK – the Buchananite ‘Public Choice ‘Theorists’ (ha ha , what a joke) will say that MMT in this way is just for politicians to bribe the people to vote for them and that is morally wrong (Oh dear!!).
But please tell me what the £6 million (and more) donations to Boris’ Tory party is if not a self beneficial bribe by the rich to the political class? Look at how the Democratic and Republican parties are funded in the U.S. and then look at the result with that?
It’s OK apparently for the rich to donate money to politicians for personal benefit, but not OK for the rest of us mortals to use the leverage of our vote to vote politicians in who help all of us!!! Fancy that!?
Does that help?
‘Adult’ criticism here
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2020/07/the-deficit-myth-a-review.html
says she’s absolutely right but underplays history
I am heading off to read it
I had to share this, because I was only vaguely aware of Kalecki, probably is a minor Keynesian. How wrong can you be. This is our insight; and he writes in a way that seems to dissolve time. This from Michel Kalecki, ‘Political aspects of Full Employment’, (1942):
“If the Government undertakes public investment (e.g. builds
schools, hospitals, and highways) or subsidises mass consumption (by
family allowances, reduction of indirect taxation, or subsidies to keep
down the prices of necessities), if, moreover, this expenditure is
financed by borrowing and not by taxation (which could affect
adversely private investment and consumption), the effective demand
for goods and services may he increased up to a point where full
employment is achieved. Such Government expenditure increases
employment, be it noted, not only directly but indirectly as well, since
the higher incomes caused by it result in a secondary increase in
demand for consumption and investment goods.
It may be asked where the public will get the money to lend
to the Government if they do not curtail their investment and
consumption. To understand this process it is best, I think, to imagine
for a moment that the Government pays its suppliers in Government
securities. The suppliers will, in general, not retain these securities
but put them into circulation while buying other goods and services,
and so on until finally these securities will reach persons or firms
which retain them as interest-yielding assets. In any period of time
the total increase in Government securities in the possession
(transitory or final) of persons and firms will be equal to the goods
and services sold to the Government. Thus what the economy lends
to the Government are goods and services whose production is
“financed” by Government securities. in reality the Government pays
for the services not in securities but in cash, but it simultaneously
issues securities and so drains the cash off:”
MMT is not new. The real story is what happened, why was it overpowered by
neoliberal guff, especially from the 1970s? The answer I think is the determined pursuit of belligerent, bullying vested interests, manipulating a combination of ideology who discovered a capacity to exploit popular intuitions about ill-understood economic monetary processes. In Ronald Reagan they had a movie actor who had served McCarthy’s Un-Amercan Activities vendetta, the ideal blank-page political tool to surf to total triumph. Thatcher thought her father’s grocer shop was a good formal representation of the workings of the Treasury, and she had read and become a disciple of ‘The Road to Serfdom’. QED.
Excellent find
Not sure if this review directly answers the question but it is adverse:
https://lawliberty.org/book-review/deficits-budgetary-and-conceptual/
The reviewer’s background is the Cato Institute, Mercatus and George Mason University.
So s/he will be fundamentally politically opposed to government in any form, which pretty much undermines any criticism they might have to offer
Mr May,
Thank you for a cornucopia of links. Speaking for myself I have always thought MMT had a long history. I recall an American central banker writing about it in 1945 (name momentarily escapes me, if someone can jolt my memory I would be delighted), but before that Alfred Mitchell-Innes (pre-WWI) and William Dunning MacLeod (turn of the century); to say nothing of the Chief Cashier of the BofE in 1914, who had to enter his name as the investor in most of 3% War Loan; if he didn’t think he was creating money and the largest scale ever done, I have no idea what he thought he was doing.
I have delberately avoided the mainstream academic economists, because they promote themselves and their favourite icons enough; and even when they change their minds, it is only because they have not really changed their minds. At least this is the way their minds seem to work to this outsider.
The Chief Cashier BofE (1902-1918) was Sir John Gordon Nairne.
https://www.huffpost.com/entry/taxes-for-revenue-are-obs_b_542134?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuY291bnRlcnB1bmNoLm9yZy8yMDE4LzAxLzIyL2JlaGluZC10aGUtbW9uZXktY3VydGFpbi1hLWxlZnQtdGFrZS1vbi10YXhlcy1zcGVuZGluZy1hbmQtbW9kZXJuLW1vbmV0YXJ5LXRoZW9yeS8&guce_referrer_sig=AQAAAL98-DTAJed1kJ5F2F0FDuqwQYxXVqavpdP2u6R93XNoeBTnwf9ob6x8H1YrVt8Yn6iY3oR3rvLjsyFJl4b7mRYfEXnT0sSGorHYB-5QN8AYS_7nx4dhvDB5UTP32pJ_XJmSkKR5SwwXJHCFluzKbS7J4IeHkDE9uIbIxZrFHkZl
Thanks Richard. I have just finished reading Stephanie Kelton’s book “The Defecit Myth” and found it very interesting and informative. I particularly liked the reference to Ben Bernanke’s description of how the US government actually pays its bills. “Its not taxpayer money. We simply use the computer to mark up the size of the account”
you can see him say it here
https://www.youtube.com/watch?v=U_bjDAZazWU
Thanks Richard. I have just finished reading Stephanie Kelton’s book “The Defecit Myth” and found it very interesting and informative. I particularly liked the reference to Ben Bernanke’s description of how the US government actually pays its bills. “Its not taxpayer money. We simply use the computer to mark up the size of the account”
I am now reading for the second time.
Thanks for pointing in the direction of this G editorial.
I agree it is depressing that politicians seem to have no interest in educating the public. Indeed I made very much this point BTL here yesterday, but against me you insisted then (and now again this morning) that it was good politics not to do so.
If you think it’s depressing I absolutely agree. But if you think a call for politicians to persuade is “irrelevant leftwing time wasting” then I don’t.
And I don’t see how you can hold these two positions at the same time.
That’s your problem
I know that it will not have the same size readership as the Guardian, but Chris Williamson (ex MP) has written an article in Morning Star Online https://morningstaronline.co.uk/article/f/shattering-tax-and-spend-deficit-myth which seems to me to be a review of Stephanie Kelton’s book. Saying “Modern Monetary Theory (MMT) offers us a lens to better understand what has been going on and gives us the tools to demand that policy-makers change course.” and “Kelton shatters the myth that has shackled Britain to a system that has served the interests of wealthy elites and corporations at the expense of everyone else.”
It looks like he has ‘got’ MMT, I hope that he may still have influence over some of our current MPs who may then read the book and educate themselves.
He has got it
But now has very little influence
The pound to the dollar peg ended in 1971 but the Labour Party still asked the IMF for a loan in 1976. Chris Williamson is ploughing a lonely furrow!
In 1976 no one had worked out where we were
What few people understand is that what gives a currency or medium of exchange value is being able to enforce its reflux or redeem some or all of it. Margaret Thatcher famously declared government has no money of its own. She failed to provide any coherent evidence to support her statement especially in the matter of reflux. Those who chose to believe her were gullible. They were too lazy to demand evidence especially given the existence of the government’s Royal Mint. Down the line this gullibility turned into a lack of moral compass and blood on their hands. This stems not merely from the deaths due to ten years of austerity cuts affecting vulnerable people but now the under-funding of the NHS and public health services has led to unnecessary deaths from Corvid-19.
https://www.independent.co.uk/news/health/tory-austerity-deaths-study-report-people-die-social-care-government-policy-a8057306.html
https://www.thenational.scot/news/18346034.exercise-cygnus-tories-failing-nhs-foreshadowed-covid-19-reaction/
The UK cannot tackle its many problems with an electorate unwilling to demand evidence from its politicians that what they say is backed by reasoned arguments and not simply a blatant lie or myth. Too much forelock tugging continues to do the country a grave disservice literally!
Agreed
I think this is why MMT needs to be discussed more openly because of (1) the sovereignty aspect and (2) if more widely known, it could raise the expectations of any Government at a time of crisis or social change.
I wrote to the Guardian during my lunch break today thanking them for their editorial but asking them to do much more as a progressive paper to at least support a debate.
I sent in a letter but have heard nothing
Richard
If you and other contributors here are genuinely interested in a serious critique of Stephanie Kelton’s book, this is John Cochrane’s review from the Wall Street Journal:
https://johnhcochrane.blogspot.com/2020/07/magical-monetary-theory-full-review.html
This will not be popular here, but it is where the mainstream is.
It’s the mainstream in denial
In denial for a start that MMT is a theory about inflation, which he pretends it is not
And is a theory about full employment, for which he shows his contempt
And which completely explains the hyper-inflations he refers to (which is really not hard, but which he denies)
And which points out that creating inflation is very hard in most countries
If you deny what the book says, or why (he condemns ‘liberals’, which is all you really need to know about the review) then of course it’s a bad book
But he’s reviewed a book Stephanie Kelton did not write
I sense a lot of sour grapes around Ms Kelton and I’m not sure it is for plausible reasons.
Are we sure that there is not a hint of bad old sexism around all of this?
She name checks certain proponents of MMT in her book – but had she dealt more with the history of MMT, then it would have been a longer book and then portrayed as just a history and not the call for action which she intended and I certainly see it as. Kelton’s book is about demystifying MMT from the Neo-lib bunkum that has blighted many of our lives.
I’m struck by the fact that she has two children, and as a woman has nurtured new life into the world, only for that world to be seemingly increasing in its anti-life and pro-money attitudes. Kelton has a right to demand better on that basis, as does the writer
Sarah Kendzior in ‘Hiding in Plain Sight’ – another mother of two who is fuming at the wealthy in her country (USA) grabbing all the opportunities for themselves and robbing her brood and many others of any chance.
I like these female voices I’m hearing – their anger and their ideas to put things right. We should welcome them and get behind their energy.
The need for MMT? The need for enough money? How’s this:
Last night on C4 news there was a report of Covid in South Africa and its effects on the health system – it was a horrific report – when one poorly man turned up at an A&E, his wife was given a trolley and had to wheel her husband in to the hospital herself! Imagine that in a British hospital! The pictures I saw were truly horrific and patients were apparently fighting over oxygen supplies!
It all seemed down to money to me – lack of it (corruption was alluded as well in the report). And don’t anyone thing that that couldn’t happen here – look at the PPE crisis for goodness sake.
I’m also surprised looking at the link Peter May sent in just how many of the contributors don’t seem to mention tax in the MMT context. There seems to be this ‘auto fill’ thinking about tax – an all too easy acceptance that tax is just not important or not part of any corrective dynamic. It’s a blindness that falls straight into the hands of the mega rich who will increasingly use their under-taxed funds to get even more wealth for themselves.
And another from Dr Jim Walker, a Hong Kong-based Scottish economist. One of the more interesting observations from his critique of MMT is:
“The more one digs into MMT the more one ends up in a communist state where all spending is directed by the government and all private business activity, if it produces profits or returns to the “investor class, is bad.”
The full post is here: https://www.drjimwalker.com/blog/modern-monetary-theory-or-plan-a-cubed
It’s not a review of The Deficit Myth but he refers to an SSRN paper from 2012 that Stephanie Kelton co-authored: Modern Money Theory: A response to critics, (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2008542)
That’s not a review
That’s an admission of his own misplaced paranoia
It’s also utterly without foundation in MMT