The first chapter of Stephanie Kelton’s book The Deficit Myth takes up the biggest myth about federal government finances, the idea that federal budget deficits are a problem in themselves. We’ll look at this issue in the next blink.ĭeficit spending doesn’t matter, but inflation does.The Deficit Myth By Stephanie Kelton: Introduction And Index They don’t need to worry about deficit spending or going broke. However, it does mean they have fewer fiscal constraints than the average family. So does MMT mean governments can just print as much money as they want? Not necessarily. This is called spending before taxing and borrowing, or the STAB model. After all, collecting taxes and borrowing only become possible after the money is already circulating. If the government wants to buy something, it must issue and spend the money first. In fact, MMT says that money only exists in the first place because governments began spending it into existence. Since only the government has this issuing power, it has monetary sovereignty – a monopoly – over its supply.īeing a currency issuer is important because, unlike a family, a government doesn’t need to earn money. In the US, the Federal Reserve either prints it as bills or issues digital dollars directly into bank spreadsheets. This is called the taxing and borrowing precede spending, or TABS, model.īut consider this: Where does money come from? In many countries, including the US, Japan, and Canada, money is made by the government.
Similarly, if the government wants to buy something, like a public health system, it needs to make money by taxing citizens or borrow money by issuing bonds. So if a family wants to buy something, like a new couch, it has to either make money from work or borrow money from the bank. Traditional economics treats the government like a big, complicated family household. The key message here is: The federal government shouldn’t budget like a household. It’s a subtle distinction that makes a huge difference. While your everyday household uses money, the government actually makes it. However, Modern Monetary Theory, or MMT, argues that this analogy is a little too simple. If a family can create and stick to a budget, so can the government. Over these wholesome scenes, a voice poses a question: “You and your neighbors are responsible with your spending – shouldn’t the government be as well?” It seems like common sense. Then, it shows them back at their kitchen tables planning the family finances.
The ad shows each of these stand-up citizens hard at work. There’s a waitress, a businessman, and maybe an affable construction crew. Imagine a typical political ad starring everyday, patriotic Americans.
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