Modern Monetary Theory – The Deficit Myth

I have blogged before about Modern Monetary Theory. Basically it says that you can print your own currency by having your own central bank, run large deficits, have full employment, have no inflationary pressure and do this year after year. However while large deficits and monetary stimulus make some sense during a short deflationary economic contraction, sustaining those policies for years, will lead to inflation and economic stagnation – stagflation. The video below is from BBC Reel where Stephanie Kelton, author of The Deficit Myth, argues that we need to rethink our attitudes towards government spending. Worth a look – great graphics.

One thought on “Modern Monetary Theory – The Deficit Myth

  1. Mark Orchard July 17, 2020 / 4:54 pm

    Hi Mark,

    Thanks for your blog entries. A nice contemporary addition to the Economics classroom.

    This one does not make much sense to me though. Did she say that any deficit was not a problem? As long as a healthy economy (inflation) was the outcome? That seems quite radical to me, because it occurred to me (later in the day) that why would we pay any tax dollars at all? Why not just print any dollars the government needs and call it a deficit? That is the extreme example of what she is saying, isn’t it? The tax revenue does not cover the expenditure, so just print the rest of the dollars you need. Tax rates could be lowered as low as you like, as long as there is no inflation caused by printing the rest. That explains the recent United States low income tax policies. A healthy economy, no danger of high inflation, and just an enormous deficit and debt created.

    Anyway, I just thought I would make a comment on it. No need to reply. Understanding how any country is going to escape from this high debt/low inflation world is fascinating.

    Mark Orchard
    Tauranga Boys’ College


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