The Deficit Myth

01Modern Monetary Theory (MMT) says governments controlling their own currency can use it to boost public welfare and jobs

Let's talk about a common belief that's been around for a while - the idea that the government should handle its budget just like you or I handle our household finances. You know, the whole "don't spend more than you earn" thing. This belief often leads us to ask, "How are we going to pay for that?" when we hear about big public projects like healthcare reform, building new infrastructure, funding education, or tackling climate change. But what if I told you that this belief is actually a myth? That's what Stephanie Kelton argues. She introduces us to something called Modern Monetary Theory (MMT), which flips our understanding of government financing on its head. You see, unlike you or me, the federal government is the one who issues the currency. This means it has the power to finance all government spending, not us, the taxpayers. This idea isn't new. It was first championed by an economist named Abba P. Lerner, who called it "functional finance". The main idea behind MMT is that we shouldn't just look at the cost of a policy, but also its broader impacts on the economy and society. In other words, we should judge a policy by how it works in the real world, not just by its price tag. Let's take a real-world example. Remember how the government responded to the COVID-19 pandemic? They significantly increased deficit spending to manage the crisis. This showed us that it's possible to fund big initiatives without causing the economy to collapse. According to MMT, this is actually the most responsible way to handle a crisis like this, because it prevents entire industries from shutting down and massive job losses. So, what does MMT really mean for us? It means that we can tackle big issues, like healthcare, education, and climate change, without worrying about creating a debt crisis. This is a big shift from the conventional wisdom that reducing the federal budget deficit should be a top priority, a belief held by about 48% of Americans according to a survey. By understanding and applying MMT, we can shift our focus from the myth of the deficit to the reality of improving public well-being. This is the key takeaway from Kelton's work, and it offers a fresh perspective on how we can use government spending to create a more fair and sustainable economy.