The big myth of government deficits

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By Russell Bruce

“How will you pay for it is the wrong question” says Stephanie Kelton. “The question should be how will we resource it? Stephanie’s training as an economist meant she accepted there had to be a means of paying for what governments borrowed. As others began to question this thinking Stephanie wanted to know more and began asking questions. Questioning is what everybody should do about anything before accepting a perceived wisdom, particularly those punted by governments. Especially important for academics and economists.

For long the individual or household analogy that if you borrow it must be paid back has been drummed into the public mind. This therefore applies to government borrowing right? Well turns out this is just not true. If we borrow to buy a car, a house or pay the gas or electricity bill -to be regrettably topical – the debt will need to be repaid. But if a government borrows to keep the economy moving in a crisis or pay for F-35s to actually fill the capacity of an aircraft carrier suddenly located in the Far East to get up the nose of China – that never has to be paid back because a country with its own currency can rack up all the borrowing it needs as long as it keeps an eye on inflation.

Inflation, that’s the thing we are all experiencing now with food and fuel. As Stephanie explains in The Deficit Myth: “If prices start rising faster than most peoples incomes, it means a widespread loss of purchasing power. Left unchecked this could mean a decline in society’s real standard of living.” That sounds very much like where Brexit Britain is under the Johnson government today.

Less money circulating reduces economic activity, employment opportunity and the return in taxes that traditionalist economists argue is the function of a balanced economy. Brexit in the UK is demonstrating unnecessary costs to the personal, business and public purse and adding to a damaging and difficult situation arising from the Covid pandemic. Westminster’s economic management strategy is predicated on EU trade loss being compensated for by an upside in trade generated with distant continents without an evidential or historical base for such a proposition. Empire was take. Today countries from that past are independent with opportunity to develop their own agendas in any future relationship. You might call it ‘take back’.

Anyway over to Stephanie Kelton to explain her journey to becoming an international proponent for Modern Money Theory (MMT).

Stephanie Kelton is an economist and a leading authority on MMT or Modern Money Theory, a new approach to economics that seeks to liberate global policymakers.

An economist and academic. Stephanie is a professor at The State University of New York at Stony Brook and a Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research. She was formerly a professor at the University of Missouri – Kansas City

Founder and editor-in-chief of the blog New Economic Perspectives. She was named one of Politico’s 50 thinkers, doers and visionaries transforming American politics in 2016.

Stephanie Kelton is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.