Aimlessly Going Forward

blog by Tomas Sedovic

The Deficit Myth by Stephanie Kelton

book, goodreads, humanism, review, society

This review was originally posted at Goodreads and imported here later on with next to no spell/grammar checking.

5/5 stars

This is a book about a different approach to running the finances of a government via the lens of the Modern Monetary Theory (MMT) and dispelling some common myths. I’ve heard of MMT, but I know next to nothing about how a government is run or how does money even work, really.

For someone in a similar boat, this is a great book. It walks you through the common (faulty, according to the author) narrative ("the government can only spend money it raises from taxes"), gives a brief history of money and how the barter explanation does not fit in with the historical record and explains what would an MMT-inspired approach look like and how it could be better that the status quo.

The main thesis of the book is that in a government with sovereign control over its currency (i.e. makes its own money which isn’t limited by physical resources such a gold and doesn’t have substantial debts in foreign currencies), a national debt is a huge misnomer and is, in an of itself, not a big deal. Definitely not something that that requires raising taxes, harsh austerity measures or shutting down public-benefit projects.

For these countries (e.g. the US Federal Government, the UK or Japan but not the individual US states or countries that use the Euro) money is never the problem because they can always just make more. And indeed, when it comes to military spending or bailing out the banks, they do just that.

Unlike a household or a company, a government can spend money before it raises it via taxation. This crucial distinction of being ignored by politicians and voters alike.

The MMT emphasises that instead of looking at the deficit as the ultimate limit, countries should pay attention the the real limiting factors — such as land, people, physical resources, etc. And runaway inflation.

It argues that that the current deficit-based thinking does not utilize these actual resources fully and its model for predicting and controlling the inflation leaves a lot of money/resources/people on the table, idling or worse.

The fact that apparently, there’s a certain percentage of unemployment that the US Fed not only tolerates but actually views desirable (to control inflation without good evidence that it works) regardless whether the people can or want to work is utterly inhumane.

In the final part, the book goes into details of what could a universal job guarantee look like (in addition to things like universal health-care that every developed country except for the US has figured out).

The Deficit Myth is absolutely US-centric, mentioning the other countries more as an afterthought. You’ll see the word "federal" a lot. Still, it was an excellent introduction to MMT, perfectly accessible to someone as ignorant as I was is all matters of finance and it gave me a new perspective on the role that money, taxes and labour can have in a society.

I honestly don’t know enough to be confident that MMT is a better way to run countries, but it gave me a lot to think about and the current system (as well as the narrative accompanying it) is severly lacking.

Screenshot and link to the website for the Dose Response game

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