2021 Tansley Lecture

Total Page：16

File Type：pdf, Size：1020Kb

2021 TANSLEY LECTURE THE DEFICIT MYTH: MODERN MONETARY THEORY AND THE BIRTH OF THE PEOPLE’S ECONOMY Stephanie Kelton, Professor of Economics and Public Policy, Stony Brook University Deficits matter, but not in the way we’ve been Stephanie Kelton is a professor of economics and public policy taught to believe. This is especially true in Canada, at Stony Brook University and a Senior Fellow at the Schwartz where many think that deficits brought the country Center for Economic Policy Analysis at the New School for to the brink of bankruptcy in the 1990s and that Social Research. Her most recent book, The Deficit Myth (June recent federal deficits risk repeating the mistakes 2020), became an instant New York Times bestseller. She is a of the past. Underlying these worries is a belief that leading expert on Modern Monetary Theory and a former Chief deficit spending is like running up credit card debt: Economist on the U.S. Senate Budget Committee (Democratic staff). Professor Kelton advises policymakers and consults with it can easily get out of hand and burdens future generations. This reasoning lies behind arguments investment banks, and portfolio managers across the globe. that we can’t afford to take decisive action on climate change, find a solution to the water crisis Thursday, April 8, 2021 in Indigenous communities or address countless other policy problems. These are myths. Deficits 7:00 - 8:30 pm (CST) can be used for good or evil. They can enrich a The 2021 Tansley Lecture will be delivered via Zoom. small segment of the population, driving income Those interested in attending this free, online lecture and wealth inequality to new heights, while leaving must register in advance. millions behind. Or, they can be used to sustain life and build a more just economy that works for the #2021Tansley many, and not just the few. Register online at WWW.SCHOOLOFPUBLICPOLICY.SK.CA.

Copy Link

Recommended publications

The Deficit Myth: Modern Monetary Theory and How to Build a Better
PANOECONOMICUS, 2021, Vol. 68, Issue 3, pp. 405-414 Book review Received: 09 May 2020. Boris Begović The Deficit Myth: Modern University of Belgrade, School of Law, Serbia Monetary Theory and [email protected] How to Build a Better Economy by Stephanie Kelton John Murray Publishers, 2020. According to the title, this book is about a theory (a monetary one) and about a policy proposal (improvement of resource allocation and speeding up economic growth, with perhaps some redistribution). According to Stephane Kelton, the author of the book, it is about widespread myths and the way that these myths can be overcome. It is Modern Monetary Theory (MMT), humbly referred to as a Copernican revolution by the au- thor, that will dispel all these myths. Just for the record, these myths are conventional wisdoms, insights accepted by most academic economists worldwide, all mainstream economists, and virtually all decision-makers, wither elected representatives or civil servants in the central banks and ministries of finance. So, all of them are wrong and MMT and its representatives are right. Nonetheless, being in the minority, or rather alone, does not necessarily mean that you are wrong. The majority opinion is not necessarily right only because it is held by the majority. After all, Nicolaus Copernicus was (almost) alone when he made the scientific revolution. So, it is necessary to consider the insights of the MMT, the argu- ments that those insights are based on, and the evidence that supports them to see whether that theory is superior in explaining reality. At the end of the day, the purpose of economic theory is to explain reality, to identify causality relations, and to enable us to understand why people behave the way they do.
[Show full text]
The Rock-Star Appeal of Modern Monetary Theory
The Rock-Star Appeal of Modern Monetary Theory thenation.com/article/the-rock-star-appeal-of-modern-monetary-theory Economic Policy Ethical Economics Feature May 22-29, 2017, Issue The Rock-Star Appeal of Modern Monetary Theory The Sanders generation and a new economic idea. By Atossa Araxia Abrahamian Twitter May 8, 2017 fb tw mail Print May 8, 2017 1/7 (Illustration by Victor Juhasz) Ready to fight back? Sign up for Take Action Now and get three actions in your inbox every week. You will receive occasional promotional offers for programs that support The Nation’s journalism. You can read our Privacy Policy here. In early 2013, Congress entered a death struggle—or a debt struggle, if you will—over the future of the US economy. A spate of old tax cuts and spending programs were due to expire almost simultaneously, and Congress couldn’t agree on a budget, nor on how much the government could borrow to keep its engines running. Cue the predictable partisan chaos: House Republicans were staunchly opposed to raising the debt ceiling without corresponding cuts to spending, and Democrats, while plenty weary of running up debt, too, wouldn’t sign on to the Republicans’ proposed austerity. In the absence of political consensus, and with time running out, a curious solution bubbled up from the depths of the economic blogosphere. What if the Treasury minted a $1 trillion coin, deposited it in the government’s account at the Federal Reserve, and continued on with business as usual? The workaround was technically authorized by an obscure law that applies to commemorative platinum coins, and it didn’t require congressional approval, so the GOP couldn’t get in the way.
[Show full text]
Harvard Kennedy School Mossavar-Rahmani Center for Business and Government Study Group, February 28, 2019
1 Harvard Kennedy School Mossavar-Rahmani Center for Business and Government Study Group, February 28, 2019 MMT (Modern Monetary Theory): What Is It and Can It Help? Paul Sheard, M-RCBG Senior Fellow, Harvard Kennedy School ([email protected]) What Is It? MMT is an approach to understanding/analyzing monetary and fiscal operations, and their economic and economic policy implications, that focuses on the fact that governments create money when they run a budget deficit (so they do not have to borrow in order to spend and cannot “run out” of money) and that pays close attention to the balance sheet mechanics of monetary and fiscal operations. Can It Help? Yes, because at a time in which the developed world appears to be “running out” of conventional monetary and fiscal policy ammunition, MMT casts a more optimistic and less constraining light on the ability of governments to stimulate aggregate demand and prevent deflation. Adopting an MMT lens, rather than being blinkered by the current conceptual and institutional orthodoxy, provides a much easier segue into the coordination of monetary and fiscal policy responses that will be needed in the next major economic downturn. Some context and background: - The current macroeconomic policy framework is based on a clear distinction between monetary and fiscal policy and assigns the primary role for “macroeconomic stabilization” (full employment and price stability and latterly usually financial stability) to an independent, technocratic central bank, which uses a “flexible inflation-targeting” framework. - Ten years after the Global Financial Crisis and Great Recession, major central banks are far from having been able to re-stock their monetary policy “ammunition,” government debt levels are high, and there is much hand- wringing about central banks being “the only game in town” and concern about how, from this starting point, central banks and fiscal authorities will be able to cope with another serious downturn.
[Show full text]
Modern Monetary Theory: Cautionary Tales from Latin America
Modern Monetary Theory: Cautionary Tales from Latin America Sebastian Edwards* Economics Working Paper 19106 HOOVER INSTITUTION 434 GALVEZ MALL STANFORD UNIVERSITY STANFORD, CA 94305-6010 April 25, 2019 According to Modern Monetary Theory (MMT) it is possible to use expansive monetary policy – money creation by the central bank (i.e. the Federal Reserve) – to finance large fiscal deficits that will ensure full employment and good jobs for everyone, through a “jobs guarantee” program. In this paper I analyze some of Latin America’s historical episodes with MMT-type policies (Chile, Peru. Argentina, and Venezuela). The analysis uses the framework developed by Dornbusch and Edwards (1990, 1991) for studying macroeconomic populism. The four experiments studied in this paper ended up badly, with runaway inflation, huge currency devaluations, and precipitous real wage declines. These experiences offer a cautionary tale for MMT enthusiasts.† JEL Nos: E12, E42, E61, F31 Keywords: Modern Monetary Theory, central bank, inflation, Latin America, hyperinflation The Hoover Institution Economics Working Paper Series allows authors to distribute research for discussion and comment among other researchers. Working papers reflect the views of the author and not the views of the Hoover Institution. * Henry Ford II Distinguished Professor, Anderson Graduate School of Management, UCLA † I have benefited from discussions with Ed Leamer, José De Gregorio, Scott Sumner, and Alejandra Cox. I thank Doug Irwin and John Taylor for their support. 1 1. Introduction During the last few years an apparently new and revolutionary idea has emerged in economic policy circles in the United States: Modern Monetary Theory (MMT). The central tenet of this view is that it is possible to use expansive monetary policy – money creation by the central bank (i.e.
[Show full text]
Modern Monetary Theory: a Marxist Critique
Class, Race and Corporate Power Volume 7 Issue 1 Article 1 2019 Modern Monetary Theory: A Marxist Critique Michael Roberts [email protected] Follow this and additional works at: https://digitalcommons.fiu.edu/classracecorporatepower Part of the Economics Commons Recommended Citation Roberts, Michael (2019) "Modern Monetary Theory: A Marxist Critique," Class, Race and Corporate Power: Vol. 7 : Iss. 1 , Article 1. DOI: 10.25148/CRCP.7.1.008316 Available at: https://digitalcommons.fiu.edu/classracecorporatepower/vol7/iss1/1 This work is brought to you for free and open access by the College of Arts, Sciences & Education at FIU Digital Commons. It has been accepted for inclusion in Class, Race and Corporate Power by an authorized administrator of FIU Digital Commons. For more information, please contact [email protected]. Modern Monetary Theory: A Marxist Critique Abstract Compiled from a series of blog posts which can be found at "The Next Recession." Modern monetary theory (MMT) has become flavor of the time among many leftist economic views in recent years. MMT has some traction in the left as it appears to offer theoretical support for policies of fiscal spending funded yb central bank money and running up budget deficits and public debt without earf of crises – and thus backing policies of government spending on infrastructure projects, job creation and industry in direct contrast to neoliberal mainstream policies of austerity and minimal government intervention. Here I will offer my view on the worth of MMT and its policy implications for the labor movement. First, I’ll try and give broad outline to bring out the similarities and difference with Marx’s monetary theory.
[Show full text]
Virus Economics: an American Tragedy, By
THE CURRENT JOB OUTLOOK Regional Labor Review (Fall 2020) Virus Economics: An American Tragedy by Robert Guttmann The Balancing Acts of Virus Economics The world seemed largely distracted with more mundane matters when a new coronavirus, labelled SARS- CoV-2, appeared in late 2019 in Wuhan (China) and then, superbly adapted for human-to-human transmission, launched its planetary march of exponential spread in January 2020. We should have been better prepared for the possibility of a global pandemic even though the last such occurrence of comparable danger happened over a century ago – the “Spanish Flu” of 1918/19. Signs of an impending pandemic have abounded in recent years, with five near misses over the last couple of decades - SARS in 2002, the bird flu in 2005, the swine flu in 2009, MERS in 2012, and Ebola in 2014/15. This heightened threat of pandemics is consequence of stressors our modern capitalist economies have put on the environment altering the relationship between humans and animals – the accelerating destruction of our planet’s biodiversity, erosion of wildlife habitats, animal commerce, increased meat consumption, and changing patterns of movement by certain animals key to the production of new viruses and their zoonotic transmission, notably bats. The sad truth is that, even beyond the new coronavirus, the world will remain susceptible to recurrent pandemics as global threat which makes today’s experience an important trial run for future episodes. From an epidemiological point of view, the new SARS-CoV-2 coronavirus is a formidable foe. It is highly transmissible by inter-personal contact, as an airborne aerosol, or even touch of surface.
[Show full text]
The Monetary and Fiscal Nexus of Neo-Chartalism: a Friendly Critique
JOURNAL OF ECONOMIC ISSUES Vol. XLVII No. 1 March 2013 DOI 10.2753/JEI0021-3624470101 The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique Marc Lavoie Abstract: A number of post-Keynesian authors, called the neo-chartalists, have argued that the government does not face a budget constraint similar to that of households and that government with sovereign currencies run no risk of default, even with high debt-to-GDP ratio. This stands in contrast to countries in the eurozone, where the central bank does not normally purchase sovereign debt. While these claims now seem to be accepted by some economists, neo-chartalists have also made a number of controversial claims, including that the government spends simply by crediting a private-sector-bank account at the central bank; that the government does need to borrow to deficit-spend; and that taxes do not finance government expenditures. This paper shows that these surprising statements do have some logic, once one assumes the consolidation of the government sector and the central bank into a unique entity, the state. The paper further argues, however, that these paradoxical claims end up being counter-productive since consolidation is counter-factual. Keywords: central bank, clearing and settlement system, eurozone, neo-chartalism JEL Classification Codes: B5, E5, E63 The global financial crisis has exposed the weaknesses of mainstream economics and it has given a boost to heterodox theories, in particular, Keynesian theories. The mainstream view about the irrelevance of fiscal activism has been strongly criticized by the active use of fiscal policy in the midst of the global financial crisis.
[Show full text]
The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
Copyright Copyright © 2020 by Stephanie Kelton Cover design by Pete Garceau Cover copyright © 2020 Hachette Book Group Hachette Book Group supports the right to free expression and the value of copyright. The purpose of copyright is to encourage writers and artists to produce the creative works that enrich our culture. The scanning, uploading, and distribution of this book without permission is a theft of the author’s intellectual property. If you would like permission to use material from the book (other than for review purposes), please contact [email protected]. Thank you for your support of the author’s rights. PublicAffairs Hachette Book Group 1290 Avenue of the Americas, New York, NY 10104 www.publicaffairsbooks.com @Public_Affairs First Edition: June 2020 Published by PublicAffairs, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book Group, Inc. The PublicAffairs name and logo is a trademark of the Hachette Book Group. The Hachette Speakers Bureau provides a wide range of authors for speaking events. To find out more, go to www.hachettespeakersbureau.com or call (866) 376-6591. The publisher is not responsible for websites (or their content) that are not owned by the publisher. Library of Congress Cataloging-in-Publication Data Names: Kelton, Stephanie, 1969– author. Title: The deficit myth : modern monetary theory and the birth of the people’s economy / Stephanie Kelton. Description: First edition. | New York : PublicAffairs, [2020] | Includes bibliographical references and index. Identifiers: LCCN 2019059417 | ISBN 9781541736184 (hardcover) | ISBN 9781541736207 (ebook) | ISBN 9781541757110 (international) Subjects: LCSH: Debts, Public—United States. | Budget deficits—United States. | Government spending policy—United States.
[Show full text]
Modern Monetary Theory: Economic Savior Or False Prophet? Madeleine Roberts
Modern Monetary Theory: Economic Savior or False Prophet? Madeleine Roberts rom all the confusion that swirled been developing for the past decade or so, it around the 2008 financial crisis and has in the past few years entered the public the unexpected economic trends consciousness on never-before-seen levels, Fin the recovery, a novel way of looking largely because of its recently gained foothold at the American economy was born. A with progressive Democrats: major MMT hodgepodge of Keynesian principles and proponent Stephanie Kelton, for example, outside-the-box economic rationalization was Bernie Sanders’s economic advisor, and built on an unconventional interpretation Representative Alexandria Ocasio-Cortez of deficits, Modern Monetary Theory has advocated for implementation of the (MMT) emerged as a theoretical solution theory to fund the healthcare and climate to unemployment. Though the theory has change programs proposed under her The JOURNAL of The JAMES MADISON INSTITUTE Green New Deal (Mayeda and Dmitrieva). government need not worry about escalating Though not always mentioned by name, levels of debt as long as inflation is kept in MMT principles have become ingrained in check insomuch as the government cannot the country’s political consciousness, and legally declare involuntary bankruptcy MMT-leaning lingo has become more and (Coy et al). This is true, but what advocates more common in light of the downturn of MMT fail to realize is, inflation aside, triggered by COVID-19. Indeed, some excessive money creation in this manner believe it may be America’s economic savior. does not actually provide a “free lunch,” as MMT has also received significant IMF’s chief economist Gita Gopinath put it criticism from multiples sectors, ranging (Harvey; Mayeda and Dmitrieva).
[Show full text]
Modern Monetary Theory Is Not a Recipe for Doom
Modern Monetary Theory Is Not a Recipe for Doom bloomberg.com/opinion/articles/2019-02-21/modern-monetary-theory-is-not-a-recipe-for-doom Economics There are no inherent tradeoffs between fiscal and monetary policy. By Stephanie Kelton 21 février 2019 à 14:00 UTC+1 There’s no science to it. Photographer: Saul Loeb/AFP via Getty Images Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She was the Democrats' chief economist on the staff of the U.S. Senate Budget Committee and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders. Paul Krugman first wrote about modern monetary theory on March 25, 2011. He last wrote about MMT in a two-part series on February 12-13*, * see below 2019. Although he’s had almost a decade to come to terms with the approach, he is still getting some of the basic ideas wrong. This matters for two reasons: one, because people listen to Paul Krugman, who won the Nobel economics prize in 2008, and, two, because the approach he is discussing is at the heart of how to design economic policies that affect millions of Americans. I’d like to try to move the conversation forward by addressing his concerns. He begins by saying, “MMT seems to be pretty much the same thing as Abba Lerner’s ‘functional finance’ doctrine from 1943.” Krugman then sets out to critique Lerner’s functional finance, which he says “applies to MMT as well.” It’s actually not correct to say that modern monetary theory is pretty much the same thing as Lerner’s functional finance.
[Show full text]
The “Kansas City” Approach to Modern Money Theory
Working Paper No. 961 The “Kansas City” Approach to Modern Money Theory by L. Randall Wray Levy Economics Institute of Bard College July 2020 The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad. Levy Economics Institute P.O. Box 5000 Annandale-on-Hudson, NY 12504-5000 http://www.levyinstitute.org Copyright © Levy Economics Institute 2020 All rights reserved ISSN 1547-366X ABSTRACT Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory.
[Show full text]
Modern Monetary Theory Delusions
Modern Monetary Theory Delusions by Dr. Charles Lieberman Chief Investment Officer A hot debate has erupted over “Modern Monetary Theory”, which is alleged by its promoters as justifying a sizable rise in government deficit spending to pay for the Green New Deal and various programs. The government would issue as much debt as needed to raise the funds and the Fed would buy the debt by printing the money. The theory claims there would be no adverse consequences since the debt is denominated in dollars and the Fed can print as many dollars as required. This discussion notwithstanding, the economy continues to roll along without any obvious need for incremental stimulus. One of the more vocal and visible promoters of MMT is Stephanie Kelton, former chief economist of the Senate Budget Committee for the Democratic minority staff, a former senior advisor to Bernie Sanders and currently a professor of economics at Stony Brook University. Kelton has argued that any country engaged in MMT doesn’t have a deficit problem unless it has an inflation problem. According to her, running very large deficits do not lead to rising inflation. Kelton notes that since the U.S. government can print its own money to meet any obligation (the Fed would do the printing and buy the Treasury’s newly issued debt), it is not possible for the U.S. government to ever become insolvent. This last statement is true. But there are dire consequences to just printing money. Kelton’s argument builds from the view that government spending to fight high unemployment, even when it runs a deficit, is desirable.
[Show full text]