The former Bernie Sanders adviser on why the pandemic has shown the US and UK governments can never run out of money.
In a recent Treasury video, Rishi Sunak declared: “The government is not some entity that has its own money, the government only has money because people pay taxes and we borrow money.”
To the US economist and former Bernie Sanders adviser Stephanie Kelton, who is one of the advocates of modern monetary theory (MMT), the Chancellor was exactly wrong. As she writes in her 2020 book The Deficit Myth, rather than taxing or borrowing to fund spending, governments spend money first and only then choose to tax or borrow.
Is this the “magic money tree” that, in 2017, Theresa May told a nurse did not exist? “If ‘there is no magic money tree’ is meant to be shorthand for ‘we can’t just come up with the money when we want to fund something’, well, then that’s wrong,” Kelton, 51, told me when we spoke by video call. “A sovereign currency-issuing government can always come up with the money to fund its priorities. There’s nothing magic about it; it’s just what it means to be a sovereign currency issuer.”
The popularity of MMT, whose ideas can be traced back to the early 20th century, surged in the aftermath of the 2008 financial crisis as governments spent to save national economies. The theory now enjoys an evangelical online following as well as an array of detractors from the left and right (James Meadway, a former economic adviser to John McDonnell, has accused MMT of “peddling simplistic monetary solutions to complex problems of political power”).
Kelton’s work is being studied at Westminster, including by intellectually curious Conservative MPs such as Steve Baker. In her view, the Covid-19 crisis is the ultimate proof of the theory’s validity. “What did we [the US] do? We spent trillions of dollars [to save the economy]. So do I feel vindicated? Hell yeah, I feel vindicated. It’s been apparent to anyone paying attention who has been getting this stuff right.”
Kelton, who served as chief economist to the Democrats on the Senate Budget Committee between 2015 and 2016 and is now a professor at Stony Brook University, New York, acknowledges constraints still exist. Countries that do not issue their own currencies, such as Greece and other eurozone members, lack the degree of freedom enjoyed by the US, the UK, Japan and others. For those with independent central banks, the true restriction, Kelton argues, is not the size of the budget deficit, but inflation.
Conservative critics of MMT, such as the former governor of the Bank of England Mervyn King, frequently point to the dystopian fate of economies such as Zimbabwe and Venezuela, where price surges over the past decade have rendered money worthless. But, once the illusion of significant budgetary constraints has been dispelled, how would governments resist the urge to splurge?
[See also: The year that shook the economy]
“I’m giving you a framework that emphasises inflation risk, no other school of thought …read more
Source:: New Statesman
Marvel Studios & Disney+ | SUPER BOWL 2021 | Promo