Stephanie Kelton’s much-awaited book, The Deficit Myth, is now available. In it, she makes the case for modern monetary theory – or MMT – as the paradigm to guide our fiscal policies. This book is exceptionally relevant, as we have seen several trillion dollars added to the federal deficit and a broad expansion of the Fed’s balance sheet in response to the coronavirus pandemic. That has fostered widespread speculation about the wisdom of those policies and whether they will lead to slower economic growth, inflation or something worse. MMT provides a clear answer to those questions.
Supporters of Modern Monetary Theory say that some governments can easily cover the cost of large social programs such as health care for all and free college tuition by jettisoning conventional thinking about the role of debt and taxes in our economies. But is it really that simple?
It was impossible not to think of Hyman Minsky as I read Ray Dalio’s three-volume masterpiece, Big Debt Crises. Like Dalio, Minsky argued that the ways in which policymakers respond to crises determines whether the downturns became protracted and severe – a Minsky Crisis – or fleeting and relatively painless.