Deficit Myth Book Summary

Book Summary

15 min

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Brief Summary

The federal government does not have to manage its budget the same way a typical household does. According to Modern Monetary Theory, the government is capable of making and circulating currency, so it is not constrained by costs. It is only constrained by inflation, the productivity of the economy, and political goals and visions. The national debt, trade deficits, and government spending are not inherently negative. By using the Modern Monetary Theory approach instead of striving for the goal of a balanced budget, governments can choose to redirect their material resources to solve real-world deficits, including the jobs deficit, education deficit, health care deficit, and climate change deficit.

About the Author

Stephanie Kelton is the Professor of Economics and Public Policy at Stony Brook University and a Senior Fellow at the Schwartz Center for Economic Policy Analysis. She formerly taught at The New School for Social Research, the University of Ljubljana, and the University of Adelaide. She is the former Chair of the Department of Economics at the University of Missouri, Kansas City.

Previously, she has worked as the U.S. Senate Budget Committee’s chief economist and was the senior economic adviser to Bernie Sanders’ 2016 and 2020 presidential campaigns.

Her book The Deficit Myth is a New York Times bestseller. Kelton currently serves as editor-in-chief of the New Economic Perspectives blog. Her other writings have appeared in Financial Times, CNN, The New York Times, The Los Angeles Times, and U.S. News & World Reports.

Kelton received a B.A. and B.S in Business Finance and Economics from the California State University, Sacramento. She holds a master’s degree from the University of Cambridge and earned her Ph.D. in Economics from The New School for Social Research.

Topics

Politics Philosophy

Deficit Myth Book Summary Preview

What You’ll Learn

The basic principles of Modern Monetary Theory
The fundamentals of federal government spending, inflation, national debt, and international trade
How government spending and entitlement programs can help boost the economy

Who Is This For

Policymakers and politicians who are interested in government programs and government spending
Advocates of federally funded programs, like the Green New Deal
Individuals interested in politics, economics, and Modern Monetary Theory

Key Insights

Whenever a government official or politician proposes a big government program that will require government funding, such as the Green New Deal or Medicare for All, it is often shot down by people who question where the money is going to come from to pay for it. However, as Stephanie Kelton explains in The Deficit Myth, finding a way to fund these services isn’t as impossible as these naysayers claim. The Modern Monetary Theory is a modern, more dynamic economic approach that shifts the focus away from balancing budgets and reducing the budget deficit, and instead focuses on prioritizing the allocation of material resources to boost the economy. This approach can empower the government to implement policies that will address important real-world issues, like unemployment, health care, and climate change.

The TABS Model Vs. The STAB Model

People often view federal government spending the same way they view their household spending, and therefore their understanding of the federal budget mirrors the way they understand managing their household budget. Because people understand the concept of planning out their family’s finances and sticking to a budget, they assume the government has to plan and manage their finances the same way.

However, the federal government is not a family. They do not have to save up or borrow money in order to purchase something. In fact, it is the opposite. According to the Modern Monetary Theory, ordinary families work for and then spend their money, while the federal government actually makes the money.

The TABS model or the tax and borrowing precede spending model, states that the government must earn money, either through taxes or borrowing, before it can buy something, like health care, for example. This is similar to the way one would expect a family to pay for something for their household, in which they have to earn the money they want to spend through work or borrow it from someone else.

However, in the United States, as in many other countries, the government is the entity responsible for issuing bills and making money. The Federal Reserve is responsible for printing money, and therefore has a monopoly over the monetary supply. As a result, the government does not have to earn money, it can simply make it, when it wants to purchase something.

Therefore, instead of using the TABS model, governments should be using the STAB model, which stands for spending before taxing and borrowing. The government is responsible for putting money into circulation, so they must make it before it can be taxed and borrowed.

Because the federal government has the power to issue currency, they are never at risk of going broke, and they are...