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Current Affairs - November 14, 2020

Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She’s also one of the world’s foremost experts on modern monetary theory, which has sparked heated debate in the field of economics. Recently, Kelton appeared on the Current Affairs podcast with editors Nathan J. Robinson and Sparky Abraham to discuss what an MMT-flavored future might look like. You can listen to the interview in its entirety on Patreon. The following transcript has been lightly edited for clarity and grammar. 


And we are joined by an incredibly special guest today. Stephanie Kelton is professor of economics and public policy at Stony Brook University. She previously served as chief economist for the Democratic Minority Staff in the Senate Budget Committee. She was an economic advisor to Bernie Sanders’ campaign in 2016, she is a columnist for Bloomberg, and she is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.

Professor Kelton, thank you so much for joining us.


My pleasure. Thanks for having me.


So, this book challenges a lot of people’s preconceptions about the way money works, the way the federal government works. People are going to have to read it to fully understand what you’re talking about, but I wonder if the place to start is with the way that everyone has kind of been conditioned to think about the federal government’s budgeting the same way they think about households.

You talk about when you were working with senators, those that came out of [the] business [world] thought of the federal government the same way they thought about business accounting: you had to take in money and you had to make sure that your checkbook was balanced. You talk about the way this has sort of, even among Democrats like Barack Obama, [become] the way that we all think of government.

Why is that wrong?


Well, I like that you said this. It is probably the place to start because that’s where I started the book. Chapter 1 is called “Don’t Think of a Household.” I think that is in almost every respect where people tend to start and where everything goes off the rails, and if you can correct that, then I think it’s pretty easy to correct a lot of other wrong-headed thinking. It’s not our fault because almost all of the public discourse around government finances is presented to us through this lens of a household.

So we hear our politicians, we read articles, newspapers, we turn on the news and we hear somebody talking about the federal government’s finances using language that is most familiar to us: our own personal finances. So people will say the government needs to get its fiscal house in order. Just the use of the word “house,” invokes that household budgeting, that kitchen table. You know what it’s like to sit around the kitchen table and make sure that the money coming in and the money going out is balanced. You’re not living beyond your means and taking on debt that you can’t afford to pay back and so forth. That is correct.

We have been conditioned to understand the government’s finances through a lens that we’re most familiar with. That is our own [household finances]. What’s wrong with that is that the federal government is nothing like a household. The key difference between them and the rest of us is that they get to issue the currency. The U.S. government is the issuer of the dollar, and the rest of us just use it. So households, private businesses, state and local governments have to get the dollar before they can spend it. They have to get money. The federal government has to spend a dollar before the rest of us can get it, so they play by an entirely different set of rules.


Even Bernie Sanders, who you advised, often lapses into talking about the “how do you pay for it?” question and coming up with the answer, “Well, this is the way that the taxes would cover it.”

But what you suggest is that we shouldn’t even think of a one-to-one correlation between taxes and government spending. Taxes are important, but they serve a very different function and these two things should be [taken] apart in our minds. That’s very difficult because we always think, “Well, [for] a sensible universal healthcare program, here’s the taxes that would cover it and here’s why the budget adds up.”

But you kind of suggest throwing away the whole framework.


Yeah, you’re right. It is not helpful, nor is it good economics, and I don’t think it’s good politics, either, to continue to link these two things. To insist that every time you want to spend a dollar into the economy on some program—maybe it’s healthcare—you have to have a dollar coming out of the economy to pay for it. I think it would be much better, both politically and in terms of the actual budgeting process and the economics, if we decouple these things and we have separate analysis. Should we raise a tax? And what tax should we think about raising? And why might we increase that tax? Should we increase spending? On education, infrastructure, healthcare, and by how much? And to what aim? What is the policy goal?

These can be, and I think should be, separate discussions. But you’re right: We are locked into this mentality that tells us that if the government wants to spend another dollar, it’s got to come up with a dollar, and that then forces politicians to put out a blueprint so that they can say, “I’m for this program.” You say, “Well, how are you going to pay for it?” [They respond,] “Well, I’m going to collect up all the dollars I need by raising this tax or closing these loopholes,” or whatever the case may be. ...
Read full print version of this interview at Current Affairs