The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
by Stephanie Kelton

BIBLIOGRAPHIC DETAILS:
(Available as Print: ©6/9/2020; PUBLISHER: PublicAffairs; Illustrated edition; ISBN: 978-1541736184; PAGES: 336; Unabridged.)
(Available as Digital: Yes)

*This version: Audio : ©6/9/2020; PUBLISHER: PublicAffairs; DURATION: 10:52; Unabridged

SUMMARY/ EVALUATION:
Stephanie Kelton promotes the Modern Monetary Theory (MMT) of economics. She seeks to remind us here that the Fed is not like a business nor a household where there is a finite amount of money and when it’s gone, borrowing is necessary to meet more expenses. Since money is no longer connected to gold, the Fed can and does create money rather than waiting to receive tax or bond dollars. She admits that there’s no free lunch—creating money has a cost, but there are other tools to offset them. I found her perspective interesting. I don’t have an economics background so can’t weigh it against more popular theories, but I think it will still get, even more economically savvy readers thinking.

AUTHOR:
Stephanie A. Kelton (10/10/1969). According to Wikipedia, Stephanie “is an American heterodox economist and academic, and a leading proponent of Modern Monetary Theory.[1] She is a professor at Stony Brook University[2] and a Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research.[3] She was formerly a professor at the University of Missouri–Kansas City.[4] She also served as an advisor to Bernie Sanders's 2016 presidential campaign.
Kelton is founder and editor-in-chief of the blog New Economic Perspectives. She was named one of Politico's 50 "thinkers, doers, and visionaries transforming American politics in 2016".[5][6] Fast Company later placed Kelton on its list of Most Creative People in Business.[7] In fall 2019, she joined the board of Matriarch PAC.[8]”

NARRATOR:
Stephanie Kelton. A lot of non-fiction writers narrate their own books. Some are good at it, some not. Perhaps those who have experience with public speaking, such as Stephanie does as a professor, guest lecturer, and fiscal adviser. At any rate, Stephanie is good at it.

GENRE:
Non-Fiction; Economics

SUBJECTS:
Economic Conditions; Economic Public Policy; Economic Theory

DEDICATION:
“For Bradley and Katherine”

SAMPLE QUOTATION: From “How We Fight Inflation Today”
“In other words, whether or not an economy is at its natural rate of unemployment is a conclusion drawn after the fact. In that respect, reaching the natural rate for economists is sort of like falling in love for the rest of us: you rarely see it coming but know it when it happens.12 Economists have a name for it. They call it the NAIRU (nī-rū), the non-accelerating inflationary rate of unemployment. Sexy, isn’t it? To understand how it works, think of the classic children’s story, “Goldilocks and the Three Bears.” Just replace porridge with unemployment, and you basically have it. Whenever the unemployment rate is too cold, the Fed lowers the interest rate, hoping to warm things up by inducing more borrowing and spending. When it gets too hot, the Fed raises the interest rate, hoping to cool things off by discouraging further borrowing and spending. Hence, the solution is to keep adjusting monetary policy back and forth so that the unemployment rate stays just right.
But there’s a wrinkle here. The Fed doesn’t like to wait until inflation becomes a problem before acting. Instead, it prefers to fight the inflation monster preemptively before it rears its ugly head. As New York Federal Reserve Bank president William C. Dudley explains: “we do not know with much precision how low the unemployment rate can go without prompting a significant rise in inflation. We do not directly observe the non-accelerating inflation rate of unemployment, or NAIRU. Rather, we only infer it from the response of wage compensation and price inflation as the labor market tightens.”13
In other words, the Fed watches the labor market for evidence that wages might be accelerating and interprets rising pay as a prelude to higher inflation. The idea is not to wait to see the whites of the inflation monster’s eyes. Shoot now and ask questions later. This kind of preemptive bias often leads the Fed to err on the side of overtightening, raising the interest rate even when it may be premature or a false alarm. Errors like these carry real consequences in the form of millions of people unnecessarily locked out of employment.
The dual-mandate framework is predicated on the belief that there’s a delicate balance between too much employment and too little. It also assumes that the Federal Reserve has the ability to move the economy to its sweet spot, where just the “right” number of people are kept on the sidelines, wanting to work but trapped in unemployment for the sake of keeping prices in check. To put it crudely, the Fed uses unemployed human beings as its primary weapon against inflation.
In theory, this is all pretty easy to do. In practice, well, that’s another story.
In theory, the Fed can use a mathematical model to determine exactly where to set the interest rate to keep the inflation rate stable. After the 2008 financial crisis, the Fed lowered the interest rate all the way to zero and left it there. The unemployment rate fell from a peak of 10 percent in October of 2009 to 5 percent by the end of 2015. More people were finding jobs, including many low-skilled and minority workers who often have the hardest time securing employment. In December of 2015, the Fed raised its interest rate target from 0 percent to 0.25 percent, even though the inflation rate remained below its 2 percent target. Over the next three years, the Fed raised its policy rate another eight times, despite persistently undershooting its inflation target. Some people criticized them for raising rates when inflation was clearly not expected to accelerate. But the Fed believed the rate hikes were justified to bring the unemployment rate back to its NAIRU estimates and preemptively keep inflation at bay. Although the Fed was trying to cool things off, unemployment continued to decline further below their estimates, and inflation didn’t accelerate. According to the NAIRU framework, that wasn’t supposed to happen.
Despite the apparent breakdown in any relationship between low unemployment and inflation, the Fed remains committed to the NAIRU concept. Indeed, Federal Reserve chairman Jerome Powell testified in July 2019 at a hearing before the House Committee on Financial Services that “we need the concept of a natural rate of unemployment.” He continued, “We need to have some sense of whether unemployment is high, low or just right.”
Regardless of whether Chairman Powell is right or wrong, it is indisputable that the Fed’s recent estimates of the NAIRU—the level of unemployment that can be achieved without causing inflation to accelerate—have been consistently wrong. This failure was put on full display in another exchange from the same July 2019 committee hearing, when newly elected Congresswoman Alexandria Ocasio-Cortez posed the following question to Chairman Powell:
AOC: The unemployment rate has fallen three full points since 2014, but inflation is no higher today than it was five years ago. Given these facts, do you agree that the Fed’s estimate of the lowest sustainable unemployment rate has been too high?
POWELL: Absolutely.
It’s unusual to see a Fed chairman so frankly admit error. But notice that Powell didn’t question the legitimacy of the NAIRU as an essential policy guide. Instead, he blamed himself for having misjudged precisely where the NAIRU lies. It’s this underlying faith in the idea that there’s some inescapable constraint on the economy’s employment potential that caused the Fed to systematically underestimate the extent to which the unemployment rate could safely fall. This misreading drove the Fed to raise interest rates in the hope of choking off a further drop in unemployment, essentially aiming to deny millions of underemployed and unemployed people access to jobs on the belief that the NAIRU limit had already been reached. You’re considered unemployed if you are actively seeking paid employment but not currently working. Some people are underemployed. They’re currently working part-time, but what they really want is a full-time job. Because they’re employed, they’re not counted in the official measure of unemployment known as U-3. Instead, they’re included in a broader measure of unemployment known as U-6, which also includes people who want to work but have basically given up hope of finding a job. And the problems don’t end there. As former Fed governor Daniel Tarullo confessed, the Fed has no reliable theory of inflation guiding its day-to-day decision-making. It has various conjectures, assumptions, and models, but many of these are unproven or indeed unprovable.14 It’s all something of a guessing game, where people’s lives are on the line.
Far from being an exact science, the core guiding principle of the Fed’s approach is best described as faith. Faith that their understanding of inflation is more accurate than not. Faith that their tools are powerful enough to manage inflation. And faith that, whatever other uncertainties may exist, excessive inflation is always and everywhere a greater threat to our collective well-being than excessive unemployment.15”

RATING:
5 stars. Thought provoking.

STARTED READING – FINISHED READING
1/3/2022 – 1/25/2022 ( )

too US centered for non US-readers ( )

A brilliant book on economic policy, that introduces a strikingly different way of looking at how governments should manage expenditures and revenues(the Modern Monetary Theory). In a nutshell, the author states that sovereign economies (that issue their own currencies) are not bound to limit their public expenditures to the taxes and revenues they collect each year (i.e. limit their budget deficits), as they can create any amount of money they want simply by making appropriate entries in the credit side of selected entities (e.g. banks, financial corporations, industries, etc.). That is, sovereign entities can S-TAB (Spend first, find the revenue from taxes or borrowing subsequently), and need not be constrained to TAB-S (tax and borrow first, spend later only when finances are available). Such sovereign economies can run any amount of current budget deficits, as they can easily create the needed finances simply by making book entries. This is, of course, a revolutionary change in the way we see public expenditure and revenue, and those of us accustomed to balance our household finances, cannot be blamed for wondering whether there is some fatal flaw in the reasoning.. However, there are some limitations: the central suthority should monitor the level of inflation closely, and ease up the 'pump priming' when the real resources of the economy are being used to the maximum, and any further infusion of liquidity will only push up prices. Secondly, this reasoning applies only to what are called 'sovereign' economies, those which issue their own currencies, and which are not obliged to redeem their issues at any fixed rate (i.e. the value of the currency is not pegged to a specific quantity of gold or any other standard, but can freely float). The author included the USA, UK, Japan, China (?) and a few others in this hallowed group, but leaves out most developing countries, and surprisingly, the individual countries of the European Union, that have voluntarily given up their currency powers to the European Central Bank. I would also suggest that the thoings on which the expanded money supply is spent, also matters: if it is only or mainly on luxury yatches and golf courses in the desert, it may not result in the economic prosperity promised by the proponents of Modern Monetary Theory. The author stresses the need to get more income into the hands of the middle and poorer classes, rather than increasing the income of the richest 1% or 10%. ( )

Seems almost dated at this point, and also tested in a way from the pandemic. She argues that fiscal policy uses the wrong lens through which to deal with economy. We do not need a balanced budget, we need a balanced economy. The deficit is a myth that has no bearing on the economy. Whatever the solutions, MMT aims to center humanity in the solution rather than the cold hearted proclivities of the idiot republican/libratarian “deficit hawks.”

OK, so, it's an eye-opener. It's also very US-centric, although it does touch on similarities with the UK, Canada, Japan and differences with the Eurozone. Whilst it makes sense that it is US-centric (the author is American after all), I think it would help with the understanding of the topic as a whole to retain that wider perspective.

For example, if the premise is that the US has the natural resources and labour to spend a lot more than it does currently without increasing inflation, is that also true of other countries? How is that limit evaluated and determined? And how does MMT apply within the Eurozone, where countries aren't directly sovereign? ( )