The Deficit Myth – Banishing the ghost of Weimar
“There is no magic money tree” is the stern injunction invoked by politicians, central bankers and economists to explain to a fiscally imprudent public why it cannot have nice things. Fiscal rectitude is now the primary virtue of government, perhaps nowhere more so than in the United Kingdom where the Treasury has shackled itself to the need for approval from an ‘Office for Budget Responsibility’. Running deficits or printing money, we are told, is only one tiny step away from Weimar Republic levels of financial calamity.
But what if it wasn’t thus? That is the alluring promise of Modern Monetary Theory (MMT), which first gained prominence in the wake of the Great Recession and argues that not only can governments print money to cover expenses, but they should do so to fully realise a nation’s productive capacity. It is a provocative and controversial theory that repudiates the need for permanent austerity in the name of balanced budgets, and finds one of its most ardent advocates in Stephanie Kelton, erstwhile chief economist to US senator Bernie Sanders. In her book The Deficit Myth, she takes her argument for a ‘people’s economy’ built on the insights of MMT to a wider audience.
The Deficit Myth faces the triple challenge of any non-fiction book that assails an existing orthodoxy. It must set out a compelling argument, be intelligible to a lay audience, and dispel hegemonic common sense. This is a daunting task, and the meagre evidence base, weaknesses in Kelton’s writing style, and a different perspective on political economy meant I was left unpersuaded by the book’s stronger claims. Nonetheless, it is a thought-provoking read that provides ample critique of economic orthodoxy, and left me receptive to exploring more rigorous defences of MMT in future.