Stephanie Kelton and MMT – The Deficit Myth Chapter 1

Why Governments Can Never Run Out Of Money.

Jun 11, 2021 | Podcast | 0 comments

stephanie kelton the deficit myth

In Chapter One of Stephanie Kelton’s The Deficit Myth she argues that most people fail to realise that government finances bare zero resemblance to household finances. She says that the only restraint on government spending is inflation. In this episode I explore the chapter in detail and offer some reflections on what MMT advocates at the deepest level.

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Jonathan Doyle

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Stephanie Kelton The Deficit Myth

📍 Well, Hey everybody, Jonathan Doyle with you. Once again. Thanks so much for tuning into the supply side podcast. Really great to have the pleasure of your company. Today, my friends, we are going a little further down the rabbit hole. A little deeper into the parallel universe that is MMT modern monetary theory, or as Jim Rogers likes to call it more money today. Yes, indeed. This is a supply side podcast. This is where we focus on.

The basic supply side ideas that when men and women produce useful goods and services that people actually want. Then economies and societies can flourish. Which is a little different to the world. We are inhabiting right now. Where I think we are currently a little north of around 20 trillion, 22 trillion of excess global liquidity.

Since the start of, uh, the COVID pandemic. And, uh, that is washing around global asset markets and it’s finding a home in creating the everything bubble. So what we’re doing here is I wanted to understand MMT. As regular listeners know, I came into this whole space of global macro finance. Uh, and, uh, economic history, political economy, I came into it very, very late. It was one of the few blessings of COVID is that I, uh, started to get an interest in this area. So I’m sure many of you listening will have had a long and extensive careers professionally, academically in these areas. I have not. So I have a curiosity that hopefully is a little rougher, uh, refreshing for people.

And I wanted to understand MMT. You know, I sort of began to understand the, uh, The kind of resets of the global monetary systems that seem to take place every 70 to 80 years. And. And, uh, really noticing that MMT. Is a it’s really what’s happening. Isn’t it. It’s basically. I mean, if you go back to my first video on this, or I was talking about, um, how a lot of MMT advocates talk about its descriptive power, which I said was a little bit of sophistry.

Uh, because they, they sort of pretend that that’s all it is. Uh, and it’s, it’s much more than that, but I think it is fair to say that it is descriptive. MMT is describing what is actually happening. And so I wanted to understand it better. I thought it was really important that, uh, we got to terms with this. We got to a real, you know, got to grips with.

What MMT advocates really believe. And, um, and I think we should be able to critique it. And if it’s wrong, we should be able to poke. Plenty of holes in it. So wherever you’re hearing this, I’d love you to post some comments. If you’re seeing the YouTube version or of your on the website here. Supply side

I’d love it. If you could, uh, post your thoughts. And, uh, and insights into this MMT journey. So now we’re into chapter one. So I’ve done the first. Overarching video podcast, where I talked about the general flow of Stephanie Kelton’s book, the deficit myth. So of course, Stephanie Kelton is the most widely known global advocate of MMT.

And so I’m working forensically through her book. And so we’re into chapter one. So chapter one is, you know, and the flow of her book is to present a myth. And then to present what she calls reality. So she presents a myth. That, you know, probably supply siders or the, the general public thinks that he’s a good thing about the general public, you know,

Yeah. They, they, they often get it right. You. I often save you if you can get a five-year-old or the general public to see the basic truth or something. Yeah. You’re probably onto something important. So, I guess, uh, Stephanie Kelton would argue that there is a myth that the majority of us out there in a political economy land believe.

And she and other MMT advocates are here too. Uh, disabuse us, disavow us of our, um, of our foolishness and show us the truth in our blindness. So here’s the first one. This is chapter one. So. The whole framing of this chapter is about the idea of that. We must no longer think of government fiscal policy.

As having anything to do with a household budget. So, of course, all of us who have a personal finances, which we all do, and some of us have children and families. And we know that the broad reality that you cannot. Consume more than you produce. You can’t spend more than you earn or save. Eventually there comes a reckoning at some point.

I’m not talking about strategic leverage here and using debt. You know, strategically. I’m talking about this basic idea that balance, the budgets must balance. And Dr. Kelton makes the point that politicians actually love this rhetoric. And, uh, and she also says that they really don’t know better than a lot of politicians still approach government finances in the same way as a household budget.

But it’s very, I think she does make a good point here that it is very easy for politicians. Two. Uh, 0.2. Fiscal deficits and attack their opponents by saying the budget’s not balanced, the budget is not balanced. And, and to pitch that household budget mentality to the general public, I think that’s a, that is a valid point that, um, you know, it’s, it’s a very easy message to sell for. If you’re a politician to go look at the profit cut spending over here. If we were in power, we would balance it like a household budget.

So, this is where MMT begins. Its point of departure. And, uh, she basically says that. We have to understand the government finances, bear zero relation to household finances. So this is where she wants to correct the myth. That, um, she believes in this idea that there is a vast difference between currency issuers and currency users. And these are the terms she used. So here’s a direct quote.

She says only the federal government can issue currency. Everyone else is merely a currency user. And this is. If you’re eating a cornflakes, you may be about to choke on them. She says, it’s a special power that must be exercised with great care. Mm. Yes. Of course it is. And I think most of us would agree, would agree that it’s not exactly a, uh, a power that is currently being exercised with great care by the political class. And just on that.

Um, June next week to interview the wonderful Sam, Greg who’s the research director of the Acton Institute. And, uh, He had a quote yesterday, I was reading one of his articles on a public discourse and he quotes Alexander Hamilton, 1795. Who said that debt accumulation was perhaps the natural disease of all governments.

I’m into that. So, uh, I like how Dr. Kelton here says that this special power of being a currency issuer. Must be exercised with great care. Yes. I think we could probably could take the, the veracity of that statement, but this is a core principle that, uh, if governments can issue currency, they are in a fundamentally different.

Class of reality than the rest of us. And here’s another really important quote. This is from page 18 and you want to hear this one? She says the distinction between currency users. And the currency issuer. Lies at the heart of M and T right there. That’s her word. So if you want to understand the core of MMT.

You have to understand this distinction between the currency issuer and the rest of us. Great unwashed who are merely currency users. Uh, she also then talks a little bit about the concept of monetary sovereignty, which I’m sure many of you are familiar with. So the basic principle that of a government, prince and borrows in its own currency and wait for it.

She argues that the government no longer needs to balance its budget. It just needs to pursue full employment. Drum roll, please bump on bow. That’s a big statement. Many of you, of course familiar that the, um, the federal reserves. You know, Juul mandate to still create stable prices and to pursue full employment.

So, what MMT is saying is that, you know what, it totally doesn’t matter of budgets balance at all. All that actually matters is the stability of the real economy, whatever that is taken to mean. You know, Krista Muth, I read, um, One of his articles recently. And, uh, in terms of his, a political historian, he made the point that for 181 years,

Us government basically balanced its budget. Right. You know, for almost 181 years, it was small. Ups and downs, but, but nothing like we’re seeing now 181 years. Until the significant change. All right. So let’s press on. The next part that Dr. Stephanie Kelton talks about in chapter one is she quotes a, an important speech by prudish.

Uh, prime minister, Margaret Thatcher back in 1983. And here’s the quote from Thatcher. Margaret that just says in this speech, I quote. The state has no source of money. Other than the money people earn themselves. If the state wishes to spend more, it can only do so by borrowing your savings or taxing more.

So there is that idea that most of us would have grown up with that, um, that the government doesn’t have any money except the money that it takes from us. Um, interesting. And I just got a copy of Dominic Frisbee’s book on tax called daylight robbery. Daylight robbery. That, uh, that the government has no money except for the money. It steals. Sorry. The money raises from the general Polis.

So. This is where MMT begins. It goes further down its path of. You know, radical departure. Page 23. Dr. Kelton says the government doesn’t need our money. We need their money. We’ve got the whole thing. Backward, Zim empty. This is pure room empty. Right? One more time. It’s page 23, the government doesn’t need our money. We need their money. We’ve got the whole thing backwards.

So then she introduces this difference between tabs and stabs. Not sure if you’ve heard of this before, but if you haven’t. Um, Tabs is what that just talking about. Tab stands for. No, the tiers for tax. Um, at the a is for, and, and the B is for boroughs. So the government taxes and borrowers via bond issuing, and then spins that’s tabs tax and borrows and spins.

M and T argues that it’s completely backwards. That the truth is that what happens first is stabs. The government spins first it taxes and borrows, and then spends again into the economy. But it’s spending first. So it’s not raising revenue first. It’s pumping money into the economy first. And then it taxes and borrows. And this is where, you know, I kind of did feel I’d fallen into a parallel universe because.

Where this kind of goes in terms of, well, the obvious questions, you know, why tax at all? Um, you know, why have Bondi shoeing at all? If you can just permanently, you know, spend into the economy, we’ll get to that very soon. Um, So the next thing we have here is her. She talks about her encounter with Warren Moseler. Who’s seen as the father of MMT. So Mosela was a.

Um, a trader, he was, uh, you know, independently wealthy as a, as a wall street guy. And after many years of just watching transactions happen, apparently he asked himself one day. Where does the money come from? So he would see money, you know, huge sums of money moving in and out of accounts. And he was curious about where those very first dollars had come from.

So Moses Mozilla’s thesis is. That the government doesn’t need our money. Because it creates it and spins it. So the obvious question, you know, apparently Stephanie Kelton went down to Florida to meet him and she asked the obvious questions. She said, well, if they don’t need our money, Then why Texas at all? Why, why.

You know, what’s the whole system based on. So Moseley’s great statement was that the government doesn’t need our money. And Kelton says, well, what does it need? And it says, it needs us to provision it. What the government needs is for is to the reason it creates taxes. Is to force us to work, to provision itself.

So by forcing us to have to go to work, to get its currency, which we then pay it back in taxes. We actually go and do things in the, in the real economy. We get jobs as doctors, nurses. You know, Maintenance people. And so he argues that what the government actually needs. Isn’t our money. What the government actually needs is our labor. It needs a military and it’s a court system. It needs national park workers. So by creating currency and then taxing it back office, it forces us to work to keep itself running. And in the first video, I said, this is.

You know, it’s, it’s really kind of a hive mentality. It’s a very. Utilitarian con construct of what it means to be human and the, you know, the importance of work. So. That is Moses kind of departure and Moseley gives her an example. He, you know, He talked about having his kids at home in Florida and the house was getting messy.

And that he wanted the kids to start cleaning up the house. And they’re like, yeah. You know, we’ll get to it even offered to pay them. And they’re like, yeah, you know, we’ll get to it. So he said to the Monday, try and experiment. He printed up a bunch of his own business cards, not money, just his own business cards.

And he said to his kids, Hey, I am going to give you 10 of my business cards. If you do these chores, you know, mow the lawn, wash the cars, do the dishes, toddy every bedrooms. If you do that, I’m going to give you 10 of my business cards. And they’re like, we don’t want you to stupid business cards. We’re not doing the work. So.

You know, they’re like, why would we want your business cards? So then he comes up with this other idea. He says to them, you know what. Here’s what’s going to happen. Um, at the end of I’m going to give you a whole bunch of these cards and you’re going to work. And if you don’t give these back to me at the end of the month, then you’re going to lose all your privileges privileges. You don’t get TV, you don’t get to go to the mall. You don’t get to do X and X and X.

And all of a sudden the kids started working rapidly and to give him back these cards. Cause once he got his cards back, they were free to go and do whatever they want. So he realized that in an instant, his business cards is paper currency that he printed. Suddenly became valuable because his children needed those cards to get their privileges back.

So the example was, that’s kind of what MNT is saying about. Tax dollars is that, you know, Fiat currency is utterly worthless it’s paper. So where does its value come from? MMT would say, well, you know, you need that paper fee at currency to be able to avoid punishment on void, going to prison. And so the government uses it to force us to work.

Interesting. So. What else did he have to say here? Uh, taxes exist according to MMT to create a demand for government currency. Texas exists to create a demand for government currency. That’s just mind-bending isn’t it. It’s like we think of taxes as you know, we’re working in producing and then the government creates Texas to steal the money, offers to do all these things that it needs to do. But this.

MMT paradigm is that. Yeah, the government’s using that system to provision itself and forcing us to work, to keep itself going. Um, she says here, once you’re able to see that the government’s ability to spend doesn’t revolve around the taxpayer dollar, the whole fiscal paradigm shifts. So once again, she says, once you’re able to see that the government ability to spend doesn’t revolve around the taxpayer dollar.

The whole fiscal paradigm shifts. So I’d be interested in your thoughts on that. It’s um, it is, it’s a genuine paradigm shift because we all grew up thinking that, you know, Government’s ability to spend is based on how much tax revenue it raises. But, um, you know, the MMT people are just like going up irrelevant.

The Texas. Have nothing to do with what the government can spend. The Texas just exist to make us work. All right. So at least to the obvious question. Why have taxes in MMT at all? And so here, they asked you to list four reasons. Number one, taxes, enabled governments to provision themselves without the use of explicit force.

It’s just don’t you sense? A certain kind of malevolence in that. And some people go, well, this is the nature of, you know, Of, uh, I guess the sociological compact that holds cultures together. That instead of forcing us into slave labor, the government uses this. A system of taxation to make us do what it would otherwise have to force us to do.

So Texas. Uh, enabled governments to provision themselves without the use of explicit force. Number two. Texas exists to restrain inflation by taking currency away. So she wrote a few paragraphs on this, basically. I think she’s arguing that. If the government just kept spending more and more and more and more currency into various projects, it would be inflationary. So by texting us, they get to pull money out or pull currency out of the real economy.

So they can target it elsewhere. So it’s a way of subtracting dollars out of the economy. Uh, number three. Uh, wealth redistribution, Texas exists for wealth redistribution as we will find, um, that is a great love of the MMT people. They are here to help us friends. They’re here to save us. They’re here to.

Um, are they all social justice warriors? No, but there is a strong sense that, uh, that we need to use, uh, fiscal and monetary policy fiscal policy, definitely to take wealth away to redistribute it. Of course. Um, who gets to decide about that redistribution? So there is a strong, there’s a strong soak, the rich vein through her writing, but she argues that we need to soak the rich for, um, re-distributive reasons. She doesn’t think that soaking the rich is actually going to.

Help in a fiscal sense. It’s just good to spread the love around by taking it off. Those that have. So much. Uh, now I picked up something, he reading this. Uh, she argues that one of the reasons we need to use texts for wealth distribution in her words, she says, because inequality has never been higher.

So this is the time of her writing it now. Help me if I’m wrong here, but we’ve been running Keynesianism for, you know, You know, really since Bretton woods. Right? So. Um, inequality has never been higher. We’d been running. These kind of profligate. MMT style approaches. So surely of Keynesianism and MMT was the way to go. We would. Why is inequality worse? And basically she’s advocating for more Keynesianism, more MMT.

I got lost on that part. So anyway, I’d be interested your thoughts on that. And finally, why do we have taxes? To encourage or discourage certain behaviors. Interesting. And I sit in the first video who gets to decide which behaviors need to be encouraged or discouraged. I am a lover of American whiskey. I just think bourbon is one of the greatest things God ever did.

And I also love smoking a pipe, but let’s make it a lot, but I do have it. And, uh, I don’t need anybody to tell me that those behaviors should be discouraged. It’s you know, this is the basic libertarian principle, right? Like, I guess there’s gotta be boundaries has gotta be some parameters, but, um, when taxation is used to encourage or discourage certain behaviors, the real question is who gets to make the decisions about that.

Okay. Almost done. So the last couple of things here is the obvious question is, um, then what are the limits here? Why, why not just. Print and spend. Indefinitely, which kind of looks like what’s happening at the moment. Anyway. But this is the MNT thesis is that the real limit on spending is not the productive economy as such the real limit on spending isn’t on taxation or anything else. The real limit on spending is.

All about inflation. So the MMT people have this fixation with inflation. And they want to tell us that the. They’re deadly serious about not being profligate spenders because their real focus is on inflation. So here she says. This is a direct quote from Stephanie Kelton, M and T is not about removing all limits. It’s not a free lunch.

I don’t know if you’ve seen the cares act. I think you might disagree. But anyway, we go on, she says it’s about replacing a current approach. One obsessed with budget outcomes. With one that prioritizes human outcomes. Whatever that means. And she finishes by saying while at the same time, recognizing and respecting our economies, real resource constraints.

So for me. When I read that kind of thing, and I don’t mean to be overly pejorative, but it’s, it’s, it’s kind of an obvious station. It’s a sort of, so first word sandwich. You know, It’s not about removing all limits, but it doesn’t seem that way. If you look at it and it’s not a free lunch, well, it seems to be a free lunch for certain people.

Who’ve got their noses closest to the, you know, their snouts closest to the trough, the cancel on effect. It’s about rebel. This is listen to this part. It’s about replacing our current approach. One obsessed with budget outcomes. Because common sense would suggest, you know, that basic household budgeting idea.

It’s about replacing our obsession with budget outcomes, with one that prioritizes human outcomes. They want to talk about that for two seconds. As I finished, when I did my first degree, many, many years ago, as an undergrad student, I was doing an education degree. We had this teacher coming in this PR.

Yeah, associate professor who, who ran a semester course. And the number of times he kept saying, we need to do the most human thing. We need to ask what the most human outcome is. And I kept sitting there thinking, what does that actually mean? Because if you want to talk about, you know, prioritizing human outcomes. Well, then this is a question of philosophical anthropology. It’s a question of ontology.

Which really is at the heart of most of what animates me in this whole area is. You can’t describe what political economy should be until you have an accurate understanding of the human person. What sort of thing is a person, what leads to human flourishing. So, I don’t think the MMT people are coming at it from that angle, uh, prioritizes human outcomes. If for me, it’s it’s very, uh theorial. And how would you quantify or qualify that?

You know, if you don’t have some kind of hard parameters around fiscal policy. But you’re prioritizing human outcomes. I think in general it tends to be. Playing into this whole, um, Uh, you know, um, Fuck Michelle. Fuckos kind of, you know, This, this vast victim mentality idea that we’re just going to create economies, that funnel huge amounts of transfer payments to victim groups. So victim classes.

I think that’s kind of for me and I’m really happy to be wrong. And if you think I’m way off, I’d love you to leave a comment. Um, That seems to be what. If I will look at. The current us political landscape. And this is in June of 2021. That we’re seeing is vast. Transfer, um, creating a dependent class by using this idea of human outcomes. Anyway, that’s just a thought, so friends let’s finish up.

What have I learned in chapter one? I’ve learned according to MMT, I must no longer think of our political overlords as. Having anything. Uh, to do with household style budgeting. Our government is a currency issue, not a currency user. Therefore it can print as long as it’s printing and boring in its own currency. It has monetary sovereignty.

And can print and spend forever and ever. Men. The only limit being inflation. And, uh, what else? The, um, the tabs and stabs principle that, uh, it’s not about texting and borrowing and then spending it’s about spending first. And then texting and borrowing. And that taxes are used to force us to work without the use of explicit force. Isn’t that good news?

You know, isn’t that good news. Next time you get a whopping great tax bill. My accountant. Uh, emailed me yesterday with my textbook, for the isn’t that good that, you know, we get to give them this money. Uh, in response for them not sending in the Jack boots and driving us to work in a Gulag. God bless him. So sorry. I’m being flippant, but you get the point. I’m just interested. I’m genuinely interested in what people think about this. So friends that’s chapter one of Stephanie, Kelton’s the deficit myths myth. As we all head down the MMT rabbit hole together. So wherever you, you’re seeing this, hearing this on YouTube, I’d love you to leave a comment. Otherwise, please come across to the supply side podcast.

📍 Um, at supply side And leave a comment there. Um, if you like what you’re hearing, please post this on social media. Last thing from me. Um, I would love you to become a patron if you like what you’re hearing and, uh, best I can tell. I’m a, just about the only person on the internet, trying to revive.

Uh, uh, genuine supply side, classical economic, uh, discussion. Uh, I know there’s other accounts and people doing stuff, but I’m trying to. Bring together many of the best thinkers in the world. So if you want to see this, keep happening, please consider supporting me on Patrion. If you just go to

And do a search for Jonathan Doyle. I would love your help. Uh, As a supporter of what I’m trying to do. All right. Friends, that’s it for this episode. Next week. We are going to have Sam, Greg, the research director from the Acton Institute on that’s going to be fantastic. We have Kiril Sokoloff coming on in a couple of days, which is a huge privilege, really looking forward to that.

And then, uh, we’ve got so many good guests coming up, so please make sure you’ve subscribed. My name’s Jonathan Doyle. This has been the supply side podcasts. Now get back to work. So you can give that tax money tax money back to the government friends. All right. I’ve enjoyed doing this. I’m going to have another message for you very soon.

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