Stephanie Kelton: The big myth of government deficits | TED

Apparently economists are rethinking debt and deficits. Maybe they're not so bad.

Alexander Hamilton argued the same.




The speaker mentions something called Modern Monetary Theory.

Modern monetary theory or modern money theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can create new money by using fiscal policy in order to pay interest. MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be addressed by increasing taxes on everyone to reduce the spending capacity of the private sector.

MMT's main tenets are that a government that issues its own fiat money:

- Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases;

- Cannot be forced to default on debt denominated in its own currency

- Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment

- Recommends[clarification needed] strengthening automatic stabilisers to control demand-pull inflation rather than relying upon discretionary tax changes

- Issues bonds as a monetary policy device, rather than as a funding device

The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. However, MMT economists disagree with mainstream economics about the fifth tenet, on the impact of government deficits on interest rates.