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MMT, modern monetary theory. It sounds like an element of the macroeconomics Ph.D. student course rather than something that makes the blood run between American senators. It may not be something that sells hundreds of thousands of books around the world.
But with Stephanie Kelton, this dark theory has become a reality in a newsstand thief.
His book “The Loss Myth” came out this summer and went straight to the New York Times bestseller list. Now, Kelton says, it is being translated into dozens of languages. At the end of November, the Swedish edition of the book will be launched.
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She has trembled before about behind the scenes of politics. Stephanie Kelton was an advisor to Senator and Presidential candidate Bernie Sanders. Also, chief economist of the Senate budget committee.
It has also caused bile fever in political opponents. In Resolution 182, introduced in the United States Senate last year, a group of Republican politicians argued that the United States Congress should “recognize its duty to condemn Modern Monetary Theory.”
A heretical thesis, then.
In short, it can be summarized as follows: What we call public debt is not real debt. The government never borrows money, nor does tax revenue “pay” for public spending.
All of that is fake, MMT advocates claim. And it has far-reaching consequences for how the economy should be managed.
Photo: Pontus Höök
Stephanie Kelton receives DN video call from his home office in Setauket on Long Island. The large patch of lake from the house, where the DN photographer is about to arrive, descends into the strait that separates the states of New York and Connecticut.
– States do not have to collect taxes or borrow to pay their expenses. The state always creates new money by spending it. All expenses are self-financing, Kelton says.
Therefore, it is the fixed star in this economic education that has created a world uproar. In Rimini, Italy, he once filled an entire basketball stadium.
But in the interview, as in your book, there is always a “we”.
“We do not agree with mainstream economists.”
MMT is a young man and marginal flow of ideas in economics. Its members are a tight-knit crowd, whose essays are not published in the usual scientific journals.
It is a small resistance movement. Many critics of the economics union could use a less flattering description. But more on them later.
What Stephanie Kelton, now a professor at Stony Brook University, points out in her book is that the state has a monopoly on money creation. It separates the state from all households and businesses in the economy.
Also, if the national currency is not pegged to the value of gold and does not have a fixed exchange rate, then the state has full control over the money in its economy. This applies to most countries. However, not the euro economies.
Stephanie Kelton with the dog Ozzy.
Photo: Pontus Höök
Kelton uses the board game The original rules of monopoly as a metaphor. He says: “The bank can never go bankrupt. If the bank runs out of money, it will have to generate as much new money as it needs from ordinary paper. “
– If you get points in a game, you do not need to have points before awarding them. Just write them down. The point comes out of nowhere. This is more or less how it works when the state spends money, he says.
That the state has a banknote press that, in principle, can spit out any amount of money certainly sounds familiar.
But if you ask officials at the US or Swedish Treasury Department whether the banknote press is used to pay for things like pensions or road maintenance, the answer will likely be no. Ticket press is available. But it is not used to pay public spending.
Stephanie Kelton and MMT advocates say it’s wrong. According to advanced reasoning about central bank accounting, they claim that governments actually use the banknote press all the time.
Photo: Pontus Höök
The concepts of budget deficit and surpluses, therefore, are meaningless, they claim. And government debt, which in the United States is now approaching World War II levels, is not a loan, but freshly printed money in an interest-bearing form.
In Sweden, we remember Göran Persson’s words of caution. “He who is in debt is not free.”
He talked about how, after the budget crisis of the 1990s, he had to go hat in hand to Wall Street lenders.
– Ridiculous! The state does not need lenders. If nobody wants to buy government bonds, we don’t have to sell them. The state offers investors a service by creating a product that generates interest, says Stephanie Kelton.
Such comments immediately wake up objections to rampant inflation.
Stephanie Kelton’s answer is that inflation, which should be low and stable even according to her, is not created by the banknote press, but by unbalanced consumption. If the state and the private sector consume more than the economy can bear, price increases are generated.
By the same reasoning, taxes are not a way to pay for public spending, but rather a brake on inflation. It is also a better tool than the one we have now: the central bank policy rate.
Japan has run large deficits for several decades. They have the largest central government debt in the world and the central bank owns half of the central government debt. It should also create inflation, but it doesn’t!
Stephanie Kelton’s proposal is to stop trying to control the economy with the interest rate and instead stabilize it with a government job guarantee.
– We have always preferred the fiscal policy year. We do not agree that so-called independent and credible central banks are capable of stabilizing the economy in the ups and downs of the economy.
She points to Japan.
– Japan’s experience shows many shortcomings in conventional macroeconomics. I once learned that large budget deficits raise interest rates. But Japan has run large deficits for decades. They have the largest central government debt in the world and the central bank owns half of the central government debt. It should also create inflation, but it doesn’t!
Photo: Pontus Höök
Stephanie Kelton fights back at the same time, against the description that MMT defends that the state should print a lot of money.
– The goal is a healthy economy. What we are saying is that if there are free resources in the economy, if there are people who want work, then the State can solve it. This is an efficient cleaning with the available resources.
Kelton’s argument often sounds like an echo of British economist John Maynard Keynes’s ideas about how states should stabilize the economy.
But modern Keynesians, among the best known of which is economics laureate Paul Krugman, have strong objections to the MMT. After a heated debate in the New York Times and Bloomberg columns, Krugman commented that Kelton was giving “wise advice in a political universe that I have never visited.”
What we need in the United States is a multi-trillion dollar crisis package.
Of course, Marxist economists and right-wing economists do not have exactly the same objections, but a common thread in criticism is that MMT is said to be a puzzle rather than an economic theory. Paul krugman claims proponents have made it impossible for outsiders to find all the pieces.
Stephanie Kelton says her it turned out that the book was in perfect timing. States around the world are pumping money into their economies in a way that has hardly happened before.
Central government debt soars. Interest rates are close to zero.
But there’s nothing to worry about, says Kelton. Nothing to return.
– In the United States, 40 million people are threatened with eviction. 8 million could end up in poverty. What we need in the United States is a multi-trillion dollar crisis package, says Stephanie Kelton.
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