Stephanie Kelton’s The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy provides an enjoyable and accessible (though often repetitive) condensation of the emergence of Modern Monetary Theory (MMT) over the last twenty years or so, and what it means for the Left’s version of economic populism. Kelton’s book is targeted to a broad audience—and appropriately so—as she colors the outlines of MMT with various diagrams, metaphors, and personal stories. The deliberate choice of the word ‘myth’ in her title is apt: one of the strengths of Kelton’s work is how deeply it undercuts the mythos of austerity that has unnecessarily constrained government fiscal policy for so long. While she never quite illustrates how a ‘people’s economy’ has been or might be born, she does elaborate on the policy implications of MMT. The aim of this review is to first summarize her basic argument, before turning to both its promise and possible points of tension with the various forms of progressive political praxis frequently debated in geography.
Kelton begins her explanation with a basic opposition with which many of us are likely familiar – that the government budget is not like our household budget because it is the issuer of its own currency. In fact, one of the core tenets of MMT is chartalism, or the idea that governments created taxation in part to introduce their preferred currency into society (as opposed to the notion that currency arose naturally to service market transaction). Governments spend money into existence, not taxpayers. Contrary to orthodox fiscal policy, therefore, the government does not need to raise money through taxation to pay for things, because as long as it is monetarily sovereign, deficit spending is fiscally sound. Through a series of diagrams and metaphors, Kelton explains why the government does not even need to pay the interest on its treasuries (treasuries operate like bonds and are the primary vehicle of deficit spending). In short, explains Kelton, all money in the domestic economy can be separated into one of two “buckets” – Uncle Sam’s and everybody else’s. When private actors buy treasuries, they are in fact returning money originally issued by the government into Uncle Sam’s bucket. This money is used to support interest rates, not to pay down debt. Thus, Uncle Sam’s deficit means a surplus for everybody else, including the private sector (MMT argues that government spending cannot ‘crowd out’ the private sector, as fiscal conservatives argue). Kelton concedes the point that in reality government deficits do not always help the people they should, but suggests that at least they can help if the right policies are in place.
The primary reason for intricately designed tax policy, argues Kelton, is to help balance those buckets, thus controlling inflation. Taxes can also be used to redistribute wealth, encourage or discourage certain behaviors, etc. However, contrary to the claims of deficit hawks, taxes are not necessary to raise money to cover expenses. The only limitations on spending are inflation, and the “real productive resources” (p. 3) like technology, labor and natural capital. “At its core,” argues Kelton, “MMT is about replacing an artificial (revenue) constraint with a real (inflation) constraint” (72). The purpose of tax policy, per Kelton, is to withdraw money from the economy to control inflation. In other words, to the extent that deficit spending might drive unemployment, fiscal policy should balance inflation and employment, not taxing and spending. (It should also be mentioned that MMT is possible only in countries with fiat currencies and monetary sovereignty, such as the US, the UK, and Japan.)
MMT is potentially useful for advocates of federal spending on programs such as Medicare For All, a Green New Deal, loan forgiveness, and a federal job guarantee. The latter is in fact a central plank of MMT, as deficit spending on jobs can ameliorate the economic impact of inflation. As Kelton points out, international trade negotiations could focus on labor rights or the environment if deficits were not such a concern. Additionally, I would point out, if a single payer health care system existed in the U.S., labor unions could fight for better jobs rather than constantly haggling over employer based health care benefits. Free college, affordable housing, free public transit – you name it; there are constraints to federal spending, but they are issues of policy and management, not absolute scarcity of money. MMT offers an effective counter to the ‘but how do you pay for it’ question.
While MMT answers that question, it remains debatable whether its answer would be embraced politically by either the Right or the Left. First, while Kelton offers that we do not need to tax in order to spend, spending still necessitates taxation to control inflation. As a result, even with a full embrace of MMT we may still find ourselves locked in the same binary politics of spending and taxation that we always have been. Taxing will still go along with spending regardless of the reason, and deficit hawks will still cry foul. Second, this might even lead to a point of tension on the Left, as MMT may inadvertently provide political cover for not taxing the rich. To be clear, Kelton herself supports taxing the rich, but under MMT it is not absolutely necessary, especially if the Right still invokes the bogeyman of big government. For instance, many proponents of a Green New Deal in the U.S. argue that to be effective it must challenge the structural inequalities and colonial relationships upon which climate change is built, hence “an effective Green New Deal is also a radical Green New Deal” (Aronoff et al 2019, p. 18; emphasis in original). Geographer Matt Huber (2019) persuasively argues for an environmental politics which de-centers the professional managerial class in favor of a directly antagonistic, working-classing ecological politics. MMT, on the other hand, potentially skirts any such antagonism by offering an imaginary everybody-wins scenario, while we revert back to arguing about taxing and spending. In short, while MMT provides an interesting technical solution, some may doubt that it can leverage the political conditions necessary to enact popular but expensive system change.
Some of those points of tension run yet deeper. For instance, Kelton thoroughly explains the federal government’s calculation of the Non-Accelerating Inflation Rate of Unemployment (NAIRU), or the minimum level of unemployment required to prevent inflation from increasing much beyond two percent. In other words, the government recognizes that some small percentage of the population must be unemployed lest money be completely devalued (as employment increases so does inflation). I would suggest that such necessarily-unemployed people are part of the original exclusion—or perhaps what Agamben (1995) referred to as bare life—upon which liberal capitalism is built. Kelton’s critique of NAIRU, however, is that inflation is a lesser evil than unemployment, and that the optimal NAIRU is a moving target, impossible to pinpoint. While this is valid, her critique is one of technocratic management fully within the bounds of liberal capitalism, not a critique of NAIRU itself and its ethical implications for the kind of society we want. As Kelton presents it, MMT appears to be a tool of the professional managerial class critiqued by Huber (2019), and far from the radical agenda espoused by Aronoff et al (2019).
That is not to say that MMT is not a useful tool. In terms of understanding where it sits in the context of the political Left, however, we should be clear that it extends upon the Keynesian liberalism frequently critiqued by critical geographers. It has often been recognized that Keynes’s critique of capitalism was designed to save it from its own self-destructive tendencies. Building on this observation, Geoff Mann (2019) argues that liberalism in fact served counter-revolutionary purposes well before Keynes. That is, capitalism produces the gross inequality and boom-bust cycles that precipitate revolution on the part of the suffering poor (whom he refers to as ‘the rabble’), as was the case in the French Revolution. Mann argues that the techno-managerialism of Keynesian liberalism operates to placate those who might otherwise embody the revolution and bring about socialism. . Some may argue that those left unemployed so that the remainder may flourish, as described by the concept of NAIRU, are precisely the people that MMT’s liberal, managerial focus is intended to placate. It is possible that even a federal job guarantee is anti-revolutionary in this sense, even if it brings the NAIRU effectively to zero. That is not to say that a jobs guarantee is not a good idea, but to suggest that there is as much tension as there is harmony between MMT and the radical critique persistent in many branches of geography.
To be clear, this tension is not unusual. As Mann (2019) argues, Keynesian liberalism has long held an important spot in the development of Marxist thought, with the two held in persistent productive tension more so than an in binary opposition. I would add that such tension has always existed across variants of the Left, from those positing the state as a provider of rights to those focused on freedom and mutual aid, and so on. Thus the implicit Keynesian liberalism of Kelton’s work may not resonate with some critical geographers I would argue that it is often more helpful to locate the productive tension between different theories of change than it is to resolve every theoretical impasse. If nothing else, Kelton’s book is of value to critical geographers because it provides critical insight into the myths of fiscal constraint, which are crucial to understand if we want to address important issues such as climate change and inequalities of housing and medical care.
References:
Agamben G (1998) Homo Sacer: Sovereign Power and Bare Life. Stanford: Stanford University Press.
Aronoff K, A Battistoni, D Aldana Cohen, and T Riofrancos (2019) A Planet To Win: Why We Need a Green New Deal. London: Verso.
Huber M (2019) Ecological Politics for the Working Class. Catalyst 3(1). Available here.
Mann G (2019) In The Long Run We Are All Dead: Keynesianism, Political Economy, and Revolution. London: Verso.
Kolson Schlosser is an associate professor of instruction in the Department of Geography and Urban Studies at Temple University, USA. His research and teaching interests lie at the intersection of political ecology and political economy, broadly speaking.
