US Fiscal Policy and the 'Deficit Myth' with Stephanie Kelton
Mar 13, 2025
auto_awesome
Stephanie Kelton, a professor of economics and public policy at Stony Brook University, dives into the world of Modern Monetary Theory and its implications for U.S. fiscal policy. She critiques traditional views on budget deficits and highlights the case study of Japan's economic stability despite high deficits. Kelton discusses her unexpected journey from aspiring dentist to influential economist, and the importance of bipartisan collaboration in budget hearings. The conversation also touches on challenges of inflation and the bold proposal of a government-funded job guarantee.
Modern Monetary Theory challenges traditional views on deficits, asserting that government spending can foster economic growth and private sector surpluses.
The relationship between government spending and inflation is nuanced, where thoughtful fiscal policies can prevent inflationary pressures while enabling public investments.
Historical analyses of fiscal policies reveal how political cycles significantly impact economic strategies and underscore the importance of economic literacy for effective policymaking.
Deep dives
The Importance of Asking for Help
In a society that often promotes hyper-independence, it is crucial to recognize the value of having a support system. Many admired figures, such as mentors and idols, may appear to have all the answers, but they understand the importance of seeking help and guidance. Therapy is presented as a vital tool for personal growth and self-investment, challenging the outdated belief that asking for support is a sign of weakness. By utilizing resources such as BetterHelp, individuals can connect with experienced therapists to address challenges like anxiety and stress while integrating therapy into their busy lives.
Modern Monetary Theory and Its Impact
Modern Monetary Theory (MMT) presents a paradigm shift in how we view government deficits and their effects on the economy. Traditionally, the focus has been on deficits as a negative aspect, potentially causing inflation and crowding out private investment. However, MMT emphasizes that government spending can stimulate the economy and create financial surpluses for the private sector. This perspective encourages a reexamination of fiscal policies, highlighting the importance of understanding that deficits can actually facilitate significant investments in infrastructure and other societal needs.
The Role of Education in Economics
An academic background can significantly shape one’s perspective in economics, and finding the right program is essential for aspiring economists. Students are encouraged to seek out diverse programs that offer a comprehensive understanding of economic theory beyond traditional frameworks. Engaging with a variety of economic thought leaders provides insights into political economy and the application of economics in real-world contexts. This holistic education equips students to formulate informed opinions and contribute meaningfully to economic discussions.
Inflation and Fiscal Responsibility
Inflation becomes a prominent concern in economic discussions, particularly when evaluating large-scale spending measures. The dialogue often centers around whether government spending will exacerbate inflation, yet the relationship between spending and inflation is more nuanced than perceived. Thoughtful fiscal policy can prevent inflationary pressures while still allowing for significant investments in the public sector. By focusing on effective resource allocation and understanding the macroeconomic landscape, economists can better navigate the complexities of fiscal responsibility.
The Political Landscape of Economics
The intersection of economics and politics often results in contentious debates regarding fiscal policy and government intervention. A historical analysis reveals a tendency for political cycles to influence economic policies, with significant implications for public spending and deficit management. Notably, past administrations' approaches to fiscal stimulus and austerity have sparked discussions about the effectiveness and long-term repercussions of such strategies. Insights into these political dynamics underscore the importance of economic literacy among policymakers and the need for informed, evidence-based decision-making.
Responding to Economic Crises
Responses to economic downturns can vary dramatically based on the prevailing fiscal approach, with significant implications for recovery. In times of financial hardship, swift government intervention is often essential for stabilizing the economy and supporting citizens. Examining past crises illustrates the benefits of aggressive fiscal measures and the drawbacks of austerity during economic contraction. By adopting a proactive stance and implementing comprehensive stimulus plans, governments can effectively mitigate the impact of recessions and foster long-term recovery.
Barry speaks with Stephanie Kelton, Professor of Economics and Public Policy at Stony Brook University and Senior Fellow at the Schwartz Center for Economic Policy Analysis. Previously, Professor Kelton was Chair of the Department of Economics at the University of Missouri, Kansas City. In addition to her work in academia, Stephanie has held numerous roles in the political sphere. She served as chief economist on the U.S. Senate Budget Committee, and was senior economic adviser for Bernie Sanders’ 2016 and 2020 presidential campaigns. She has made virtually all the 'top 50 lists' including POLITICO's 50 Most Influential Thinkers in 2016 and Bloomberg Businessweek's 50 People Who Defined 2019. She was also named to Barron's 100 Most Influential Women in Finance. She has held several visiting professorships and has written for publications such as the Financial Times, The New York Times, CNN, and more. On this episode, Barry and Stephanie discuss US fiscal policy, recession risks, and her New York Times bestseller The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.