Professor Stephanie Kelton joins Funny Money hosts Ka and Andrés to discuss Modern Monetary Theory (MMT) and its implications on government spending, debt ceiling, social security, and inflation. They explore the concept of MMT and its accurate description of the monetary system, discuss the debt ceiling crisis and its manipulation as a political tool, and highlight the influence of power and lobbyists on economic decision-making.
Government deficits contribute to financial surpluses in other parts of the economy.
The debt ceiling crisis is political theater that creates unnecessary uncertainty.
Inflation is a complex phenomenon influenced by various factors, not solely excessive government spending.
Deep dives
Understanding Modern Monetary Theory
Modern Monetary Theory (MMT) challenges conventional notions of fiscal policy and government budgets by introducing the idea that the government doesn't function like a household. The government creates and designates currency, allowing it to spend without the need to borrow money like a household would. This perspective highlights that government deficits actually contribute to financial surpluses in other parts of the economy. Additionally, it emphasizes that the national debt is not equivalent to personal debt, but rather a cumulative record of government spending that does not need to be 'paid back' in the same sense.
The Debt Ceiling Crisis
The debt ceiling crisis, which has occurred over 70 times since 1960, is a political theater that creates unnecessary uncertainty. People's concerns about the debt ceiling stem from the misconception that the government will run out of money and default on its debt, similar to a personal credit card debt. However, the government's ability to spend and its debt issuance are not constrained in the same way as individuals. The national debt is essentially a financial asset for the rest of the economy, and refusing to raise the debt limit can have serious consequences, including downgrading the debt and adversely impacting various sectors of the economy.
Inflation and Spending
Inflation is a multifaceted phenomenon influenced by various factors and not solely attributed to excessive government spending. Recent inflation has been driven by a combination of supply chain disruptions, bottlenecks, and companies taking advantage of the inflationary moment. While some argue that fiscal stimulus contributed to inflation, diverse viewpoints maintain that supply shocks and other factors play a more substantial role. Understanding inflation requires a nuanced analysis of resource availability, politics, production infrastructure, and shifting spending patterns. MMT provides a different understanding of inflation, recognizing that it is not solely a result of excessive government spending but a complex interplay of economic factors.
Debt Ceiling as a Political Tool
Lawmakers recognize the power of the debt ceiling as a political tool to extract concessions in exchange for raising it. Even though the debt ceiling is seen by some as an anachronism financially, politicians use it as leverage to push for policy changes or cuts to social programs like Social Security and Medicare.
Understanding the Mechanics of Government Spending
Modern Monetary Theory (MMT) seeks to provide an accurate description of the monetary system and the mechanics of government spending. When Congress passes legislation, it instructs the Federal Reserve to carry out spending commitments. The government's bank, the Fed, credits relevant bank accounts and changes the numbers accordingly. Taxes do not directly finance the government, but rather serve to control inflation and redistribute wealth.
Funny Money is a show about the economy, how it works, and how it can work better. This episode, Ka and Andrés are joined by Prof. Stephanie Kelton to discuss the Modern Monetary Theory (MMT) approach to public budgets and fiscal policy and it’s implication on government spending, the debt ceiling, social security, and inflation.
Guest Bio: Stephanie Kelton is Professor of Economics and Public Policy at Stony Brook University and author of the New York Times bestseller The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Professor Kelton has worked in both academia and politics. She served as chief economist on the U.S. Senate Budget Committee (Democratic staff) in 2015 and as a senior economic adviser to Bernie Sanders’ 2016 and 2020 presidential campaigns. She is a regular commentator on national radio and broadcast television and co-host of MarketWatch’s weekly podcast The Best New Ideas In Money, and she publishes a weekly Substack newsletter called The Lens.
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