Stephanie Kelton: The big myth of government deficits | TED

Name: Stephanie Kelton: The big myth of government deficits | TED
Uploaded: 2021-10-13T14:30:05.000Z
Duration: 28 min 4 s

When things break, we have an opportunity

The speaker discusses how when things break, there is an opportunity to rebuild in a better way.

Rebuilding after Covid-19

Covid-19 highlighted the deficits in the economy, such as employment, education, healthcare, and housing.

Governments took extraordinary measures to address these issues by providing direct financial assistance to individuals, expanding healthcare coverage, and supporting businesses.

These actions were taken without raising taxes or engaging in prolonged debates about how to pay for them.

Government budgets don't work like household budgets

The speaker explains why government budgets are different from household budgets and why it is important to change our thinking about deficits and government spending.

Government spending and deficits

Government budgets should not be compared to household budgets because they operate differently.

Governments can afford to invest in necessary resources even after spending trillions on fighting the pandemic.

It is crucial to understand that government red ink (deficits) can benefit society as a whole (black ink).

Sliding back into old habits of thought

The speaker expresses concern about reverting back to old ways of thinking about deficits and taxes.

Questions for progress

Instead of focusing on how to pay for initiatives like affordable housing, infrastructure repair, expanded Medicare coverage, or tackling climate change, the emphasis should be on whether these endeavors are worth doing and if there are sufficient resources available.

The wrong question being asked is "how will you pay for it?" instead of considering the value of these investments and the political will required.

Modern Monetary Theory (MMT)

The speaker introduces Modern Monetary Theory (MMT), which provides insights into how fiat currencies like the US dollar or British pound work.

Understanding MMT

MMT describes how fiat currencies operate and emphasizes that countries like the US or UK, which are not on a gold standard, do not face limitations in finding money to pay for necessary expenses.

The speaker is one of the economists who contributed to the academic scholarship of MMT.

Challenging outdated thinking about government spending

The speaker provides an example of outdated thinking about government spending and highlights the need to change our perspective on limits to government spending.

Outdated gold standard thinking

Margaret Thatcher's statement from 1983 reflects a mindset rooted in gold standard thinking, suggesting that if the state wants to spend more, it must borrow from savings or increase taxes.

This belief implies that there is no such thing as public money and everything must be paid for by taxpayers.

Government's unique ability to afford spending

The speaker explains why the federal government has a fundamentally different financial situation compared to individuals or businesses.

Government's financial capacity

Unlike individuals or businesses, Congress does not need to check its bank account balance before spending more because it can never run out of money as the issuer of currency.

The federal government can afford to buy whatever is available for sale using its own currency, whether it be roads and bridges, military equipment, hospitals, or schools.

While finding votes for spending bills may be challenging, finding money is never a problem because the government can create it.

How the Federal Reserve Gets Money into Our Accounts

This section explains how the Federal Reserve works with the financial system to get money into our accounts.

The Role of the Federal Reserve

The Federal Reserve works with Congress and the president to distribute money when they agree to spend more.

The process is done electronically, without physical printing of money.

Digital dollars are created and distributed to individuals and companies to support the economy.

Taxpayers are not involved in this process; it is done using a computer keyboard.

Deficits and Raising Taxes

Lawmakers are looking for ways to spend more without adding to the deficit.

Deficits have a negative connotation but can be seen as a financial surplus from another perspective.

Every deficit benefits someone, depending on how the money is spent and who receives the resulting surplus.

Responsible Fiscal Management

Running government finances should not be compared to managing household finances.

Instead of focusing on keeping deficits in check, Congress should focus on keeping inflation in check.

The real limit on spending is inflation, not deficits.

Resourcing Investments

Instead of asking how we will pay for investments, Congress should ask how we will resource them.

Resources include people, factories, equipment, and raw materials needed for infrastructure projects or expanding services like healthcare or education.

In a full employment economy, all resources are fully employed. If there's no spare capacity, competition with the private sector may drive up wages and prices.

Making Good Use of Deficits

This section discusses how deficits can be used effectively depending on where they are directed.

Effective Use of Deficits

Tax cuts that benefit only those at the top without stimulating investment and opportunity do not make good use of deficits.

Spending trillions during the pandemic to support the economy was considered fiscally responsible.

The focus should be on how the money is spent and who benefits from the resulting surplus.

Investing in Infrastructure, Healthcare, and Education

Investments in infrastructure, healthcare, and education require resources such as materials, workers, and facilities.

If the economy has the productive capacity to supply these resources, investments can be easily resourced.

The challenge lies in ensuring there are enough professionals like dentists or teachers to meet the increased demand.

Limitations of Full Employment Economy

In a full employment economy, there may not be enough people or building materials to support all investments simultaneously.

Competing with the private sector for resources may lead to higher wages and prices.

The Importance of Inflation Control

This section emphasizes that controlling inflation is crucial when considering large-scale investments.

Controlling Inflation

Congress should prioritize keeping inflation in check rather than focusing solely on deficits.

Large-scale investments like infrastructure projects or expanding services can potentially drive up wages and prices if not managed carefully.

Considering Resources

When planning investments, it is essential to consider available resources such as labor, materials, and facilities.

Paying for services like expanded healthcare or free college is relatively easy; however, having enough professionals and educational infrastructure becomes a challenge.

Resource Management in a Full Employment Economy

In a full employment economy where all resources are fully utilized, competing for additional resources can become difficult.

Government investments must consider resource availability and potential competition with the private sector.

By understanding how deficits can be effectively used depending on their direction and considering resource availability while managing inflation control, policymakers can make informed decisions about government spending.

New Section We are a long way from full employment.

The speaker acknowledges that there is still a long way to go before achieving full employment and emphasizes the need to repair broken systems.

Repairing Broken Systems

The speaker states that they have the necessary resources to begin repairing the broken systems.

It is important to believe that it is possible to repair these systems.

The speaker urges not to let words like debt and deficits hold us back from taking action.

Understanding Public Money

By gaining a better understanding of public money, including where it comes from and how it works, we can address the real deficits that are impacting us.

Seizing Opportunities

The speaker highlights that every crisis presents an opportunity for change. We can either try to rebuild the previous fragile systems or take this chance to shape a new world that cares for people and the planet using our abundant resources.