Stephanie Kelton, Professor of Economics and Public Policy at the State University of New York at Stony Brook and Bloomberg Contributing Columnist, argues that we have been thinking about government spending in the wrong ways, on both sides of the political aisle. Everything that both liberal/progressives and conservatives believe about deficits and the role of money and government spending in the economy is wrong, especially the fear that deficits will endanger long-term prosperity. Kelton joined Sarah Kaplan on a GATE hosted livestream event to discuss which deficits actually matter.

In Kelton’s book, “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy,” she asks what is the best way to balance the risk of inflation against the benefits of a society that is more broadly prosperous, safer, cleaner, and secure? According to Kelton, deficits can help us fight a myriad of problems from inequality, climate change and other things, but this can’t be done until we properly grasp what a deficit actually is.

We can’t use deficits to solve problems if we continue to think of deficits as the problem.

WHAT IS THE MAIN MYTH YOU ARE REFUTING?

A common misconception, according to Kelton, is that the federal government should run like a household, managing the budget like you would at home. Kelton argues that not only is the government not like a household, but when it tries to handle its finances as such, it can be quite destructive. In Canada, because the Federal government is the sole issuer of the currency, it can never run out of cash or be forced into bankruptcy. The limit is how many dollars the Canadian or US economy can safely handle before inflation becomes a problem.

IT IS INCREASINGLY RECOGNIZED THAT RECOVERY FROM THE COVID PANDEMIC IS GOING TO REQUIRE GREATER INVESTMENT IN CHILDCARE. THE ECONOMIC DOWNTURN COUPLED WITH CHILDREN BEING OUT OF SCHOOL IS SIPHONING WOMEN OUT OF THE WORKPLACE. THE CANADIAN GOVERNMENT HAS MADE SUBSTANTIAL INVESTMENTS BUT THEY ARE NOT NEARLY SIGNIFICANT ENOUGH TO PROVIDE ALL OF THE CHILDCARE REQUIRED. HOW IS THE DEFICIT MYTH BEING USED IN THESE KINDS OF CASES?

Governments may hide behind the deficit myth because it is politically useful. That is, this myth gives them political cover not to spend money on particular priorities, and these are often social priorities such as expansions of childcare support. Deficits represent a matter of priorities in society.

The punishment for overspending is inflation and that is the relevant limit.

WATCH STEPHANIE KELTON DISCUSS WHAT THE DEFICIT ACTUALLY IS:

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