Bullet Point Book Review #5

Title: The Deficit Myth
Author: Stephanie Kelton

Governments that have the power to issue their own currency, should not approach their budgeting as a household. Instead, they should focus on the wellbeing of their citizens primarily, and worry about deficits secondarily.

A view into Modern Monetary Policy.

• The idea that Governments need to raise taxes in order to pay for expenditures is circular: it issues the currency in the first place. The reason the government raises taxes is to create demand for the currency it prints. To install mandatory yearly taxes, the government forces its citizens to acquire said currency, and the way people can do so is by doing things, i.e. be productive.
• What about inflation? — Inflation is in part caused by the amount, and velocity of money in the economic system. Governments should print and spend money to meet the public’s needs in the real economy, and then target taxes to reduce the amount of money in the system. In this way, taxes are a lever to control inflation.
• Having the power of currency issuance, the Government can become a guaranteed employer for everyone willing to work, under predetermined conditions, and get paid. This particularly reduces the pains during the periodic economic downturns, but also acts as an additional lever to manage inflation.

Very relevant in the current economic climate:
The way the FED curbs inflation today, is by actively inducing a recession, which directly leads to hundreds of thousands of people losing their job. Getting inflation down, and targeting an “optimal employment rate” by effectively putting people out of a job, seems to be symptoms of economic policy that does not have the people’s best interest as a priority.