Stephanie Kelton The big myth of government deficits TED
When things break, we have an opportunity.
We can pick up the pieces
and put them back together the old way,
or we can look for better ways to build.
Covid broke everything.
It put a spotlight
on the many deficits in our economy –
in employment, education,
health care, housing –
and it showed how inequality
made it all worse.
Here in the US and around the world,
governments did some extraordinary things.
They sent money to people directly
to help them buy food and pay rent.
They provided free Covid testing
and expanded health care
to cover more of the population.
They gave money to businesses
to help keep them afloat
while much of the economy
was temporarily shut down.
They offered debt relief
to millions of people
who borrowed money to go to college.
They did all of this and more
without raising taxes
or having a prolonged battle
over the usual question
of how to pay for it.
To me, this was exciting,
and I’m an economist,
so I don’t say that a lot.
(Laughter)
But as someone who’s been trying
to change the way we think
about deficits and government spending,
I saw this as an opportunity
to show why government budgets
don’t work like household budgets.
Why all of their red ink
is really our black ink.
And why our nation can afford
to keep investing in the things we need
even after spending trillions
to fight the pandemic.
For a while, it looked like
the US and other countries
were starting to break the mold
on the old way of thinking
about deficits and taxes.
But now here we are,
just a handful of months
after all of that bold action,
and we’re sliding back
into our old habits of thought.
Can we build affordable housing
and fix crumbling infrastructure?
Can we expand Medicare
to include dental, vision and hearing?
Can we tackle our climate crisis?
As Congress debates these questions,
everyone is back to asking,
how will you pay for it?
It’s the wrong question.
In fact, the right questions
don’t involve money at all.
Instead of worrying about
where the financing will come from,
we should be asking,
are these things worth doing
and do we have the real resources,
the people, the equipment,
the raw materials
and the technology to do them?
Well, they make society better off.
And do we have the political will to act?
I’m one of a handful of economists
who contributed to the body
of academic scholarship
known as MMT or Modern Monetary Theory.
MMT provides an accurate description
of how a fiat currency like the US dollar
or the British pound actually works.
It reminds us that we’re
no longer on a gold standard,
so finding the money
to pay for the things we need
is never an issue
for countries like the US or the UK.
If we’re going to fix
what’s broken in our economy,
we have to fix the way we think
about the limits on government spending.
Let me give you an example
of the kind of broken
gold standard thinking
that still permeates our discourse.
Back in 1983, the prime minister
of Great Britain, Margaret Thatcher,
said these words:
“If the state wishes to spend more,
it can do so only by borrowing
your savings or by taxing you more,
and it is no good thinking
that someone else will pay.
That someone else is you.
There is no such thing as public money.
There is only taxpayers' money.”
Maybe you’ve heard the contemporary
version of Thatcher’s dictum.
“There is no magic money tree.”
It’s just another way of saying
that everything must be paid for
and that the taxpayer
is ultimately on the hook
for whatever the government spends.
It sounds worrying.
As individuals, we know
that when we borrow money
to go to college,
start a business or buy a home,
we’re personally saddled with that debt.
We have to find the money to pay it back.
Taking on too much personal debt
can lead to all sorts of problems.
Even small businesses
and large corporations
have to walk a fine line
when it comes to debt.
But the federal government
is fundamentally different.
Unlike the rest of us,
Congress never has to check
the balance in its bank account
to figure out whether
it can afford to spend more.
As the issuer of the currency,
the federal government
can never run out of money.
It can afford to buy whatever is available
and for sale in its own currency.
Now that might mean
spending on roads and bridges,
a military arsenal
or hospitals and schools.
Finding the votes to pass
a spending bill can be hard,
but finding the money
is never a problem.
They just create it.
So here’s how it works.
Whenever Congress and the president
agree to spend more,
the government’s bank,
the Federal Reserve,
works with the rest
of the financial system
to get that money into our accounts.
Everything’s done electronically,
so there’s no physical printing
of money involved.
If you got a 1,400-dollar check
from the federal government
earlier this year,
or if your company received money
to help cover payroll and other expenses,
then you received some
of the newly minted digital dollars
that were created to support our economy.
No taxpayers were involved
in that process.
It was all done using nothing more
than a computer keyboard.
So why are we hearing so much
about the need to raise taxes
to pay for infrastructure
and make other investments in our economy?
In a word,
deficits.
We’ve all been conditioned
to worry about deficits,
so lawmakers are looking
for ways to spend more
without adding to the deficit.
That’s what this whole
pay-for game is about.
Unfortunately, deficits
have gotten a bad rap.
They’re almost always seen
in a negative light.
And I would like to change that.
When we hear the word “deficit,”
we probably think
of a deficiency or shortfall.
A deficit always sounds ominous.
So when we hear
that the federal government
just ran a three-trillion-dollar
budget deficit,
it can sound worrying.
And it can even anger people.
But there’s another way
to think about government deficits.
Just as a six becomes a nine
when we view it from a different angle,
a government deficit
becomes a financial surplus
when we look at it
from another perspective.
A deficit hawk might look at this picture
and see nothing
but a sea of worrying red ink.
That’s not how I look at it.
Here’s what I see.
I see what’s happening
on the other side
of the government’s ledger.
When the government spends
more than it taxes away from us,
it makes a financial contribution
to some other part of the economy.
Their red ink is our black ink.
When you look at it this way,
it becomes clear that every deficit
is good for someone.
The question is for whom
and what are those deficits
being used to accomplish?
It matters how the money is spent
and who ends up
with the resulting surplus.
Tax cuts that deliver huge windfalls
for those at the top
without sparking
investment and opportunity
for the rest of the population
don’t make good use of deficits.
On the other hand,
spending trillions to support
the economy during the pandemic
put the deficit to good use.
We just had the shortest
recession in US history.
To me, that was fiscally responsible.
Being responsible shouldn’t mean
running the government’s finances
like a household.
Instead of trying
to keep the deficit in check,
Congress should be focused
on keeping inflation in check.
That’s the real limit on spending
and it’s the thing to watch out for
if you’re thinking
about spending trillions
on things like infrastructure,
health care and free college.
Instead of asking,
“How will we pay for it?,”
Congress should be asking,
“How will we resource it?”
To answer that question,
think of people, factories, equipment
and raw materials like wood and iron.
If we’re going to build high-speed rail,
fix crumbling infrastructure
and green our economy,
then we’ll need concrete,
steel and lumber.
We’ll need construction workers,
architects and engineers.
We’ll need companies that can fill
thousands of orders for solar panels,
EV charging stations
and electric school buses.
If our economy has the productive capacity
to quickly supply all of those things,
then we can easily resource it.
Or take health care or free college.
Paying the bills to expand Medicare,
to include dental,
vision and hearing is easy.
The challenge is making sure
we have enough dentists,
optometrists and audiologists
to treat everyone who needs care.
And if you want to resource free college,
then you need the faculty,
the classrooms and the dormitories
to teach and house more students.
In a full-employment economy,
all of the resources you need are, well,
fully employed.
There’s no spare capacity
anywhere in the system.
So if the government suddenly tried
to make all of these investments at once,
it would quickly discover
that it doesn’t have the people
or the building materials to do the work.
To get the resources it needs,
it would have to compete
with the private sector,
bidding up wages and prices.
That would be inflationary
and it would be fiscally irresponsible.
We are a long way from full employment.
We have the resources we need
to begin repairing our broken systems.
But we have to believe it’s possible.
We can’t let words like debt
and deficits hold us back.
With a better understanding
of public money,
where it comes from and how it works
we can take aim at the many real deficits
that are bearing down on us.
In every crisis lies an opportunity.
We can pick up the pieces
and try to reassemble the fragile systems
that were in place before the pandemic
or we can build anew,
shaping our bountiful resources
into the kind of world we want to live in,
one that cares for our people
and our planet.
I truly hope we choose to be bold.
Thank you.