Very interesting interview with Stephanie Kelton in the FT today.
She is one of the leading advocates of Modern Monetary Theory (MMT), – the idea that if a government is in charge of its own currency, no inherent budget rule constrains it from spending more than it taxes.
With governments resorting to massive fiscal expenditure politicians are desperate for an economist to certify their policies as legitimate! Interestingly she describes the engine of the capitalist economy as sales! She states that “one person’s spending is another person’s income, right? And every dollar that’s taxed away from me is a dollar that I don’t have, I can’t spend and some business here in the US can’t capture.” Anyone who saves, in this language, is draining money out of circulation. Paying down government debt, she argues, isn’t a virtue. It’s a leak. It’s how money leaves the economy. “It’s a lost sale,” she says. Who could want that?
Kelton is very much in the Hyman Minsky school of economics who died in 1996, but his research provides a very good analytical framework to understand the causes of the global financial crisis.
The article does not delve into her views on government spending and inflation or the absolute level of debt.!
Her new book, The Deficit Myth, is due out in June.