A review of Stephanie Kelton's The Deficit Myth, by Julian Clover
In economics, as in religion, myths and dogma abound. In both, however, an honest and well-informed discussion of the real issues involved can be liberating and potentially world-changing.
Up until a few months ago I thought that my taxes helped pay for healthcare, education, pensions, infrastructure projects and many other good things. I believed – because I had been told it over and over again – that because there is a growing gap between the taxes the government collects and what all these good things cost (aka "the deficit"), we just can’t afford them any more and will have to get used to doing with less of them in the future.
I was told that we’re like a great big household and that if we spend more than we’re earning we’ll end up with huge deficit/debts with lots and lots of scary 000’s on them, and these will take centuries to pay back. Our descendants will suffer for the rest of eternity etc etc. And I believed it.
It turns that I was yet another victim of the great deficit hoax. According to Stephanie Kelton, in her new book The Deficit Myth, I live in a monetarily sovereign country (ie not tied to a gold standard or pegged to another currency) which means that the UK government can create as much money as it wants, when it wants it. In effect the government could double the public sector budget tomorrow and pay for it simply by creating the money on a computer in the Treasury. We are, in fact, nothing like a household.
"But wouldn’t creating all this money cause Weimar Republic style galloping inflation?!" I hear horrified people say. The answer is no. The thing that drives inflation is a lack of basic productive resources within an economy – land, labour/workforce, factory output capacity, capital to invest etc.
To take just one of these, available labour, there are many people in Britain who are unemployed, about to become unemployed or doing a lot fewer hours than they would like to be doing. The human capacity is there. And the investment capital is there too, if the government chooses to create it – like FD Roosevelt did in 1930s America, or the UK government did after World War II. They didn’t wait for dwindling tax revenues to fund their spending programmes in healthcare, education, housing etc – they got on and created the money. The rest followed. Why can’t we do the same now? We badly need new jobs: in care, the green economy, regenerating urban communities and looking after the elderly – what are we waiting for?
And we don’t need to depend on taxation, the private sector, banks or, indeed, other countries to fund this revival. We can quite easily do it for ourselves. In fact the idea that we have to "borrow" from other countries to fund our spending requirements is another myth that the book unravels most effectively.
This just scratches the surface. I believe this book liberates economic thinking from scare tactics and narrow questions about budgets and enables us to think about repurposing our economy to address the real issues of our age and create a fairer and more just society. Remember – policies are usually driven by political choices, rarely by economic ones.
The above image is a recent photo of author Stephanie Kelton.