What is the main message of The Deficit Myth?

The main message of The Deficit Myth is that government deficits are not always bad and can be used to strengthen the economy.

How long does it take to read The Deficit Myth?

The reading time for The Deficit Myth varies depending on the reader's speed. However, the Blinkist summary can be read in just 15 minutes.

Is The Deficit Myth a good book? Is it worth reading?

The Deficit Myth is a thought-provoking read that challenges traditional beliefs about government spending. It offers valuable insights into economic policy and its impact on society.

Who is the author of The Deficit Myth?

The author of The Deficit Myth is Stephanie Kelton.

The Deficit Myth Summary of Key Ideas and Review

Name: The Deficit Myth
Rating: 3.8 (275 reviews)
Author: Stephanie Kelton

Introduction

What’s in it for me? A new approach to money.

Medicare for all! A Green New Deal! High-quality public education for every child in the country! Each of these proposals promises us that a better world is possible. Still, any advocate of big change always faces the question, “But how will we pay for it?”

According to The Deficit Myth, footing the bill for bigger government programs isn’t as daunting as it seems if we embrace new economic ideas, such as Modern Monetary Theory. This innovative approach to money ditches the constraints of outdated economic thinking in favor of a more dynamic model better suited for the contemporary world.

These blinks spell out how Modern Monetary Theory works with clear, in-depth examples and explainers. The blinks also break down stale assumptions about spending, which limit the bold political action needed to take on the world’s biggest problems.

In these blinks, you’ll learn

how buckets can make sense of international trade;
where money actually comes from; and
why we can ignore the price of space travel.

Key idea 1 of 8

The federal government shouldn’t budget like a household.

Imagine a typical political ad starring everyday, patriotic Americans. There’s a waitress, a businessman, and maybe an affable construction crew. The ad shows each of these stand-up citizens hard at work. Then, it shows them back at their kitchen tables planning the family finances.

Over these wholesome scenes, a voice poses a question: “You and your neighbors are responsible with your spending – shouldn’t the government be as well?” It seems like common sense. If a family can create and stick to a budget, so can the government.

However, Modern Monetary Theory, or MMT, argues that this analogy is a little too simple. While your everyday household uses money, the government actually makes it. It’s a subtle distinction that makes a huge difference.

The key message here is: The federal government shouldn’t budget like a household.

Traditional economics treats the government like a big, complicated family household. So if a family wants to buy something, like a new couch, it has to either make money from work or borrow money from the bank. Similarly, if the government wants to buy something, like a public health system, it needs to make money by taxing citizens or borrow money by issuing bonds. This is called the taxing and borrowing precede spending, or TABS, model.

But consider this: Where does money come from? In many countries, including the US, Japan, and Canada, money is made by the government. In the US, the Federal Reserve either prints it as bills or issues digital dollars directly into bank spreadsheets. Since only the government has this issuing power, it has monetary sovereignty – a monopoly – over its supply.

Being a currency issuer is important because, unlike a family, a government doesn’t need to earn money. It can simply make more of it. In fact, MMT says that money only exists in the first place because governments began spending it into existence.

Therefore, the TABS model is backwards. If the government wants to buy something, it must issue and spend the money first. After all, collecting taxes and borrowing only become possible after the money is already circulating. This is called spending before taxing and borrowing, or the STAB model.

So does MMT mean governments can just print as much money as they want? Not necessarily. However, it does mean they have fewer fiscal constraints than the average family. They don’t need to worry about deficit spending or going broke. But they do need to consider inflation. We’ll look at this issue in the next blink.

Key idea 2 of 8

Deficit spending doesn’t matter, but inflation does.

It’s a typical day in the US Senate. A new bill comes before the Budget Committee, and each politician has a chance to deliver their thoughts. Republican Senator Mike Enzi, who previously owned a footwear company, is particularly upset.

For Enzi, the problem is the deficit. He thinks the government works like his old business. If the state spends more than it brings in, it’s being irresponsible. So Enzi thinks the government should spend less. Democrats view deficits as problematic, too. They think the government should avoid them by taxing more.

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Key idea 3 of 8

A growing national debt poses no actual threat to the economy.

West 43rd Street, Manhattan. High above the sidewalk is an eye-catching installation. A large digital screen displays a massive number that steadily ticks upward at a rapid pace. It’s the National Debt Clock, a private art piece that gives an up-to-date estimate of the United States’ gross national debt.

As of 2016, the clock read in excess of $13 trillion dollars. Below this massive figure, the clock displays a second number, labeled “your share.” Around the time this book was published, it was pushing toward $50,000.

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Key idea 4 of 8

Our government’s deficits become our collective wealth.

We’ve all heard myths and legends. Sometimes we get them from storybooks or listen to them around a campfire. Other times, we hear them on C-SPAN.

The “crowding-out” theory is one of these myths. While it’s not well known to the public, it’s popular with policy wonks, politicians, and Washington insiders. It says that when the government runs a deficit, it always and inevitably makes up for it by taking money from the private sphere. This stunts the economy and slows growth.

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Key idea 5 of 8

All entitlement programs are sustainable if we want them to be.

It’s 2005. Republican congressman Paul Ryan is once again trying to privatize Social Security. As a conservative lawmaker, he thinks this wildly popular program – one that millions of Americans rely on – is simply too expensive. To make his point, he asks Alan Greenspan to testify.

As Greenspan is the former chairman of the Federal Reserve, Ryan hopes he’ll provide evidence that the retirement program is indeed in financial trouble. However, the aging chairman does just the opposite.

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Key idea 6 of 8

International trade isn’t always a matter of winning and losing.

When it comes to trade, the United States just isn’t winning anymore. Not with China. Not with Japan. At least, this is what President Donald Trump ardently believes.

Throughout his boisterous 2016 campaign and his subsequent presidential administration, Trump regularly ranted about the country’s ongoing trade deficit. And it’s true, the US does import a great deal more than it exports.

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Key idea 7 of 8

The deficits that actually matter are the ones out in the real world.

Imagine you’re an idealistic economist. You come to Washington, DC, hoping to lend your expertise to the government’s legislators. You imagine that by doing your part, you’ll help the nation’s leaders find smart solutions to the country’s problems.

Unfortunately, when you arrive on Capitol Hill, things don’t go as planned. No one takes your advice. Despite your pleas, Republicans and Democrats alike only want to talk about one thing: the budget deficit. How can you refocus their priorities?

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Key idea 8 of 8

With MMT, the economy becomes what we make it.

May 25, 1961. President Kennedy stands before Congress and declares that America will land a man on the moon within ten years. It’s an ambitious plan, and pulling it off will take a vast amount of resources. It will require the ingenuity of brilliant scientists, the productive power of industry, and the labor of countless people.

As he speaks, Kennedy enumerates all these needs. He also mentions the price – nearly ten billion dollars. However, throughout the historic address, the President doesn’t waste one moment fretting about how to pay for it all. Instead, he focuses on the goal: a man on the moon.

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