• Jim Kent

Magic Money Tree?

Fiscal policy and government fiscal balance is a feature of all of the major examination boards, Baccalaureate and makes a good EPQ. Stephanie Kelton a US government economist and author has just published this interesting new book The Deficit Myth which is well worth a read for any A Level Student looking to really understand the issues of money supply, quantity theory of money, fiscal policy, deficit spending, output gaps, inflation and unemployment.

Kelton's big idea, MMT or Modern Monetary Theory, is really simple and intuitive. Instead of looking at the deficit as a debt we should consider it as a credit to society and injection into the circular flow which is eventually paid off by currency which is created - (for free) by the state. The implications for policy, employment and inflation are very exciting. I have only read the first 100 pages to date but already I'm really enjoying it, It is written in a way that most people will be be to understand and you don't need to be an economist. The part I am reading at the moment is focussing on the NAIRU and without mentioning it, the Phillips Curve. If she is correct Kelton's ideas mean that for decades, states have prioritised money supply over people and tolerated unnecessary unemployment in order to "balance" the books, leading to a considerable welfare loss and of course, government failure. If she is correct, stares with a sovereign fiat currency can and should aim for full employment. Her thinking supports the Keynesian LRAS theory that up to a point, employment can be stimulated without inflationary pressure.

I'm looking forward to finishing the book and will update the blog when I have done so. At this stage the thinking of Yuval Noah Harari author of Sapiens is interesting. He sees not just the deficit but money itself as a myth, a narrative which we can all believe in.

"Money isn’t a material reality – it is a psychological construct...But why does it succeed? People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted." Sapiens Ch10

What if people start to see money for what it really is, traces on hard disks somewhere created freely at will by governments and stop believing in it as a store of wealth?

Here's a link to Stephanie Kelton talking about her MMT and her ideas.

#facts #history #trivia

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