Visiting economist explodes the myths of public deficits

Professor Stephanie Kelton

Professor Stephanie Kelton. Image: John Staines

Government deficits are normal and even necessary to the health of most economies – that’s according to one of the world’s most influential economists, Professor Stephanie Kelton, who will be a Visiting Professor at the University of Adelaide this month.

Professor Kelton is the Geoff Harcourt Visiting Professor of Economics at the University of Adelaide and Professor of Economics and Public Policy at Stony Brook University, New York.

Senior economic adviser to Bernie Sanders’ 2020 presidential campaign, Professor Kelton has recently been listed by Bloomberg as one of the 50 people who defined 2019. She was previously chief economist on the US Senate Budget Committee (Democratic staff) in Washington DC.

Professor Kelton is one of the leading experts on Modern Monetary Theory (MMT), a new approach to economics that is taking the world by storm.

MMT seeks to overturn the myth that currency-issuing federal governments face similar budget constraints to households, businesses and state governments. It explains that such governments are constrained in their spending decisions only by the risk of inflation, and never by the threat of insolvency. There are real constraints, but there are no purely financial ones.

Professor Kelton says: “Since the government’s budget deficit is, by definition, the difference between what it spends and what it collects in the form of taxes and other payments to itself, it may seem reasonable to call it ‘overspending’ when the government spends more than it takes in. But it’s not.

“As every economist knows, inflation — not a budget deficit — is the tell-tale sign of an economy that is under pressure from excessive spending. If prices aren’t accelerating, you don’t have an inflation problem. And if you don’t have an inflation problem, you don’t have a spending problem.”

MMT aims to balance the economy, rather than balancing the budget. This means the pursuit of full employment without inflation, using the power of the public purse to address issues like inequality and climate change, and to invest in social infrastructure, education and health. may seem reasonable to call it ‘overspending’ when the government spends more than it takes in. But it’s not.Professor Stephanie Kelton

Professor Kelton will deliver the annual Harcourt lectureThe Deficit Myth – Modern Monetary Theory and the Birth of the People's Economy – at the University of Adelaide on Tuesday 14 January to a packed audience. The event was sold-out almost as soon as it was announced. A recording of the lecture will be published on the School of Economics' Facebook page.

Her much-anticipated book, The Deficit Myth: Modern Monetary Theory and Creating an Economy for the People (to be published on 9 June, 2020), will show how to break free of the thinking that she says has hamstrung policymakers in Australia and around the world.

Professor Kelton, will also be a keynote speaker at the sustainable prosperity conference, Modern Money and Green New Deal, to be held at the University of Adelaide from Friday 10 January to Sunday 12 January, and will meet a series of political and business leaders while she is in South Australia, between 6 January and 15 January.

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