Stephanie Kelton

A brilliant book on economic policy, that introduces a strikingly different way of looking at how governments should manage expenditures and revenues(the Modern Monetary Theory). In a nutshell, the author states that sovereign economies (that issue their own currencies) are not bound to limit their public expenditures to the taxes and revenues they collect each year (i.e. limit their budget deficits), as they can create any amount of money they want simply by making appropriate entries in the credit side of selected entities (e.g. banks, financial corporations, industries, etc.). That is, sovereign entities can S-TAB (Spend first, find the revenue from taxes or borrowing subsequently), and need not be constrained to TAB-S (tax and borrow first, spend later only when finances are available). Such sovereign economies can run any amount of current budget deficits, as they can easily create the needed finances simply by making book entries. This is, of course, a revolutionary change in the way we see public expenditure and revenue, and those of us accustomed to balance our household finances, cannot be blamed for wondering whether there is some fatal flaw in the reasoning.. However, there are some limitations: the central suthority should monitor the level of inflation closely, and ease up the 'pump priming' when the real resources of the economy are being used to the maximum, and any further infusion of liquidity will only push up prices. Secondly, this reasoning applies only to what are called 'sovereign' economies, those which issue their own currencies, and which are not obliged to redeem their issues at any fixed rate (i.e. the value of the currency is not pegged to a specific quantity of gold or any other standard, but can freely float). The author included the USA, UK, Japan, China (?) and a few others in this hallowed group, but leaves out most developing countries, and surprisingly, the individual countries of the European Union, that have voluntarily given up their currency powers to the European Central Bank. I would also suggest that the thoings on which the expanded money supply is spent, also matters: if it is only or mainly on luxury yatches and golf courses in the desert, it may not result in the economic prosperity promised by the proponents of Modern Monetary Theory. The author stresses the need to get more income into the hands of the middle and poorer classes, rather than increasing the income of the richest 1% or 10%.… (altro)

OK, so, it's an eye-opener. It's also very US-centric, although it does touch on similarities with the UK, Canada, Japan and differences with the Eurozone. Whilst it makes sense that it is US-centric (the author is American after all), I think it would help with the understanding of the topic as a whole to retain that wider perspective.

For example, if the premise is that the US has the natural resources and labour to spend a lot more than it does currently without increasing inflation, is that also true of other countries? How is that limit evaluated and determined? And how does MMT apply within the Eurozone, where countries aren't directly sovereign?… (altro)