The message I am going to deliver in this chapter is that the dominant way of thinking about money, taxes, and government spending is rooted in a series of misunderstandings that have given rise to a powerful myth, the deficit myth. I will deconstruct this myth in four stages. First, I will describe how the fear of adding to the national debt and deficit spending influences everyday politics. I will then point out that despite bipartisan agreement about the danger of increasing the national debt, the obstacles the deficit myth creates are treated by Republicans and Democrats in distinct ways. Next, I’ll illustrate this difference by comparing republican tax cuts with the democrats’ proposal for student debt cancellation. Finally, I’ll address the following questions: Where does the money come from and where does it go? We conclude by proposing a more appropriate constraint on government spending that dispels the deficit myth.
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Each of these “deficits” is covered at length in Chapter 7 “The Deficits that Matter” in The Deficit Myth (2020).
Social Security provides a point of reference throughout The Deficit Myth, as it is a direct target of contemporary attacks grounded by pernicious PAYGO logic, with specific budgetary history and discussion found in Chapter 6 “You’re Entitled!”.
At the time of the writing of this chapter, an example of this very kind of battle was playing out over the Biden Administration’s Build Back Better agenda.
Details describing the process of US government spending can be found in Chapter 1 “Don’t Think of a Household” in The Deficit Myth.
For a detailed legal description of how this works, the reader is encouraged to listen to the “This is How They Could Literally Mint a Trillion Dollar Coin” episode of Odd Lots. In this interview with legal scholar Rohan Grey, they provide the listener with extensive details about federal funding operations and how the debt ceiling disrupts this process.
Chapter 4 is called “Their Red Ink Is Our Black Ink”.
The topic of inflation is the subject matter of Chapter 2 “Think Inflation”.
Summaries of the taxing and borrowing functions are discussed in Chapter 1 “Don’t Think Like a Household”.
Margaret Thatcher, Speech to the Conservative Party Conference, Winter Gardens, Blackpool, UK, October 14, 1983, Margaret Thatcher Foundation, www.margaretthatcher.org/document/105454.
Fulwiler, Scott, Kelton, Stephanie, Ruetschlin, Catherine and Marshall Steinbaum. The Macroeconomic Effects of Student Debt Cancellation. The Levy Economics Institute of Bard College. February (2018). http://www.levyinstitute.org/pubs/rpr_2_6.pdf.
Hope, David and Limberg, Julian. The Economic Consequences of Major Tax Cuts for the Rich. International Inequalities Institute Working Papers (55). London School of Economics and Political Science, London, UK (2020).
Kelton, Stephanie. The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. New York, NY: Public Affairs Hachette Book Group (2020).
Weisenthal, Joe and Tracy Alloway. Odd Lots. This is how to Literally Mint a trillion Dollar Coin. Bloomberg. November 1, 2021. https://www.bloomberg.com/news/articles/2021-11-01/this-is-how-they-could-literally-mint-a-trillion-dollar-coin?srnd=oddlots-podcast.
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Kelton, S. (2022). How Are You Going to Pay for It? The Macroeconomic Benefits of Student Debt Cancellation. In: Wilson, B.C. (eds) Care, Climate, and Debt. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-96355-2_9
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-96354-5
Online ISBN: 978-3-030-96355-2