Stephanie Kelton, guest speaker at Ruffer’s Family Office Conference in November 2019, is a leading authority on Modern Monetary Theory.
She is Professor of Economics and Public Policy at Stony Brook University, and has been a Senior Economic Advisor to Bernie Sanders’ campaigns for US president. Kelton sees Modern Monetary Theory as a disruptive force. It isn’t just “changing the answers that economists have been giving for many decades – it’s changing the questions”. Ed Roe, an Investment Associate at Ruffer, presents some of the highlights from Kelton’s address to the conference. Her views are not Ruffer’s, but we value the challenge and different perspective they bring.
This piece was written in late 2019 and published before the outbreak of the coronavirus pandemic.
Years have happened in the last few months. Unemployment has soared to the highest level since World War II, locked-down businesses are fighting for survival and livelihoods have vanished almost overnight.
In response, central banks have launched a tsunami of monetary stimulus and government cheque books have been blown open to help plug the gap.
The ideas at the heart Stephanie Kelton’s Modern Monetary Theory are being put to the test, sooner perhaps than anybody might have predicted.
To understand MMT, Professor Stephanie Kelton argues, we must address a myth about government financing.
Mainstream economic thought runs something like this. To be able to spend money, governments must first raise funds from elsewhere, through taxation or borrowing.
From this comes a familiar call and response. A politician proposes an increase in spending; “who’s going to pay for it?” comes the reply. Cue cat-fighting and political mud-slinging.
This back-and-forth assumes that, for a politician to spend another dollar, they must demonstrate a credible plan to take a dollar out of the economy. MMT says this isn’t the case. In the MMT view, governments spend money that the central bank creates, then they tax and borrow some of it back.
Before you or I can use dollars, euros or pounds to settle tax obligations, this money has to come from somewhere. The government has to “spend the money into existence”. Kelton uses a story from Warren Mosler, another prominent figure in the development of MMT, to illustrate her point.