This Economist Wants to Change the Meaning of Money
WHY YOU SHOULD CARE
Because her view on economics is gaining traction on the left.
Imagine an end to Washington spending wars that leave filibustering senators blue in the face. Economist Stephanie Kelton does. She sees a world where the federal government can build a big, beautiful social safety net, strengthen the military and, for good measure, cut taxes on the rich. The government, in her eyes, can spend as much as it wants on anything without the bill coming due. Welcome to Modern Monetary Theory — a bizarro world that might not be as far-fetched as it sounds.
The quick-witted, passionate professor of economics at Stony Brook University in New York has done more than almost anyone to popularize the theory known as MMT, bursting onto the national scene as Bernie Sanders’ chief economist during the 2016 presidential campaign. Now she’s beating the drum at a time when government shutdown brinkmanship is the norm because of spending fights. With the activist left increasingly driving Democratic politics in the age of Donald Trump, Kelton’s ideas will become increasingly relevant as the midterms heat up and the 2020 presidential race takes shape. And Kelton insists there’s a lot for populist conservatives to love here too.
I worked really hard to persuade [Sanders] that we shouldn’t play into the idea that there’s a debt crisis.
The U.S. has a “fiat money” system, meaning the government creates all money and puts it into circulation. MMT argues the government can never run out of money because it can always create more. If demand ever becomes greater than supply, prices spike, but taxes are used strategically to temper spending and keep inflation in check. Forget balancing the budget and the tax code as we know it. “How do you know you don’t need tax cuts to pay for Medicare-for-all?” Kelton says, only half-joking.
That’s where the potential bipartisan appeal comes in. Breitbart News’ John Carney, formerly of CNBC and The Wall Street Journal, has written respectfully of MMT literature — including Kelton’s blog, New Economic Perspectives — as thoughtful sources of “nitty-gritty details” of monetary policy. New York Times conservative columnist Ross Douthat has indicated some sympathy toward aspects of MMT thinking. But at this point, MMT’s foothold lies primarily with the radical liberal crowd.
Kelton, 48, grew up a military brat, bouncing among California, Illinois and North Carolina along with her father’s Air Force career. Kelton thought she would be a lawyer or an accountant but developed a keen interest in economics at California State University, Sacramento, where she took History of Economic Thought with professor John Henry, who quickly spotted a star pupil. “She was able to extract the theoretical core of every argument,” Henry says. Later, Kelton worked at the Levy Economics Institute and then the University of Missouri-Kansas City, where she, Henry and several other like-minded economists honed the tenets of MMT. “It takes a while to feel like you can really run with the boys,” Kelton says, but she is much more comfortable as an economist today.
Kelton admits that her unconventional ideas occasionally make her feel left out of the larger economic conversation — Stony Brook is a ways from the Ivy League — though it hasn’t slowed her down. After writing several academic papers on the theory, she has made a concerted effort to bring MMT to the mainstream through her blog and social media — including 32,000 Twitter followers. “There wasn’t really MMT before I got involved,” she says proudly.
Her association with Sanders only raised its profile, though Kelton says she just nudged the left-wing presidential hopeful and did not directly advise him to embrace MMT. Kelton got on his radar by participating in a Sanders advisory panel on reforming the Fed, then went to work for him on the Senate Budget Committee in 2015 before joining his presidential campaign. “I worked really hard to persuade [Sanders] that we shouldn’t play into the idea that there’s a debt crisis,” Kelton says. While Sanders was keen on government-funded health care and college for all without the budgetary constraints of Hillary Clinton’s plans, he never completely let loose and embraced MMT.
The theory draws heated criticism, even among liberals. Progressive economist Thomas Palley believes MMT is a needed antidote to budget hawks, but its theoretical arguments don’t add up. “It would likely promote dangerous asset price inflation and financial instability, which would come back to haunt us,” Palley explains. And if you strip away these flaws, you’re left with standard Keynesian economics, a seasoned school of thought. “MMT adds nothing new to economic theory,” Palley says.
But Kelton argues that MMT offers a novel remedy for America’s soaring income inequality. The typical liberal proposal to level the playing field is raise taxes on the richest, while conservatives naturally resist tax hikes. “We need to separate these fights,” Kelton says. “Concentration of wealth is bad for the economy, but [the wealthy] don’t have to be the ones to pay for it.”
In her rare breaks from teaching, writing and travel, Kelton enjoys hosting cookouts and going on kayak trips with her Stony Brook history professor husband, two kids and fluffy Samoyed dog, Ozzy. As her profile grows with each media hit, she’s hoping to push MMT further into the mainstream with a book due out in March 2019. Come 2020 and beyond, Kelton is keeping her political options open. The question is whether a White House hopeful is willing to take Sanders’ policies to the next limitless level.