Debts and Deficits Debate

July 28, 2020

00:00:00

Debts and Deficits Debate

Be it resolved, debt and deficit fears are overblown as advanced economies address the COVID-19 pandemic.

The economic fallout from COVID-19 has compelled governments around the world to launch the largest fiscal and monetary aid programs in living memory. This is happening at the same time as a radical, new approach to economic policy making is gaining momentum: Modern Monetary Theory. Its proponents believe that governments, as issuers of their own currencies, are not limited by revenues they collect when it comes to spend. They argue governments should instead create and spend money on programs that are in the public good. Not to do so is a political, not an economic decision. Critics of “MMT” think it is based on a deeply flawed theory of money and how it works in the real economy. Rather than ushering in a new era of prosperity and economic opportunity MMT risks dooming advanced economies to soaring inflation, declining productivity, and currency debasement. In sum, there is no free lunch in economics.

“Virtually everything that we have been taught to think and fear about federal budget deficits and government debt is either misleading, incomplete, or just flat-out wrong.”

– Stephanie Kelton

“Making it possible for politicians to spend whatever they want, funded by the central bank, is going down a dangerous road.”

– Jacob Funk Kirkegaard