What if the Federal Deficit Didn’t Actually Matter?
The expectation of the Modern Monetary Theory
In response to the economic impact of the coronavirus (COVID-19) pandemic, Congress passed a $2.2 trillion stimulus package, transferring large amounts of cash to people in the form of both direct stimulus funds and an extra $600 on top of the unemployment checks they were due. It was an action antithetical to the typical spending policy trumpeted by Republicans and many Democrats, which treats government borrowing and spending as something to be avoided, in favor of always lowering the federal deficit and keeping the federal budget balanced.
The question that spells an end to so many policy proposals is “how will we pay for it?” But the support for the massive COVID-19 stimulus—and its success in forestalling the worst possible outcome of broad shutdowns—could cause more politicians to look at a different theory of spending: Modern Monetary Theory, once an obscure branch of economic thinking that’s been gaining mainstream attention. It asserts that (at the federal level, at least) we don’t need to ask how to pay for things: The money has always been there for the spending and always will be.
As one of the current champions of MMT, Stephanie Kelton, a professor of economics at Stony Brook University, former chief economist for the Democrats on the U.S. Senate Budget Committee, and economic advisor for Bernie Sanders in 2016, has taken on the daunting task of persuading Americans to think differently about how the government spends money. The unfounded fear of a deficit should not be one.
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