Book Review | The Deficit Myth by Stephanie Kelton

How I got Here
I picked up this book after watching a friend’s instagram story where he claimed that after reading this book, Joe Biden’s 2 trillion dollar climate plan made a lot of sense. I disagree, and thought I’d read the book because I wanted to experience cognitive dissonance.

The Thesis
The thesis of Modern Monetary Theory (MMT) is that currency issuing countries that hold debt denominated in their own currency can print money at any point to make all the debt go away.

MMTers see (currency issuing) government debt as an irrelevant metric to measure financial stability instead opting to view economic health through the lens of how much inflation a country is experiencing. They’ll argue that we should print as much money as we can before causing a big inflation problem to get massive public works projects underway (employing everyone possible through a federal jobs guarantee) and that taxes are not meant to fund the government, only to reduce the spending power of citizens.

The Good
This book makes great points and, because of the credentials of the author and how well structured the arguments are, is very persuasive.

I agree that this is how the government is operating now (spend and print as much money as you want, the debt doesn’t matter as much as people think because the government is not a currency user it is an issuer).

The Bad
However, I disagree that MMT is a reasonable path forward.

Forgetting the Loserthink that demonizes politicians by reading their inner thoughts like:

“Lawmakers can feign empathy with their constituents while claiming their hands are tied by the deficit. If they couldn’t hide behind the deficit myth what excuse would they use to justify withholding support?”

the real problem with the MMT philosophy is the obvious black swan hyperinflation risk it creates.

Stephanie admits in the book that printing tons of money will eventually lead to inflation (she just thinks that we’re far from that point – we’re a “6 foot man hunched over in a home with 8 foot ceilings”. Which is totally possible – she would know better than I would). What we likely disagree on is the effectiveness of the government or any group of people to appropriately predict what the outcomes of pulling all these different levers (interest rates, printing more money, artificially creating full employment, etc). We’ll only need to get it wrong a few times (with very different people controlling this massive responsibility for the rest of America in time) to really mess things up.

The ultimate irony occurs when Stephanie is railing against the US’s failing infrastructure pointing to a dam (that was recently inspected and given a review noting the fragility to a low probability catastrophic event) burst and killed a man and destroyed his home when that low probability catastrophic event came true.

MMT is the dam. MMTers are the inspectors. And the water coming to flood our homes is hyperinflation.

MMTers will tell you that the chance of hyperinflation is low and that they’ll create robust government systems (paradox?) to avoid it, but by the time we’ve spent hundreds of trillions dollars on projects that don’t need to ROI it will be too late to turn back.

The Bitcoin
*gets on soapbox*

“Well Rhett, if you don’t like how unpredictable the money supply from the US government is that’s too bad, there’s no alternative.” – They

If only there was a way to convert my unknown supply dollars to a fixed supply asset that adds new supply to the system in a programmatic, predictable, public way and doesn’t take decision making advice from lobbyists.

Stay away from They.

*stays on soapbox until the soapbox is on the moon*

The Conclusion

Yuppies who fantasize about one upping their friends with political / economic knowledge at dinner parties should read this book because upcoming policy debates are no doubt going to come down to your feelings on MMT. If nothing else, it will make you think differently about the problems the country faces.

The 2 trillion dollar stimulus (so far) and the proposed 2 trillion dollar climate plan are 4 trillion more reasons to buy bitcoin.

(None of this is financial advice)