Economist blows a hole into deficit myth: It’s like the last 30 years of history didn’t happen.

Economic Professor Stephanie Kelton makes it clear that holding policy hostage to budget deficits is makes absolutely no sense.

Economic Professor Stephanie Kelton clarifies that holding policy hostage to budget deficits makes absolutely no sense.

The author of the book “The Deficit Myth,” Economist Stephanie Kelton, made no bones about the deficit v. fiscal policy. Fareed Zakaria asked the professor to explain her statement about those who use the deficit as a weapon. She stated that it was as if the last 30 years did not happen in that regard.

Kelton said that Americans had been programmed to believe that budget deficits are inherently irresponsible. They generally think it is OK doing a time of crisis. She said that in normal times, they want deficits avoided. They claim the budget is like our personal budgets, and driving it up increases inflation and has negative economic consequences. She said the last 30 years should blow up that myth.

Countries like the United States and Japan had run up huge deficits over the last 30 or 40 years with no discernible adverse inflationary effects.

“The US has been running fiscal deficits basically my entire life with the exception of really 4 years during the Clinton presidency,” Kelton said. “And we have just witnessed during the last 18 months or so, Congress has committed about $5 trillion to fight the pandemic, supporting the economy, and what did we end up with? We ended up with the shortest recession in US history.”

One only gets inflation when there is a shortage of products and services. We teach that in business school, but too often, we extrapolate that reality to unfounded concepts. Modern Monetary Theory is no theory. It has been our economic experience.