The Deficit Myth
This is one of those books that I’ve always heard a lot about. My interest in economics have always been there, having taken a bunch of classes in college in macroeconomics, and the first few times I heard about Modern Monetary Theory (MMT), it made intuitive sense to me, but wishing to get more of my bearings about it correct, I seeked out this book to read more about it.
In basics, everyone thinks that a country’s economics is much like their own personal economics. You cannot spend more money than you make, and you have to be fiscally prudent about how you spend money, or else you’ll suffer bad consequences, aka borrow money at a high interest rate, or perhaps even go bankrupt. In reality, a countries economics is almost nothing like that of a small household, just like corporate economics is nothing like a small households, but the belief stays around because most people do not want to go learn beyond what they already know.
This book dispels quite a lot of those myths, starting with the fact that the currency issuer (in this case, the USA govt) does not have to do anything to repay loans other than insert 0’s in their computers!
Its not quite as simple as that obviously, but the threat of the “deficit” in terms that a “loan” would be to a household is about as accurate as saying that a dead leaf on the ground is anything like that of a giraffe. They both have carbon, and really that’s about it.
The first few chapters goes over what MMT is about, and how it works. In these chapters, there’s very little to dispute. Ever since the USA has moved away from gold backed monetary standards, fiat money is fiat money. The country gets to issue as much or as little money as possible, and whatever is taxed back to the govt is not really spent, but merely removing money away from circulation. Too much money in circulation is a bad thing because it leads to inflation, and as much as possible, the currency issuer tries not to cause inflation or deflation.
Once you understand why the economics of a currency issuer is different from that of a household, you realize that a lot of the issues that folks brings up, like “deficit is bad” or “we can’t possibly afford x” becomes a silly political game. Its not really about whether we, as a country, can afford something, its more about what is politically possible!
Note that this is mostly true only of tier 1 currency issuer, of which, only the USA belongs to. All other currency issuer does not quite have the same leverage as the reserve currency of the world. Its also the main reason you see why countries like China tries so hard to dethrone the USA as the reserve currency of the world (and you also realize why its not going to work, because frankly, who wants Chinese Yuan over the US Dollar?).
The rest of the book goes into the policies that CAN happen once you understand what being the reserve currency of the world means. And that’s where a lot of the controversies of MMT begins. Its not controversial in the least about what can happen, but this is as usual, where the divide between liberal and conservative viewpoints springs up.
I’d say this book should be required reading for all politicians and everyone who aspires to economic policy bigger than that of a household. Whether you agree with the policies that necessarily stems from understanding MMT is a separate issue. A lot of the worth of the US Dollar stems from the incredible economy of the USA AND the fact that the USA has more armaments than the next 26 nations combined. And the fact that its still mostly a democratic country that respects the rule of laws. Whether that will be true come past 2028, who knows, but for now, its still true.
Highly recommended. The author narrates the book, and the book is structured in a way that most high school seniors and juniors could understand.