The Deficit Myth

"Where will the money come from?" The Deficit Myth argues we’ve been asking the wrong question all along. It’s not about limits on money but about our collective resources and vision.

1. Governments Shouldn't Be Compared to Households

Many believe governments should budget like families, balancing expenses with income, but this analogy falls short. Unlike households, governments create money. This sovereign currency-issuing power changes how we should think about public finances.

Modern Monetary Theory (MMT) challenges the traditional taxing-then-spending model. Taxes and borrowing don’t fund government spending; the government spends first, injecting money into circulation. For taxation or borrowing to happen, the money must already exist in the economy.

When governments issue their currency, they’re less constrained financially than private entities. While inflation is a concern, the fear of bankruptcy or "running out of money" doesn’t match economic reality.

Examples

• The Federal Reserve creates money through printing bills or digital entries.
• US dollars circulated first when governments began spending, not taxing.
• Many politicians argue for family-style budgeting, though this ignores monetary sovereignty.

2. Deficits Are Not Dangerous, Inflation Is

The national deficit often sparks heated debates, with some fearing its growth spells disaster. However, deficits signal investment in the economy rather than reckless spending. What matters is managing inflation.

Deficits occur when governments spend more than they collect in taxes, and MMT argues this imbalance isn’t inherently harmful. For instance, during economic downturns, deficit spending can stimulate recovery. The 2008 stimulus package demonstrated this by jumpstarting markets even when it created substantial deficits.

Inflation becomes a risk when excess spending overheats the economy, but governments can control this by adjusting tax rates or managing public programs to realign supply with demand.

Examples

• Many Republicans critique deficits like businesses overspending, which misrepresents government capabilities.
• The $787 billion recovery bill post-2008 helped stabilize markets despite public debt concerns.
• Governments can tax those hoarding wealth to reduce inflationary pressure.

3. National Debt Doesn't Threaten the Economy

The growing national debt prompts fears of economic collapse, but MMT assures us it’s not the foreboding disaster many believe. Debt primarily reflects the amount of money issued as bonds, often serving as productive private assets.

Debt functions differently for governments than individuals or businesses. It doesn’t necessarily have to be repaid and serves as an economic tool. Historically, the US economy has even struggled when the government attempts strict debt reduction policies, often leading to recessions.

This reframing shifts the focus from reducing debt to ensuring economic growth through calculated monetary strategies.

Examples

• The US owes trillions, but this reflects assets added to the private sector.
• The National Debt Clock symbolizes fear rather than financial understanding.
• Tight government budgets historically caused economic recessions.

4. Government Deficits Add to Public Wealth

Contrary to common fears, a government’s deficit spending benefits society by transferring financial resources into the economy. When public spending creates deficits, it often supports essential services and enriches communities.

Think of government and private sectors as interconnected buckets, moving money back and forth. When the government spends more than it taxes, it leaves more money circulating in private sectors. This is how public deficits become private wealth.

However, how this wealth is distributed matters. Broad public investment, like in education or healthcare, enhances well-being for all, while targeted tax breaks for the rich exacerbate inequality.

Examples

• The "crowding-out" myth wrongly assumes public deficits drain private enterprise.
• Tax cuts for the wealthy concentrate benefits for elite groups, unlike universal education spending.
• Surplus-generating austerity leaves limited funds circulating publicly.

5. Social Programs Are Sustainable

Social Security, Medicare, and Medicaid often come under fire for their costs. Critics argue these programs aren't fiscally viable, but MMT shows their sustainability hinges on political choice, not financial feasibility.

Given governments issue currency, these programs can always be funded. Issues arise if their operations outpace the economy’s productive capacity, like needing more hospitals or doctors. Yet these expansions are long-term investments that benefit everyone.

By redefining these programs as societal priorities, we can sustain them indefinitely while raising standards of living.

Examples

• Payroll taxes unnecessarily constrain Social Security funding.
• In 2005, Alan Greenspan noted governments could create money if needed for Social Security.
• Additional doctors or facilities from Medicare expansion enrich healthcare access.

6. Trade Deficits Are Often Misunderstood

Politicians often bemoan trade deficits, accusing other nations of "stealing" money. However, imports and exports create valuable exchanges. A deficit doesn’t necessarily weaken economies if domestic industries remain resilient.

Trade deficits occur when goods are imported more than exported, causing some money to leave the local economy. Yet these imported goods also fulfill needs and drive productivity. Governments can offset these outflows by boosting domestic investments and jobs.

Rather than forcing trade "wins," nations should focus on balancing domestic labor and investments to create lasting economic strength.

Examples

• Donald Trump’s trade war rhetoric misunderstood import-export dynamics.
• The US imports more from China but receives valuable goods and technologies.
• Federal job guarantees revitalizing domestic industries can counter trade effects.

7. Focus on Real-Life Deficiencies, Not Budget Deficits

While leaders obsess over budget deficits, real-world problems worsen. MMT proposes shifting national priorities from financial ledgers to actual public needs.

Unemployment, weak income growth, and inadequate savings plague millions. An inflated focus on cost-cutting leaves infrastructure crumbling and climate policies underfunded. MMT urges legislators to address actual resource shortages and societal gaps.

By reorienting government goals to solve these tangible problems, economies grow stronger while gaps between resources and needs shrink.

Examples

• The average US worker’s pay stagnated since the 1970s despite productivity increases.
• 200 million Americans lack meaningful retirement savings.
• Small towns suffer high unemployment long after the Great Recession.

8. The Economy Reflects Our Vision

Like Apollo’s moon missions, large-scale projects prove governments can focus on goals without fearing costs. MMT argues societies should define priorities, then direct resources toward those outcomes.

Governments control the currency supply and can allocate funds to expansive, visionary goals. Whether implementing jobs guarantees or fighting climate change, bold investments provide societal and economic benefits while redefining resource use.

Success depends on managing productive capacity and inflation, not penny-pinching over monetary constraints.

Examples

• Kennedy’s moon landing speech never questioned funding viability, only resource needs.
• Federal job guarantees improve infrastructure and stabilize labor markets.
• Renewable energy projects funded federally help mitigate climate crises.

9. Monetary Sovereignty Offers Unlimited Possibilities

MMT reframes traditional economics, empowering governments to think bigger. With the ability to issue currency, monetary sovereign states can push boundaries, fix deficiencies, and transform society.

Instead of letting accounting rules dictate what's possible, societies can prioritize ambitious goals like universal healthcare, affordable education, and greener infrastructure. Policymakers must focus on real-world resources and inflation, but the path to better futures is open.

With this model, economics shifts from constraint to empowerment, showing that possibilities stretch as far as collective imagination allows.

Examples

• Modern Monetary Theory dismantles limits imposed by traditional economics.
• Universal healthcare becomes viable with coordinated political and fiscal action.
• Carbon-neutral economies align with resource availability, funded flexibly.

Takeaways

1. Break free from the illusion of government "debt" as a problem; instead, examine public spending’s real-world impacts.
2. Advocate for broad public investment focusing on healthcare, education, and jobs guarantees to improve quality of life across communities.
3. Prioritize robust projects addressing climate change and basic needs, using modern monetary policies to bypass outdated financial fears.