Stephanie Kelton Wants You to Ask: ‘What Does a Good Economy Look Like?’
It’s rare for a fiscal policy wonk to attain political celebrity status, but economist Stephanie Kelton, a professor at Stony Brook University in New York, is one of the hottest names in Washington right now. Though her ideas were considered radical just a few years ago (Paul Krugman flatly rejected the premise of her research in a 2011 New York Times column), several of the policies she helped popularize, such as nationwide student debt cancellation and a federal jobs guarantee, have become hallmarks of emerging progressive ideology, championed by politicians like Democratic House nominee Alexandria Ocasio-Cortez, Senator Kirsten Gillibrand, and Senator Bernie Sanders. (Kelton served as Sanders’ chief economic adviser during his 2016 presidential run.)
At 48, Kelton is a fast, earnest speaker eager to explain her ideas to anyone who asks. She packs conference halls (even a sports arena, in one case), appears regularly on MSNBC, cultivates a robust Twitter presence, and even lists her cellphone number on her website for journalists on a deadline—although lately, she’s been fielding just as many calls from political candidates seeking her counsel. “I’ve spent the whole summer on Skype with an awful lot of people running for office,” she says brightly. “They’re reaching out because they want to get the economics right, which is so heartening.”
Getting the economics right is, of course, how Kelton’s star rose in the first place. Kelton is one of the leading proponents of Modern Monetary Theory, or MMT, named for its focus on governments’ ability to manage the value of their currency. More specifically, she argues that countries like the U.S., which control their own currencies, don’t function like a traditional family or business budgets where income (taxes) should equal output (spending). Instead, the government has the power to print the money it needs for sweeping, economy-boosting projects, and resulting budget deficits would not be the bogeyman people believe them to be. And what about the threat of runaway inflation, the most common critique of increased government spending? According to Kelton, it would be avoided if the country had a more stable, sustainable economic system.
We spoke with Kelton about her latest work, her role in the upcoming election cycle, and her vision of a balanced economy.
A lot of policymakers and economists formerly considered your ideas to be very radical—what changed their minds?
A few things. One is that, at a certain point, being right matters. Another was getting our ideas out there. When we started using social media, people started to pay more attention to us. In 2009, during the Great Recession, I launched the New Economic Perspectives blog because we wanted a voice in the debates happening at the time. A lot of economists, politicians, journalists, and pundits were saying the U.S. was going to end up like Greece because the recession caused a sharp increase in budget deficits and that was going to drive up inflation. And we were saying, ‘That’s incorrect. Here’s how it really works.’ People started to take us and our work more seriously because we kept getting big things right that others were getting wrong. We also predicted the failure of austerity measures in Europe. Having a good track record with real-world events made people listen.
It’s not really your job to explain economic theory to the public. But how can other people—say, politicians—explain the concepts of MMT to voters who many not necessarily even want to listen?
You’re right, it’s not necessarily my job to persuade average people. But I feel like it’s my responsibility, because when policymakers make decisions that are grounded in a bad understanding of the way government budgets operate, it affects us all. For politicians, the challenge is really on them. Some of them ask me for specific advice on how to talk about debt and deficits, and my first answer is, ‘Don’t.’ The broad public reaction to those words tends to be negative, so my first rule of thumb is don’t bring it up. Do no harm. If somebody poses a question to you, and they inevitably will—‘Oh, what about the debt?’—then you’ve got to find ways to deal with it. I don’t think there’s a cookie-cutter response.
When you get that question, how do you respond?
I say, ‘Look, the purpose of the government’s budget ought to be to balance broad conditions in our economy.’ We are so obsessed with balancing the federal budget, but that’s not the right policy goal; the right policy goal is to achieve a good economy. So, what does a good economy look like? It’s not imbalanced like the economy we have today. It’s not an economy where the concentration of wealth is rivaling where we were in the 1920s, where the top tenth of the top 1 percent owns the same share of wealth as the bottom 90 percent combined. It’s not an economy where the median worker hasn’t seen a wage increase in real terms for more than a generation.
It all comes down to this: What kind of a world do we want to create for ourselves? We could eliminate poverty. We could manage our impact on the climate. And if we use the government’s budget to achieve those goals and there’s no inflation problem, who cares if the deficit is 4.5 or 2.1 percent of gross domestic product? That number is irrelevant.
A lot of people get nervous about the concept of government intervening with the economy. How do you package these ideas and make them palatable to people who fear “big government”?
MMT has always made a point of doing two things: First and foremost, we’re just describing the way things operate. ‘This is how the federal budget works. This is what deficits really do. This is what the national debt really is.’ It’s a descriptive exercise.
Politically, we also happen to be progressive. So, we take our understanding of how the monetary system operates and argue in favor of a progressive agenda. But you could just as easily take our understanding of how things work and argue in favor of small government. Our belief is that the federal government has more space to expand the size of its balance sheet, or to increase spending, or to cut taxes, whatever your politics prefer.
Another way to explain it is we’re currently living beneath our means. Right now, people believe that budget deficits reflect living beyond your means. But the evidence of that would be an inflation problem, which we don’t have. If you’ve got the space to either cut taxes or raise spending without causing inflation, and doing so would boost economic activity, why wouldn’t you do that? If you have people who want to work, and you don’t employ them, then you’re wasting their energy, talent, and willingness to participate. Whether you’re a Republican or a Democrat, you should be opposed to economic inefficiency and lost output.
Speaking of living beyond your means, how do you establish the limits to government spending if deficits aren’t an issue? And who makes sure those limits are observed?
Sometimes people will say, ‘Well, according to MMT, there are no limits.’ No. Just because you can produce more doesn’t mean you should. There are sustainability conditions, both environmental and economic, that provide limits. Every economy has its own maximum speed. The labor force is only so big. There are only so many people who can and will work. Your capital is only so much. As for enforcing those limits: That’s the job of the Congressional Budget Office. Their job is function as the scorekeeper, or the watchdog, and provide helpful feedback whenever Congress proposes a spending bill, at least in theory.
The idea of a federal jobs guarantee program has been picking up steam lately and legislation is in the works. Can you describe what that bill would look like?
I can’t tell you what the bill will look like, exactly. But I can tell you in general terms what a federal job guarantee should have. It needs to be universal and permanent. That means it’s not something we introduce in certain regions when the economy is weak, but then eliminate after the economy recovers. It means Americans always have a right to a job if they wish to have one, period.
The bill I am currently working on proposes that public service employment would offer benefits, including health care and retirement. It may also include child care. It would be federally funded, but ideally, those jobs would be bubbling up from the communities where the unemployment exists, so that local people can say, ‘Here’s what this community needs.’ Then those communities would work with their local and state governments to design the projects that those jobs would support, and the Department of Labor would provide oversight at the highest level.
The Republican Party is taking credit for current economic growth and lower unemployment rates and claiming that it’s a product of the new tax cuts and trade policies. How would you describe the current state of the economy?
We’re currently into something like the hundredth month of an economic recovery that began back in June of 2009. What’s marked this recovery is how uneven it has been, and not just since Donald Trump got elected. Those in tech industries, coastal regions, and areas that were already well off have recovered a lot. But there are still millions of people in communities across the country who feel like the recovery didn’t happen for them. I’m concerned about those people, who continue to live in a precarious financial state, paycheck to paycheck. I’m also concerned about financial deregulation. We’re chipping away at the safeguards that were put in place and unleashing big finance to begin engaging in the same risk-taking that drove the last crisis. That worries me a lot.
Does it ever feel difficult to balance the chaos of the political climate with your academic work?
I’m really not cognizant of the politics when I’m doing the academic work. We try to make it more of a neutral exercise, a series of “what-ifs.” You’re looking for the right answers, not the answers that will best position the party that you happen to hope will win.
Are there any candidates whom you’re particularly excited about right now?
I was on the phone with Alexandria Ocasio-Cortez back in February, way before anyone was paying much attention to her, and there was something about her that struck me. She had a real interest in the student debt report that we had written, and I found her curiosity inspiring. Not a lot of people are open to different ways of talking and thinking about economic questions, but she certainly was.