Thread by @DeficitOwls

It's Day 2 of our online book club for @StephanieKelton's The Deficit Myth!

Today we're reading Chapter 2, and we'll post highlights below. Read along and post your favorite parts with the hashtag #TheDeficitMyth!

Happy reading🦉...

Chapter 2 is about inflation. While recounting her work on the Senate Budget Committee, Kelton refers to Congress as "the sausage factory" lol. #TheDeficitMyth

"A fiscal deficit isn’t evidence of overspending. For evidence of overspending, we must think of inflation." #TheDeficitMyth

Before diving in to causes, types, and how to stop inflation, Kelton notes that the world is currently plagued with the opposite problem, that of inflation being "too low," below the target of policymakers worldwide. And yet we worry so much about inflation! #TheDeficitMyth

"Once the economy hits this full employment wall, any additional spending (not just government spending) will be inflationary. That’s overspending, and it can even happen if the government’s budget is balanced or in surplus." #TheDeficitMyth

Hearing Kelton recount the "natural rate of unemployment" story that guides current policy really reminds you just how ridiculous the whole thing is. The reason they always turn out to be wrong about where the NAIRU was is because it doesn't exist! #TheDeficitMyth

"To put it crudely, the Fed uses unemployed human beings as its primary weapon against inflation." #TheDeficitMyth

"As former Fed governor Daniel Tarullo confessed, the Fed has no reliable theory of inflation guiding its day-to-day decision-making... It’s all something of a guessing game, where people’s lives are on the line." #TheDeficitMyth

Whoa, Kelton taking off the kid gloves here! #TheDeficitMyth

I think that's a KO!! #TheDeficitMyth

Unemployment is "like leaving money on the table in the sense that every person who could have been employed, performing useful tasks for society, is forever lost to us. A sort of free lunch not eaten." #TheDeficitMyth

Kelton describes Lerner's original conception of Functional Finance, but carefully notes that while MMT draws inspiration from Lerner, it changes and updates FF as well. Hopefully Krugman is paying attention! #TheDeficitMyth

"MMT reckons that since the government imposes the tax that causes people to look for ways to earn the currency, the government should make sure that there is always a way to earn the currency."

I don't think I've ever seen this spelled out so clearly! #TheDeficitMyth

This chapter really emphasizes how central the Job Guarantee is to MMT's approach to inflation control, which is great. Too many lay critics walk away from 'intro to MMT' articles thinking that we're saying taxes should be adjusted in real time to prevent all inflation. We're not

Side note: Kelton argues we should "turn PAYGO on its head" by considering inflation risk rather than budget deficits. But ironically, this is exactly what "pay-as-you-go" meant during WW2: that we use taxes to close the "inflationary gap." See p.8 here: global-isp.org/wp-content/upl…

Finally, Kelton argues that while Congress has the "great responsibility" to prevent inflation, they also have the responsibility to use their "great power" for good, i.e. to prevent unemployment.

Join us tomorrow for Chapter 3! #TheDeficitMyth