Thread by @DeficitOwls

It's Day 4 of our online book club for @StephanieKelton's The Deficit Myth!

Today we're reading Chapter 4, and we'll post highlights below. Read along and post your favorite parts with the hashtag #TheDeficitMyth.

Happy reading🦉...

Chapter 4 is about sectoral balances and "crowding out." Kelton says that the crowding out myth is more technical and wonky than the prior myths, but still commonplace, dangerous, and wrong. #TheDeficitMyth

Wynne Godley was an avid oboe player. #TheDeficitMyth

Kelton compares sectoral balances to Newton's law of motion: for every action there is a reaction, and for every deficit there is a surplus. #TheDeficitMyth

"Their red ink is our black ink." "Deficits can be too big but they can also be too small." #TheDeficitMyth

During the Clinton surpluses, "the government’s black ink became our red ink!" #TheDeficitMyth

"To improve the public discourse, we need to think like a deficit owl." #TheDeficitMyth

That's right!!!🦉🦉🦉

"MMT rejects the loanable funds story, which is rooted in the idea that borrowing is limited by access to scarce financial resources. As MMT economist Scott Fullwiler put it, the conventional 'analysis is simply inconsistent with how the modern financial system actually works.'"

"So, what is the relationship between deficits and interest rates? In one respect, there’s an indisputable answer. Deficits push the overnight interest rate down." #TheDeficitMyth

"Selling bonds to private investors gives the impression—illusion—that the government is dependent on savers for financing and that financial markets can force the government to borrow on terms set by private lenders. That’s not how it works in practice." #TheDeficitMyth

"The BOJ’s policy clearly demonstrates that the central bank can set both short-term and long-term interest rates, even as government borrowing rises." #TheDeficitMyth

"The simple crowding-out story was built for a world that no longer exists."

IMO it's actually worse than that, the crowding-out story is just a fallacy. Fixed exchange rate currencies see interest rates spike after deficits because of entirely different mechanisms.

Kelton closes by arguing that gov deficits can actually crowd-*in* private investment, by raising private profits.

That's it for Chapter 4, tune in tomorrow for Chapter 5! #TheDeficitMyth