Whatever the deficit, if unemployment is rife, it’s an indication that aggregate demand is low; to boost demand, the government can freely spend, spend, spend — and should stop spending only when there is a danger that it will lead to a rise in prices — that is, inflation — not because deficits will soar. In practice, Kelton and other M.M.T.ers propose a federal jobs guarantee, in which the government would hire anyone who needs a job for a set wage. The policy, she argues, would promote full employment while keeping inflation stable.
M.M.T. is controversial even among left-leaning economists — Lawrence H. Summers, who once worked as Barack Obama’s director of the National Economic Council, has called it “a recipe for disaster” — and it’s easy for non-economists to get lost in the many technical debates surrounding the idea.
But one doesn’t need to buy into everything about M.M.T. to see Kelton’s fundamental point — that in the 40 years since Ronald Reagan won the White House, both the left and the right have been unnecessarily obsessed with deficits, to the detriment of the well-being of citizens.
The cruelest example of this mind-set occurred after the Great Recession in 2008. At the time, many experts suggested that an adequate response to the downturn would require the government to spend a trillion dollars or more to boost demand. Instead, Obama and his aides, worried about sticker shock, lowballed their stimulus, and millions of people remained unemployed.
In the decade since that recession, many economists and lawmakers have grown less worried about deficits, because red ink has not led to economic calamity. That’s to the good: Deficits are rarely questioned when lawmakers are spending on the military or on tax cuts for corporations, so it’s only fair that they aren’t constrained by deficits when spending on things like health care, child care and education.
And right now, in the midst of a pandemic, the economy needs as much help as it can get. In March, Congress passed and the president signed the CARES Act, which provided more than $2 trillion in economic stimulus. Studies show that it has had a remarkable effect — despite a steep increase in unemployment due to the virus, the expansion in aid prevented a rise in poverty.