The Guardian has done us all a service with this editorial (The Guardian view on Covid-19 economics: the austerity con of deficit hysteria, 14 July). I am reading Stephanie Kelton’s book and I believe that it may start a revolution in economic policy.
Prof Kelton’s concern is not the government financial deficit – the balance between taxes and government spending – but the deficits and imbalance in the real economy such as unemployment and housing shortages. Modern monetary theory (MMT) suggests that governments which issue their own money cannot “go broke”.
Prof Kelton uses chapter 2 to discuss the main problem – inflation. If the real resources are not available then more government spending on, say, housing, will just cause inflation. It should be possible to target “extra” government spending on those parts of the economy where there are unused resources. Could there be “housing pounds” issued to local councils or construction firms which can only be used for housebuilding? Or “Yorkshire pounds” that can only be spent in Yorkshire? Problems are there to be dealt with – if a Sheffield construction firm needed bricks from Peterborough, then some mechanism would have to be derived to allow for such purchases of essential material.
Prof Kelton’s work will provide material for some serious thought into the difficulties of implementing MMT, but if the difficulties can be overcome then we will all benefit.
Lecturer in economics, Nottingham Trent University
• Re your editorial, there is much truth in the problem of defining economics as somewhere between belief and science. It’s probably also partly an art, as decisions have to be made on the basis of past understanding and future hopes and current intentions, where the past and the future collide – exactly what happens when I paint. We saw the problems with regarding it as a science in 2008 when the models failed, partly because they ignored the effect of humans.
My preferred model is Kate Raworth’s doughnut economics, which makes sense to me because it provides a clear grasp of all of the elements at work and sets them in the context of the world, and its people, as a whole. At least Thatcher’s “household economics” model seems to have been laid to rest, at last.