The Deficit Myth criticism – first go

There have been a couple of reviews in the Telegraph on Stephanie Kelton’s book ‘The Deficit Myth’ – this one is from June (yes, I really don’t read the Telegraph that frequently) from regular BBC and Telegraph commentator, Roger Bootle. What is probably most interesting of all is what he admits – and then especially what he ignores or misunderstands.


The book was dangerous even before coronavirus struck, but it is even more so now.

He doen’t say dangerous to whom – but I begin to feel encouraged already… he continues:

In fact, the propositions espoused by Professor Kelton are a peculiar mixture of truths, half-truths and downright falsehoods. That’s precisely what makes the book so dangerous. Ready embrace of the bits that are true may seduce you into believing the bits that aren’t.

Tellingly he appears to make no direct mention of the ‘bits that aren’t’. But at least he agrees that:

increasing the deficit doesn’t make future generations poorer and reducing deficits won’t make them any richer. 

Mind you, this doesn’t mean that there aren’t potential problems for future generations as a result of fiscal largesse because, unless governments resort to inflation, other things equal, higher debt means higher interest payments that have to be financed somehow or other. In the end, they are financed out of reduced spending or increased taxation. Taxes distort and depress incentives and hence economic growth. So having a setup that implies more taxes in future is hardly to be recommended. 

Here he’s suggesting he’s never heard of Quantitative Easing (QE) where government instructs the Bank of England – the government’s wholly owned bank, to buy the government’s own debt. Taxes depress economic growth – but when you are spending money so as to ensure all the productive capacity of the economy is engaged, rather than as now – when there is always un- or under- employment, taxes reflect that enhanced economic activity. That is the Modern Monetary Theory (MMT) difference he has missed. Then of course he admits that he does know about QE (in which case why didn’t he mention it with the ‘debt’ above?) and continues…

They have issued bonds, which central banks have then bought and, in the process, created money. But so what? …. the institutional barriers surrounding government access to the money printing press can seem arcane. Nevertheless, they are critically important for preventing inflation…..

….So what is she saying? She seems to be claiming that MMT provides a new theoretical framework. Yet it would be pretty extraordinary if the basic theory concerning the public finances, money creation and inflation were to be proved wrong in 2020.

But although Stephanie Kelton tells us in the book, Bootle doesn’t tell us how or why he considers bonds and money creation important. Does that mean he agrees with MMT? The basic theory concerning public finances changed, or were ‘proved wrong’ as he says, in 2007/8. He doesn’t make clear what he thinks is now the case.

He claims she says:

“Of course, MMT recognises that deficits can also be too big.” Well, that’s a relief!

Having a copy of the book, this is a phrase I do not recall and cannot immediately find – but I’m pretty certain that if it appeared anywhere it was either in the trade deficit section, or just possibly as indication that government spending was conducted in excess of the capacity of the economy to absorb it – but the last is not a matter of ‘the deficit’ but of driving up inflation.

I suspect that it is the ‘budget deficit’ that Bootle is concerned about and this book offers challenges to his outlook. He’s tried to diss it without being at all specific other than damning it with faint ‘Keynsian’ praise. As chairman of Capital Economics and former special advisor to the Treasury Select Committee, I’m sure he is well acquainted with Keynes:

But even [Keynes] recognised there were constraints and he would certainly not have given his support to unlimited government borrowing or monetary financing. 

But this is not, of course, what MMT says. So either he is dissembling or he hasn’t understood.

I’m even more wary of his comments as he alludes to Reinhart’s and Rogoff’s work which have been irrefutably established to be based on an error – without ever actually mentioning the fact. He concludes:

The Deficit Myth is a catchy and attractive title for a book. Unfortunately, what it has to say that is true is by no means new – and what it has to say that is new is downright false. 

He’s established that she’s restated Keynes, which I think we can be sure she’d be happy with, but he hasn’t actually stated where she has said anything new – never mind that it was downright false.

This is not an argument but, as ever from so many of the Oxbridge entitled, rather frightened general criticism often by clever sleight of hand.

Methinks he doth protest too much…


  1. B. Gray -

    As attributed to Leonardo da Vinci: “There are three classes of people: those who see, those who see when they are shown, and those who do not see”

    Unfortunately there is a large class of people who do not get MMT, and will never get MMT no matter what evidence is presented to them.

    1. Peter May -

      I tend to agree. And I shall be having another try to understand tomorrow…

      1. B. Gray -

        Unfortunately, I think much of this ignorance is willful in nature, in that those in the finance sector (along with their political enablers) have a vested interest in maintaining the current austerity paradigm, which promotes money creation through private, rather than government, debt issuance.

        As my wife recently told me, you can’t wake up a person who is pretending to be asleep.

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