America’s growing income inequality has long needed attention. Last January, under emergency circumstances, it finally got some, in the form of a $1.9 trillion pandemic relief package. The quietly influential figure behind the cash deployment was economist Stephanie Kelton, former chief economist for Senate Democrats and one of the most fervent proponents of unfettered federal spending, known as Modern Monetary Theory (MMT).
It holds that because the U.S. government is an issuer of sovereign currency, it always has the power to spend. A deficit is not a danger—it’s often preferable because people have more money to spend and inject into the economy. Just last year, this seemed like an outlandish notion. At the 2020 Democratic Presidential debates, even the most progressive candidates like Bernie Sanders—whom Kelton has advised—had to explain how they were going to pay for proposed social programs.
Then came COVID-19. “With a snap of a finger, everything changed,” Kelton says, as stimulus bills were passed with little hand-wringing over where funding would come from. (Kelton notes that while Dems tend to “cower and fold” at the slightest Republican dissent, their counterparts spend billions when in power, even with lower tax rates.)
Kelton published a book, The Deficit Myth, last summer, and was soon invited to join the Biden-Sanders Economy Task Force. Recently, she’s been called by the White House to talk through proposals. After voting in favor of the stimulus bill in January, John Yarmuth, chairman of the House Budget Committee and a longtime self-described deficit hawk, admitted to Kelton that he was a convert, no longer put off by the idea of deficit spending. But she hasn’t converted everyone. While discussing his infrastructure bill in May, Biden declared, “I’m not willing to deficit spend.” “Democrats often are trapped in this Robin Hood world,” Kelton says, “where they think the only way to lift the bottom up is by taking from the top.” The stimulus bill just proved otherwise. Why not just say, she wonders, “I’m laser-focused on delivering an agenda that improves lives—and I’m going to spend the money to do it”?