Stephanie Kelton: The Public Purse

Stephanie Kelton: The Public Purse

As part of the lecture series between UCL Institute for Innovation and Public Purpose (IIPP) and the British Library, Stephanie Kelton speaks on why a government budget should not be looked at in the same way as a household budget

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UCL Institute for Innovation and Public Purpose
The Bartlett Faculty of the Built Environment

Drawing on her experience as the Chief Economist on the US Senate Budget Committee, Stephanie Kelton gives a beginner’s class on public deficits and what (almost) everyone is missing in the debate over the government’s budget. Is the government’s budget really just like a family budget? (Teaser: It’s not!) What is the purpose of budgeting anyway? Is it to balance spending and revenue, or is targeting a balanced budget the wrong goal altogether? Is the British government living beyond its means?

Stephanie outlines a new way of understanding deficits, debt, taxes, the relationship between the public and private sectors, and what our economy could look like. Turning the public budget into a participatory, mission-oriented endeavor is critical to restructuring public services and public investment and building the kind of economy that will deliver a cleaner, safer, more secure future for all.

Rethinking Public Value and Public Purpose in 21st Century Capitalism is a lecture series presented by UCL’s new Institute for Innovation and Public Purpose in collaboration with the British Library.

Featuring luminaries from the worlds of arts, economics, architecture and design and policymaking, it considers the role of the public sector in today’s capitalist world and asks what partnerships are needed to address societal and technological challenges? How can public spaces be designed to create more democratic participation and new forms of learning and exploration? Does public necessarily mean free? Can the digital revolution create a new type of public realm?
Speakers include Richard Rogers, Stephanie Kelton, Jayati Ghosh, Lucy Musgrave and Mariana Mazzucato.

The events are free but booking is required.

30 thoughts on “Stephanie Kelton: The Public Purse

  1. Please come to New Zealand and talk to our finance minister. He thinks that he has to run budget surpluses to pay back government debt. I think that he has no understanding whatsoever of how the governments finances operate.

    1. Third of the Trio – You have to understand that all public (government debt) becomes private debt. It is a burden to the private sector as soon as it enters the private financial system which is when central government spends it before anyone or any organization in the private sector has an opportunity to spend it. There is no getting around this fact. Private debt does not become government debt since there is no process where the private sector can create more debt like a central government can and does with deficits funded by money expansion.

      The situation with inflation may appear to be good to reduce debt, but it is only good from the perspective of borrowers who are in debt. The consequences of inflation are that it also pushes up the price (interest rate) for borrowers which makes borrowing for new investment or any other borrowing more expensive. It too is a no win for the private sector but is a win for more government spending funded by more debt if government expands their deficits which causes what I already explained.
      The idea of increasing exports is also one that is often put forward but it is not so easy to do so.

    2. Rob – hrm okay, just getting my head around that – I am only a student (and as far as I can see will continue to be indefinitely haha) of economics, I claim no expertise. I understand that public debt is transferred to the private sector via taxation; however, the public sector also purchases and employs capital from the private sector, so essentially redirects resources to where it considers they are needed. If it does not raise sufficient taxes to cover that spending then it runs a deficit; if it raises more in taxes than it spends back in then it runs a surplus. (NB. I don’t say this cos I think anyone is simple, it’s more like “showing my working” haha).
      If, in it’s spending, the govt increases the productivity of the real economy, it has elevated the ability of the economy to pay back past deficit spending through taxes. Of course, that’s a big “IF” (possibly the biggest IF in economics – how to get more back than you put in?), and while the ability of the economy to pay back that past spending might have improved that doesn’t mean it will happen (i.e. private citizens may enjoy the benefits but not want to pay taxes to account for the spending that created them). But that doesn’t mean it can’t happen (often it does!). I don’t think it’s right to lay the responsibility for indebtedness solely at the feet of govt, which is only one side of the ledger after all and, in a country like NZ at least, has been elected by the majority of private citizens.

      Case in point: NZ’s private sector is heavily indebted, largely, as far as I can tell, as a result of escalation in land values over a span of decades. We have fairly concentrated areas of opportunity with respect to different land uses, in urban areas especially, and demand increasing faster than supply, with banks seeing the continued increase in asset values as a sign to continue to lend. Property owners consider the value of their real estate as vital to securing their retirement and thus have an expectation that that value be maintained or increase in real terms, which means that they expect the purchaser of their property to pay more in real terms for the property than they did themselves. That to me is a truly unsustainable state of affairs and one abetted by governments but only insofar as their voters demand. Land price escalation is driven by bank-issued credit, not govt spending (although inflation targeting via the target interest rate necessitates that the RBNZ make reserves available as and when banks require them). Property, particularly owner-occupied, enjoys low rates of taxation relative to other assets, and this is considered to distort property prices (e.g. a recent report by Westpac Bank estimated that a capital gains tax that excluded the family home would lower property prices by around 10%)… but to propose a CGT is widely held to be politically damaging and discourages it’s implementation.
      Which is all to say that it’s the policies demanded by some private citizens that has created a situation whereby the private sector in NZ has little choice but to hold significant ongoing levels of debt. In many other countries, from what I’ve seen, the situation is generally the reverse of that – it’s the govt that holds the balance of debt while the private sector is in surplus. I’ll just note here that US govt debt, for example, increased a fair bit after 2008 when it bought private sector debt in exchange for reserves (on which it now pays interest), so while formal mechanisms by which private debt becomes public debt mightn’t exist there is clearly established precedent for this to occur. In any case, it’s clear to me that one can’t simply point to govt spending (per se) as the primary source of these problems; yet govt policies have certainly played a big part in essentially just meeting the expectations of their citizens, whether or not those expectations were realistic or to the long-term benefit of the economy.

      So I guess I find the public vs. private distinction to be… unsatisfactory. The most important facets of “new spending” (whether the creation of new currency by govt or new lending from private lenders) surely have to be the reasons for that spending (benefits) and the consequences of it in terms of repayment (costs). Clearly we can’t consider all debts to be equal, e.g. if the govt has $1 billion of cash and coin in circulation no-one expect that to be paid back – it’s govt debt but owed to the country’s citizens by the country’s citizens, so I can’t see how it has any practical impact. On the other hand permissive private lending that drives up asset values such that real costs of living increase – as is the case right now in NZ (but certainly not just here!) – can clearly have a major impact.
      In the end if we want more for a given level of spending we have to direct that spending towards things that make the economy more productive, and given that I can see little evidence for the private sector being vastly better at this that than the public sector, on the whole, I really can’t see any reason to demonise public spending and debt over private spending and debt.
      Particularly if one considers that a growing economy (which most seem to want to be, rightly or wrongly) surely would need more money in circulation, either publicly-issued currency or privately-issued credit, to avoid deflation. In theory then, to avoid deflation the govt should issue new currency at the rate of economic growth plus the target rate of inflation, so if those figures are 3% and 2% respectively then the govt deficit needs to be 5% p.a. (ceteris paribus haha). Alternatively credit could grow at that rate instead, with the associated mounting interest payments and possible downstream credit shortages that would restrain this growth, and lead to the transfer of real wealth from debtors to creditors over time if debtors fail to repay. Reminds me of, like, the world we live in actually…

    3. Rob
      Look up Sectoral Balances, this might help you to understand more clearly. There are three sectors to the economy, the government sector, the private sector and the foreign sector and all the financial flows between them must add up to zero as an accounting statement.
      If the government is running a surplus and the foreign sector is also a surplus (a current account deficit) then the private sector must be a deficit, i.e increasing it’s indebtedness.
      One thing that MMT teaches is that every dollar that the government spends becomes a dollar of income for the private sector, it’s net financial assets which is all that government debt really represents. One persons spending is always another persons income. All money is debt, banks create money as debt when they make a loan and the government creates money as as debt when it spends, although there is some debate in MMT as to whether to call it debt. You cannot have an increase in GDP without a corresponding increase in the money supply, where should this money come from?

    4. @Chloe Stapleton we definitely need the big guns to hold seminars in NZ. Warren Mosler and Steve Keen and Pavlina Tcherneva, they know how Argentina flourished with Jefes program until they went back to right wingers.

    5. @truthseeker goo god! Why the hell does that website have a banner with all the neoliberals alongside Hitler? They need to accentuate the positive, not lead with the negative.

  2. Thanks for the explanation. I have my own version of a basic income payment. Funding for priority projects like a basic income payment that can meet the basic cost of living expenses can be achieved and sustained. This basic income payment is for the unemployed. This payment will be reviewed every 3 years and will also serve as the minimum wage. This will eliminate slave labour. The basic income payment to the unemployed will be designed that recipients will utilize the payment but will not want to remain a recipient.. Basic income is one (1) of the recommendations in my book ” How to eradicate poverty worldwide.” See my video – poverty eradication worldwide/michael samuel – on youtube.

  3. I really believe if we can keep educating Conservatives, Liberals, and Progressives we can win them over! I am a self proclaimed Progressive. If we can make the light bulb go off we can have all Sanders policies and more even if tax rates stayed at Rebublicans tax rates. Even though technically I prefer creating more brackets over 1 million a year.

  4. Brilliant, engaging, accessible. Professor Kelton has built a great big body of argumentation that has extreme ability to persuade. I learned MMT from her.

  5. Imagine playing the Monopoly game when one player starts with $6500, another gets $700, and three others get $100. That is what the American economy looks like.

    1. One Fedreal banker’s statement but what about the other hundereds who didn’t make such a foolish statement that ignores a many other factors.

  6. All of the V shape recession recovery came from Private Sector just took on bigger debt. Now they can’t take on more debt and economy suffers.

  7. I’m not so puzzled that politicians ask “where are we going to find the money”? I’m puzzled about why they ask this question whenever we talk about Social Security and Medicare, but they don’t even mention the insane military budget. That’s what bothers me. But that’s just me. Little ole’ me.

    1. The reason the politicians ask that question how you going to pay for it. They have a neoliberal agenda and part of that agenda is to drive you and I and II High private debt.

  8. Theres nothing “new” in this “theory”. As you acknowledge, it’s what happens already. What you seem to be arguing is that it should be done in a more egalitarian manner. This isn’t new either.

  9. :),thanks for sharing this video, I order the same product from four days ago, delivery by DHL,amazing quality !!!

  10. During WWII in Canada the MPs were concerned about the growing debt. When one of the MPs commented that the government debt was a private sector asset, the governor of the Bank of Canada agreed. The finance minister then commented,” If the government debt is a private sector asset, how do we make it an asset of the people.” And national health care, pharmacare, universal daycare, national pensions, national highways, railroads, etc. are examples of how this has been done.

    1. Herbert – You are not such a wise man after all if you believe her false rubbish but you are just soemone who is open to being easily misled.
      Take this for instance:-
      Kelton’s claim is that the government is subsidizing people’s savings.
      It is utterly false and based on omission of facts.
      That is because savings in the private sector can only be achieved after people have produced something and sold it and some of the proceeds retained and not spent.. They do not come from government and the reserve banks producing more units of fiat money since the fiat money is worthless without goods and services being produced before the fiat money is produced. Besides that fiat money can only be produced with accompanying debt that the private sector is forced by the government to pay for when that debt matures and must be paid out.
      That is when those Treasury bonds created to produce that new money actually mature.
      Kleton ignores this fact to put across her false idea that savings somehow are created for the private sector by creating more fiat money when the reality is they can’t.

    2. @Rob How many other myths do you believe? As for the Wiseman comment. How original. Nobody ever thought to say that to me before.

      I have savings and never produced anything for them. They are unspent income from my pensions.

    3. @Herb Wiseman You should have taken more seriously that comment that you sarcastically replied to with “How Original…. “.
      You also said “I have savings and never produced anything for them.”. How narrow a view.
      The reality is if you have savings and nobody else or you produced anything for them they are utterly worthless.

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