Joe: Everything you know about the national debt is probably wrong. The government budget isn't like your family's. And the author of our book today argues that the very 'deficits' we're told to fear are actually the source of our savings. It's a mind-bender. Lewis: Hold on, that's a lot to drop on a Tuesday morning. The source of our savings? Every politician I've ever heard talks about the national debt like it's a ticking time bomb strapped to our children's future. Are you telling me the bomb is actually a birthday gift? Joe: That's a pretty good way of putting it, actually. And it's exactly the kind of thinking that makes the book we're discussing today, The Deficit Myth by Stephanie Kelton, so provocative and important. It was a huge bestseller, and it’s been massively influential, but also incredibly controversial. Lewis: I can see why. It sounds like it turns basic economics completely on its head. Who is this author, Stephanie Kelton? Does she have the credentials to back up such a wild claim? Joe: She absolutely does. And that’s what makes her argument so compelling. She's a professor of economics and public policy, but she's not just an academic. She was the chief economist for the Democrats on the U.S. Senate Budget Committee and a senior economic advisor to Bernie Sanders's presidential campaigns. She's seen firsthand how these deficit myths can paralyze Washington. Lewis: Okay, so she's been in the rooms where these decisions happen. That's fascinating. But I'm still stuck on the basic premise. Come on. Everyone knows you can't just spend more than you take in, year after year. My credit card company would have some very strong words for me if I tried that. Joe: And that, right there, is the first and biggest myth the book dismantles. The idea that the federal government should budget like a household.

Lewis: What do you mean? It seems like common sense. You have income—taxes. You have expenses—spending. If expenses are higher than income, you have a deficit. How is the government any different? Joe: The difference is profound, and it comes down to one simple question: who issues the currency? You and I, Lewis, we are currency users. We have to earn dollars or borrow them before we can spend them. The U.S. government, on the other hand, is the currency issuer. It creates the U.S. dollar. Lewis: It just... prints money? I thought we weren't supposed to say that. Joe: We'll get to the "printing money" part, but let's stick with the core idea. The government doesn't need to get dollars from anywhere. It spends them into existence. Kelton tells this fantastic story in the book about an economist named Warren Mosler that makes this crystal clear. Lewis: I'm all ears. I need a story to wrap my head around this. Joe: Okay, so Mosler has two kids, and he wants them to help with chores around the house—mowing the lawn, washing the cars, you know the drill. He offers to pay them for their work. But he doesn't offer them dollars. He offers to pay them in his own personal business cards. Lewis: His business cards? That’s a terrible deal. They're worthless. Joe: Exactly! And his kids thought so too. Weeks go by, the house is a mess, the lawn is overgrown, and not a single chore has been done. The kids have no interest in working for worthless pieces of paper. So, Mosler changes his strategy. He doesn't offer a higher wage. Instead, he imposes a tax. Lewis: A tax? On his own kids? Joe: Yep. He tells them that at the end of each month, they each owe him a tax of 30 of his business cards. And if they fail to pay, they lose privileges—no TV, no video games. Lewis: Oh, I see where this is going. Suddenly, those worthless cards aren't so worthless anymore. Joe: Instantly! The kids are scrambling. "How can we get your business cards?" they ask. And Mosler replies, "Oh, I'm so glad you asked. I have a list of chores right here on the fridge." Suddenly, they are diligently doing every chore to earn the cards they need to pay their father's tax. Lewis: Wow. So the tax didn't pay for the chores. The tax is what gave the currency—the business cards—their value in the first place. It created the demand. Joe: You got it. And that's the core of the argument. For a currency-issuing government, the primary purpose of taxes isn't to raise money to spend. The government already has the money. The purpose of taxes is to make us, the public, need its currency. We all need dollars to pay our taxes, which forces us to work and sell things for dollars, which provisions the government with all the real goods and services it needs, from soldiers to roads to scientific research. Lewis: That is a complete reversal of how I've thought about this my entire life. It’s like the Monopoly banker. The banker can't go broke, they can just write numbers on a piece of paper if they run out of physical bills. But all the players at the table can absolutely go broke. We're the players. The government is the bank. Joe: That's the perfect analogy. The book literally quotes the Monopoly rulebook: "The Bank never ‘goes broke.’ If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on any ordinary paper.” The federal government operates on the same principle.

Lewis: Okay, I'm sort of with you. The government is the currency issuer, not a user. It can't run out of its own money. But if that's true, what stops it from just creating trillions of dollars to solve every problem? What about inflation? Won't that just make the dollar worthless and turn us into Weimar Germany? That’s the boogeyman everyone brings up. Joe: And that is the single most important question. Kelton is very clear on this. MMT is not a free lunch. There is a very real limit to government spending. But that limit is not a financial one. It's a real one: inflation. Lewis: Explain that. What's the difference? Joe: A financial limit would be the government running out of dollars. We've established that can't happen. A real limit is the economy running out of stuff to buy. Think of the economy as a giant factory. It has a certain productive capacity—a maximum amount of goods and services it can produce based on its available labor, raw materials, technology, and factories. Lewis: Right, its speed limit. Joe: Exactly. Overspending happens when the government tries to buy more stuff than the economy can produce. If the government pumps a ton of new money into an economy that's already running at full capacity, you get too much money chasing too few goods. And what happens then? Lewis: Prices go up. Inflation. Joe: That's it. So the real job of economic management isn't balancing the budget. It's balancing the economy. Kelton tells another great story from her time on the Senate Budget Committee. The Republican chairman, Senator Mike Enzi, would constantly declare, "Deficits are evidence of overspending!" Lewis: Which sounds perfectly logical, based on the household myth. Joe: It does. But as an economist, Kelton knew that was wrong. The evidence of overspending isn't a number in a spreadsheet in Washington. The evidence of overspending is inflation out in the real world. A deficit is only a problem if it pushes the economy past its productive capacity and causes harmful inflation. Lewis: But isn't that a really slippery slope? How do you know where that line is? It seems like politicians would just keep spending until it's too late. Joe: That's the challenge, and it's about shifting our entire framework. MMT argues for replacing an artificial, self-imposed constraint—the budget deficit—with a real, observable constraint, which is inflation. The question for any new spending proposal, whether it's for a Green New Deal or universal healthcare, shouldn't be "How will you pay for it?" It should be "How will you resource it?" Lewis: What do you mean, "resource it"? Joe: Do we have the available engineers, steel, and construction workers to build a high-speed rail network? Do we have the nurses, doctors, and hospital beds to expand Medicare? If the resources are sitting idle—if we have high unemployment and factories are dark—then the government can spend to put those resources to work without causing inflation. If the economy is already booming, then you have to be more careful. You might need to raise taxes to cool down private demand to make room for public spending. Lewis: So it's about managing the real economy, not just the government's checkbook. That's a much more complex, but also much more responsible, way of looking at it. Joe: It is. It puts the responsibility on Congress to manage the economy for good outcomes—like full employment and stable prices—rather than just hitting an arbitrary budget number.

Lewis: This all sounds radical, but I'm still stuck on that number you see on the news. The national debt. It's over 30 trillion dollars. That just feels like a catastrophe waiting to happen. How can that not be a burden on our kids? Joe: This is the final, and maybe most mind-bending, myth the book tackles. The idea that the national debt is a national problem. Kelton's chapter title for this is brilliant: "Their Red Ink Is Our Black Ink." Lewis: What does that mean? Joe: It's a simple accounting identity. For every debit, there must be a credit. The government's deficit—its red ink—is, dollar for dollar, the non-government sector's surplus. That's our black ink. It's the money in our bank accounts, our retirement funds, our investments. Lewis: I'm not sure I follow. Joe: Let's try another one of Kelton's thought experiments. Lewis, if I gave you a magic wand that could eliminate the entire U.S. national debt with one wave, would you do it? Lewis: Absolutely. In a heartbeat. Get rid of that terrifying number. Joe: Okay. Now, what if I told you the magic wand would eliminate all outstanding U.S. Treasury bonds? These are the financial instruments that make up the debt. They are considered the safest financial asset on planet Earth. They are the bedrock of the global financial system and are held in pension funds, 401(k)s, and by foreign governments as their safest savings. Would you wave that wand? Lewis: Uh... no. That sounds like it would cause a global financial apocalypse. Wiping out everyone's safest savings? That's a terrible idea. Joe: But Lewis... they're the same thing. The national debt is the total of all those U.S. Treasury bonds. Lewis: Wow. Okay. That... that really changes things. So when we see the "National Debt Clock" ticking up, what are we actually looking at? Joe: You're looking at a historical record of all the dollars the U.S. government has spent into the economy over its entire history that it has not yet taxed back out. It's the net money supply. It's our wealth. When the government runs a deficit, it's making a net deposit into the private sector. When it runs a surplus, it's making a net withdrawal. Lewis: So the only time in U.S. history the debt was paid off, under Andrew Jackson... what happened next? Joe: One of the worst depressions in American history. The government sucked all the money out of the economy. The book shows this has happened repeatedly. Nearly every major depression in U.S. history was preceded by a period of sustained budget balancing or surpluses. Lewis: This is unbelievable. So the national debt isn't a debt in the way we think of it. It's not something we have to "pay back." It's just... our money, sitting in a different kind of bank account called a Treasury bond. Joe: Precisely. And the interest paid on those bonds is just more income for the private sector. For a country like the U.S. with monetary sovereignty, the debt is not a risk of insolvency. The only risk, as we discussed, is inflation if spending is not managed properly.

Lewis: So, after having my entire understanding of economics turned upside down, what's the big takeaway here? If we accept all of this, what actually changes? Joe: The big shift, and the ultimate point of The Deficit Myth, is moving our public conversation from asking "How will you pay for it?" to asking "How will you resource it?" The book argues that for decades, we've been held hostage by a false scarcity of money, which has prevented us from tackling our real scarcities. Lewis: The real deficits. Joe: Exactly. The book's final chapters are about the deficits that truly matter: the good jobs deficit, the healthcare deficit, the education deficit, the infrastructure deficit, and the climate deficit. These are problems of real resources, not financial ones. We have millions of people who want to work but can't find jobs. We have crumbling bridges and a desperate need for green energy. MMT argues that we have the financial capacity to address these things. Lewis: We can just create the money to fund them. Joe: We can. The real question is whether we have the political will and the real resources—the labor, the materials, the expertise—to do the work. The book is ultimately a call to action. It's trying to free our minds from a set of myths that have kept us from building a more just and prosperous society. It's saying the tools are right there in front of us. Lewis: It's a powerful and, honestly, a very hopeful message. It feels like it gives us agency back. The problems aren't some unstoppable force of accounting; they are choices about what we value and what we're willing to build together. Joe: That's the heart of it. It forces us to ask a much more profound question. If the money isn't the real obstacle, what is? Lewis: A question to sit with. This has been fascinating, Joe. Joe: It's a book that really sticks with you. Lewis: This is Aibrary, signing off.