But what is shocking or revelatory about this? Governments have been doing this now for years and are currently doing it on a massive scale. Granted, they have been doing this indirectly, rather than directly. They have issued bonds, which central banks have then bought and, in the process, created money. But so what? The distinctions between monetary and non-monetary financing can sound theological at best – and the institutional barriers surrounding government access to the money printing press can seem arcane. Nevertheless, they are critically important for preventing inflation.
In parts of the book, Professor Kelton appears to recognise these limits. And she certainly recognises inflationary constraints. At one point she says: “that’s not to suggest that deficits don’t matter, so we can throw caution to the wind and simply spend, spend, spend.” She also says: “Of course, MMT recognises that deficits can also be too big.” Well, that’s a relief!
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. Admittedly, Keynes made some revolutionary contributions to economic theory in the Twenties and Thirties that still hold good today. But even he recognised there were constraints and he would certainly not have given his support to unlimited government borrowing or monetary financing.
So maybe it is just about magnitudes? In 2010, the economists Carmen Reinhart and Kenneth Rogoff claimed that the historical evidence suggested that 90pc was the key level for the ratio of debt to GDP. Once you got above this point, they said, government debt caused serious problems for an economy.