Stephanie Kelton's Deficit Doctrine Is Back as Democrats Return to Power

By Grace Kim

A historic wave of Democrats takes office in the House, Senate, and state governments this January after campaigning on affordability, and economist Stephanie Kelton says her framework for deficit spending is already in their hands.

"I know that the book has been read, and the ideas have reached many of the candidates who are now getting prepared to take office in the Senate and House and across the country," says Kelton, the author of the 2020 book The Deficit Myth and a professor of economics and public policy at Stony Brook University, where she's been based since 2017.

Modern Monetary Theory, or MMT, argues that deficit spending by governments issuing their own currency isn't inherently bad. Household analogies comparing federal borrowing to consumers maxing out credit cards miss the mark, its advocates say.

"The work that I do explains why the federal government's budget doesn't work like a household budget, and why there is more capacity to spend on priorities, whether it's healthcare, education, infrastructure, climate," Kelton says. "Whatever it is, the spending capacity is there."

How did an academic theory go mainstream?

The path runs through a blog. L. Randall Wray, a professor of economics at the Levy Economics Institute of Bard College and one of MMT's earliest academic proponents, says the group's academic work went nowhere for years.

"We had funding, so we could have conferences, and we wrote academic papers," Wray says. "We gave presentations at academic conferences, and I can tell you none of that had an impact. We were trying to change the economic discipline, and it did not want to be changed."

What changed things was New Economic Perspectives, the blog Kelton founded ahead of the 2000s blogosphere boom and the questioning of economic orthodoxy after the 2008 financial crisis. "I sort of thought it was a waste of time—this was very early in the blogosphere," Wray recalls. "But the blog took off, and really, that's how MMT got to be known."

The blog drew readers inside and outside economics, including Nobel laureate and longtime New York Times columnist Paul Krugman. "By the time Krugman heard about it, I don't know the number, but I would say there were thousands of people in the blogosphere who understood MMT, and we didn't need to debate Krugman because they would do it," Wray says.

Kelton studied under Wray at the University of Denver; both later worked at the University of Missouri-Kansas City, affiliated with the Center for Full Employment and Price Stability. Kelton went on to serve as senior economic advisor to Senator Bernie Sanders's 2016 and 2020 presidential campaigns and as chief economist for the Democratic staff of the Senate Budget Committee late in the Obama administration.

Pavlina R. Tcherneva, a professor of economics at Bard College, president of the Levy Economics Institute, and author of The Case for a Job Guarantee, says the group deliberately communicated beyond academia. "A number of us engaged in this research project have spent a fair amount of time communicating some of these ideas to policymakers at the local and national level," she says.

"It started as an academic exercise that was always very closely connected to the idea that we can have good things; that we can secure full employment, greater economic well-being, and price stability," Tcherneva says.

What about inflation?

The Biden administration's pandemic recovery spending—shaped partly by a Biden-Sanders economic task force Kelton served on in 2020—was followed by a wave of inflation. Critics have long argued MMT would drive up prices, and some have cast the post-pandemic burst as proof the theory is dangerous.

Kelton counters that the theory always accounted for inflation's risk. She says she cautioned the Biden administration, including through a 2021 New York Times opinion piece. A government can print money, she says, but it can "run out of things to buy" if labor and productive capacity hit their limits.

"Spending always has consequences, and one of the consequences can be inflation," says Kelton, who is now writing a book challenging preconceptions about inflation. "And so the whole MMT project revolves around recognizing where the limits are."

Some costly-seeming policies can even cut prices, she argues. A Medicare for All-style system would raise government spending but could shrink total healthcare outlays toward other countries' levels—risking deflation and job losses if officials don't rebalance spending elsewhere.

She also sees room for the new Congress to fight inflation by reversing Trump-era moves: "We were drifting back down toward 2% when the Trump administration walked through the door, and then we got immediately tariffs, and we got a war." Kelton is also a founding fellow at the Sanders Institute, the Vermont think tank cofounded by Jane O'Meara Sanders.

Is MMT a policy program?

Not according to Kelton. Tax-cut advocates could use the framework just as spending advocates do.

"It's not an operating manual that tells you pull this lever, turn this thing, do this policy," she says. "It's just a framework, so you can apply that framework and say, oh, it looks like the economy has enough capacity that we could do some tax cuts."

The theory's influence often works without being named. "My sense is that during the Biden era, the pay-for question was not such a big obstacle, in part because the MMT conversation was everywhere," Tcherneva says. "It almost provided breathing room for people to speak about bold policies—the Build Back Better agenda."

J.W. Mason, associate professor of economics at John Jay College and senior fellow at the Groundwork Collaborative, says Democrats have shifted toward MMT thinking over the past decade. "People have much less concern about deficits as a constraint on policy than they had, you know, 15 or 20 years ago," he says.

"I think you're going to see a lot of elected Democrats come in looking for a very aggressive public spending program," Mason says. "And I think it's going to be helpful to have some strong arguments that the federal debt is not the main thing we should be thinking about at this moment."

With restored healthcare and food-aid spending on the incoming Democrats' agenda, expect MMT to supply both the theory and the political cover.