The Deficit Myth

Henry George School of Social Science

Spring 2024

Week 4 (April 22 2024) Discussion Questions

Chapter 3: "The National Debt (That Isn't)"

• Explain the following terminology used by Kelton in Chapter 3:

  • Deficit hawks

  • Deficit doves

  • Deficit owls

  • Meganumophobia

• Explain Kelton's conclusion that the U.S. national debt poses no financial burden whatsoever.

• Explain why, per Kelton, we should not refer to the sale of U.S. Treasuries as "borrowing" or label those securities as "the national debt."

• Under what circumstances does an investor take on default risk when purchasing bonds issued by her own country's Treasury and denominated in her country's currency?

• Under what circumstances would a country that only "borrows" (i.e., sells debt instruments) in its own currency be forced to accept a market-determined rate of interest?

• Explain why, if the U.S. government were to substantially reduce the national debt, the economy might fall into a recession.

Chapter 4: "Their Red Ink Is Our Black Ink"

• Explain the following terminology used by Kelton in Chapter 4:

  • Crowding out

  • Stock-flow consistency

  • Loanable fund theory

  • Policy variable

  • Yield curve control

• Explain why, in a 2-sector model of the economy, the sum of the financial balances of the government and non-government sectors must be zero (0).

• Explain the role that federal government sales of Treasury bonds play in managing interest rate levels.

• Suppose a country (other than the U.S.) s government decided to pledge to convert its domestic currency into U.S. dollars at a fixed exchange rate. Why would that government then have to give up control of its interest rates?

• Explain Kelton's conclusion that fiscal deficits increase our wealth and collective savings.