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Stephanie Kelton on Modern Monetary Theory's Goals for Full Employment and Government Deficits

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Published on Dec 11, 2012

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Welcome to Capital Account. When speaking about fiscal cliff solutions, anti-tax advocate Grover Norquist said President Obama has no more reason to increase taxes today than he did two years ago, when he extended the Bush tax cuts. He told CNBC's Squawk Box "Raising taxes is always bad for the economy... Tax increases are what's done instead of reforming government." But does the government need to tax and borrow in order to spend? Or is the government less constrained in its spending than many believe, and is worrying about budget deficits now a mistake? We talk to Stephanie Kelton, Chair of the Economics department at University of Missouri-Kansas City, about the economics behind Modern Monetary Theory (MMT).

We have head much about MMT over the years and the Washington Post even featured the theory in an article last February. The article, titled "Modern Monetary Theory, an unconventional take on economic strategy," states, "If their theory... is right, then everything we thought we knew about the budget, taxes and the Federal Reserve is wrong." The piece also describes those who follow MMT as "deficit owls," a term coined by our guest, Stephanie Kelton. She says that "deficit owls" are neither deficit hawks or doves. We talk to the "deficit owl" Stephanie Kelton about the role of government spending and deficits in a recovering economy.

Plus, the Senate voted to consider extending the Transaction Account Guarantee (TAG) program, a 2008 FDIC financial crisis measure that guarantees 100% of all checking account bank deposits. The CBO estimates the FDIC does not collect enough fees to offset the risk. Is this just another too big to fail subsidy? Lauren discusses the problem in today's "Reality Check."

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