Stephanie Kelton, an economist whose controversial views on government spending has made her a hot-ticket item on the adviser conference circuit, is headed to Washington.
Ms. Kelton, an economics professor at the University of Missouri-Kansas City, was recently appointed chief economist for the
Democratic staff of the Senate Budget Committee, where she will work for Sen. Bernie Sanders, I-Vermont.
Both the budget hawks — Republicans who want to eliminate the deficit — and budget doves — Democrats who only want to increase the deficit to bolster the economy when it is faltering — take the wrong approach, according to Ms. Kelton.
She
describes herselfas a “Deficit Owl” and asserts that government spending is not restrained by the revenue that it brings in. It only should be curbed during times of hyperinflation, which rarely happens in stable democracies.
The government can pretty much spend as much as is needed to achieve higher economic growth and full employment, in Ms. Kelton's analysis, because it uses “fiat” money that is not tied to any real commodity. There is nothing that a sovereign government can't afford.
“An owl would put the deficit in context,” Ms. Kelton said in a
presentation last year at the University of Missouri. “It is not about affordability in real terms. It's about inflation.”
She said that the key to a stronger economy is to get money circulating through consumption.
“Capitalism runs on sales,” she said. “Spending creates income.”
Ms. Kelton was not immediately available for an interview.
MODERN MONETARY THEORY
Her approach, which is known as modern monetary theory, has generated a buzz in the investment-advice profession over the last two years. Her breakthrough occurred at the Financial Planning Association annual retreat in 2012, where she was a speaker.
“Stephanie's a proponent of keeping the deficit in context and balancing the economy rather than the budget,” said Donald St. Clair, owner of St. Clair Financial and the chair of the 2012 FPA conference. “This was a new way of looking at things and easily absorbable by people who understand accounting. It was a paradigm shift.”
Ms. Kelton created a stir.
“To say that Stephanie was a rock start at the conference was an understatement,” Mr. St. Clair said. “She's got the conversation started within the adviser community.”
Since then, she has spoken at many investment-adviser meetings. Alex Petrovic has been in the audience on at least one occasion.
“She makes a great presentation,” said Mr. Petrovic, owner of Petrovic Financial Services. “She's fearless. She's confident. She'll be a good counterbalance to the pervasive though in Washington that you've got to have a balanced budget.”
Her monetary and fiscal philosophy also has detractors.
“She's a card-carrying member of the [Democratic] party,” said David Haraway, a principal at Substantial Financial. “She hasn't found a government-spending activity she doesn't like. She really doesn't believe in the free market.”
Ms. Kelton is a “technocrat” who espouses an idea — almost unlimited government spending — that might work in theory but would be harmful in reality because of the crushing deficit it would create, according to Howard Erman, president of Erman Retirement Advisory.
“She has no comment or awareness of the consequences,” Mr. Erman said. “She's ignoring the more important part of the equation, which is the values. It's not what helps us today. It's what helps us in the long term, what helps our children.”
But Mr. Petrovic said that Ms. Kelton's ideas have been proven correct by the Federal Reserve's bond-buying program, so-called quantitative easing, since the 2008-09 recession. The United States has recovered economically while Europe, which concentrated on austerity instead of growth, is still struggling.
“We're way out ahead,” Mr. Petrovic said.
How far out Ms. Kelton will venture with her views in Washington remains to be seen. As a legislative aide, her work will be filtered through Mr. Sanders and other Democrats on the budget committee. Even though she'll be behind the scenes, the Deficit Owl will have a perch in Washington.
