Where Does the Idea That Deficits Don’t Matter Come From?

"Many believe that the postulate that public budget deficits do not matter comes from John Maynard Keynes, the English economist who proposed the policy of deficit spending. Yet Keynes was in favor of a balanced budget in the long run. Deficits were meant to revive the economy in a recession, while the boom time should serve to reverse the deficit and obtain a budget surplus. The origin of the thesis that deficits don’t matter is not in Keynes but Michal Kalecki. His theory was highly influential for development policy. Yet while many developing countries have abandoned this failed approach and turned to sound economic policies, the opposite has happened in the United States. Here, the theory of Michal Kalecki came back disguised as the “modern monetary theory” (MMT). The message of this theory is that deficits don’t matter, and for that reason it is highly welcome to America’s new democratic socialists."

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