For most of her career, Stephanie Kelton was accustomed to being ridiculed. It started in grad school.
At Cambridge University in the late 1990s, she signed up for an economics course taught by Willem Buiter, who later became the chief economist at Citigroup. When she asked a question about money in a particular model, he turned, red-faced with fury, and unloaded on her. “If you are the type of person who thinks money is important,” she recalls him saying, “then you are probably the same type of person who enjoys sitting in your basement and beating yourself with a rubber hose.”
The words obviously left an impression. Kelton ― who is now 48 and has been teaching economics herself for more than 16 years ― repeats them, twice, to make sure they’re transcribed correctly. Buiter didn’t respond to a request for comment.
She’s been receiving (slightly) more polite versions of the same dressing down ever since. Conservatives have accused her of worshipping a “magic money tree,” and Paul Krugman dismissed her ideas in a 2011 New York Times column as a naive blueprint for hyperinflation that carried “a sort of eerie resemblance to John Galt’s speech in Atlas Shrugged” ― a ruthless insult among her left-leaning friends.
Kelton’s core idea ― that the government can’t run out of money or go bankrupt, no matter how much it spends ― hasn’t really changed since the days when Buiter and Krugman were trashing her thinking. But it seems the world has. Today she is a full-fledged member of the American power elite, juggling television bookings with MSNBC’s Chris Hayes and Bloomberg TV’s Joe Weisenthal, writing op-eds for The New York Times and being quoted in The Wall Street Journal.
Pod Save America and Financial Times want her on their podcasts. She’s got a book deal with Public Affairs, and Bloomberg View has signed her up as its newest columnist ― but she isn’t sure that gig is worth the time, given her packed speaking schedule. In May alone, she’s being flown to Las Vegas to debate a former International Monetary Fund chief economist before heading to Monaco to moderate a panel on artificial intelligence. After that, the House of Lords in London.
Everybody wants a piece of Kelton these days because a simple, radical idea she has been workshopping her entire career is the next big thing in Democratic Party politics. She calls it the job guarantee ― a federal program offering a decent job to every American who wants to work, in every county in the country, at any phase of the business cycle.
It’s a practical expression of her monetary thinking. To her, governments aren’t directly constrained by how much programs cost. The serious concern is inflation, and a job guarantee would revolutionize the way the United States manages the value of the dollar, forcing the Federal Reserve to stop creating unemployment when it wants to keep prices down.
Politicians like the job guarantee for a simpler reason: Everybody gets a decent job. The idea is getting traction in the Senate. Bernie Sanders’ office is writing a bill that would create such a program, with help from Elizabeth Warren’s office and support from Kirsten Gillibrand. Even supercentrist Cory Booker has signed off on a pilot version. The Center for American Progress, a leading Democratic think tank, is subtly trying to take credit for the concept (while watering it down).
The sudden respect for Kelton’s big idea isn’t the result of a public clamor for cutting-edge economic theory or an impromptu burst of self-reflection among Washington policymakers. It is instead a story about power and political legitimacy, about the way public officials use economists to block or advance social change and about how economists build credibility by circulating through the cocktail parties, expense-account dinners and conference rooms of high finance.
A onetime college dropout at California State University in Sacramento, Kelton has managed to earn the esteem of both Sanders and an oddball clique of multimillionaire Wall Street traders. Even in hindsight, her journey through this heady milieu seems improbable, almost impossible.
“Money doesn’t grow on rich people.”
Five years ago, Kelton had a teaching position at the University of Missouri at Kansas City that was partly financed by Warren Mosler, a Wall Street veteran who lives in the Virgin Islands to keep his tax bill down. His politics were flexible. He calls himself a progressive today, but he started pitching his economic ideas to Donald Rumsfeld in the steam room of a racquetball club in the early 1990s.
Mosler’s true passion is for proving smart people wrong, and his work at Bankers Trust in the 1970s instilled in him some unorthodox ideas about money. When people didn’t take those ideas seriously, he had an ax to grind.
So he started putting up funding for academic research at the Center for Full Employment and Price Stability in Kansas City and Bard College’s Levy Institute, hoping to flesh out his observations into a more formalized school of thought. The economists he helped support ― Kelton, L. Randall Wray, Pavlina Tcherneva, Scott Fullwiler, Mathew Forstater ― eventually called their ideas modern monetary theory, or MMT.
Modern monetary theorists believe that confusion around money has distracted economists from the real things that affect the economic health of society ― natural resources, technology, available labor. Money is a tool governments use to manage these variables and solve social problems. It is not a scarce resource that governments have to track down in order to pay for projects.
Mosler figured this out by making enormous amounts of money placing big bets on deeply indebted governments. “Insolvency is never an issue with nonconvertible currency and floating exchange rates,” he argued in a HuffPost blog.
Kelton’s version is simpler: “Money doesn’t grow on rich people.”
But influence does. And Mosler knew a lot of rich people from his days in high finance, including Maurice Samuels, who made millions for himself and Harvard University when he helped manage its endowment during the George W. Bush years. Samuels was MMT-friendly. He made a killing betting on the Italian lira in a Mosler-inspired trade in the 1990s, and in 2013, he talked another Wall Street alum, Andres Drobny, into hosting a dinner on MMT and suggested he invite Kelton to explain the doctrine.
Kelton didn’t come to MMT through glitzy banking connections. Her father served in the military, and she spent her childhood roaming between Illinois, California and North Carolina. She left Cal State in 1991 when the pay at a local furniture store seemed enough to fulfill her modest ambitions. When she went back to school a couple of years later, she became fascinated by ideas that mainstream economists had long since abandoned. After graduation, she traveled to Cambridge, England, to get her master’s at the temple of John Maynard Keynes.
Studying Keynesian economics was not a fast track to power and wealth in the 1990s. At the time, even top Democrats in Washington considered Keynes little more than a curiosity from the Great Depression. The hot topics in the field were innovation, creative destruction and a future in which information technology rendered the political problems of the 20th century obsolete.
Over the years, Kelton grew accustomed to working among professional outsiders ― liberal bloggers, obscure economists and nerdy political activists. Even today, with the book deal and a house in New York on Long Island’s North Shore with a private kayak dock, there’s still more than a little wide-eyed Midwesterner to her personality. Her favorite spot in Stony Brook ― she teaches at the Center for the Study of Inequalities, Social Justice and Policy at the State University of New York campus there ― is a kitschy diner called Crazy Beans with red-glitter vinyl upholstery.
When Drobny reached out to her, Kelton agreed to stop by the 21 Club in Manhattan to talk about MMT, expecting a small event with a few friends.
“Instead, I show up and there are dozens of people, and they wanted me to talk for two hours,” said Kelton. “I had no speaking notes, nothing.”
The 21 Club is not Crazy Beans. Frequented by presidents, CEOs and celebrities from Ernest Hemingway to Jay-Z, its private dining menu features $180 sea bass and four-figure wine bottles. Drobny’s firm bills itself as a macroeconomic research outfit, but it’s more like an expensive, exclusive club for very rich, very eccentric intellectuals, including Peter Thiel — people who own private islands and financial gurus who leave jobs at Goldman Sachs because the money isn’t good enough.
After a few deep breaths, Kelton started her talk. It was a hit. “One guy wanted to take her to Congress,” Drobny recalled. Another wrote a note to all of Drobny’s clients saying Kelton could revolutionize the way the Fed managed the economy and wanted to start popularizing a new economic metric called the Kelton curve. Her inbox was flooded with follow-up questions, including a note from BNP Paribas chief economist Julia Coronado requesting a private briefing.
If you listen to Kelton long enough, you notice that she never refers to “bankers” or “Wall Street” with the derisive tone common among her political allies. She talks instead about “the financial community.” She’s perfectly aware of how far to the right the politics of Big Finance skew, but she views it more like a peculiar subculture than a dark underworld. After all, Wall Street took her under its wing before Democrats took her seriously.
“The financial community ― if you can be persuasive with an unconventional argument, they don’t care about it being unconventional,” she said. “They want to be right.” There’s real money on the line, and fresh ideas can provide a competitive advantage.
In Washington, by contrast, being right rarely matters. Politicians don’t generally turn to economists for new insight into how the world works. Economists instead serve as a kind of credibility shield ― experts who can be trotted out to assure the public that there are very complex and sophisticated reasons political leaders should be doing the things they do. A big part of any Washington economics job is providing a sense of scientific certainty to political judgments that are, by their very nature, uncertain. This is true for big policy changes as well as straightforward tasks like projecting growth rates and government revenue.
The job, in other words, is to back up your team. Getting a policy decision wrong isn’t such a big deal, as long as everyone else on the team blows the same call. The Democratic Party today, for instance, generally regards the bank deregulation it pursued during Bill Clinton’s presidency as a mistake ― but plenty of economists who advocated it ended up with important jobs in Barack Obama’s administration.
As a result, politically relevant economists fetishize orthodoxy. Nobody with political experience really welcomes a new idea that explains why previous economic policies were wrong. And if Kelton’s MMT doctrine is right, then the way nearly every politician talks about government debt, deficits and even money itself is mostly wrong.
“The basic idea is that the government can’t run out of money,” Kelton said. “It creates money just by spending.”
When people talk about government profligacy bankrupting their grandchildren or triggering a cataclysmic debt crisis, Kelton argues, they’re conflating the experience of a typical family, which has to get money from somewhere outside the household to meet expenses, with that of a sovereign government, which creates money as part of its basic operation.
In one of her most important academic papers, published in 2000, Kelton maintains that government doesn’t actually finance its activity by levying taxes or issuing bonds. Instead, it creates money by spending it into existence. If a government wants to build a road, it calls some contractors and puts money in their bank accounts to pay for it. Where does this money come from? The same place all money comes from: thin air.
This means, among other things, that the government can always pay for whatever it wants ― housing, health care, tanks, whatever. But it doesn’t mean governments can just spend infinite amounts without any consequences, she emphasized. Eventually inflation becomes an issue when the amount of money in circulation gets ahead of the productive capacity of the workforce.
But even inflation doesn’t impose a hard limit on policy options. The Federal Reserve can raise interest rates to deal with it, Congress can raise taxes to pull money out of circulation or even impose price controls. All those have their drawbacks, but depending on circumstances, any of them might be preferable to reducing government spending. It all depends on what a society needs. Those needs, Kelton thinks, should be the primary focus of study ― not the immediate impact on the federal budget deficit, a metric that dominates policy discourse in Washington.
The left-wing appeal of these ideas is obvious. With inflation stubbornly low over the past 35 years, Kelton’s work suggests Democrats have plenty of fiscal room to not only protect Social Security and Medicare but also expand them and propose ambitious new programs. But MMT is also attractive to certain elements of the superrich. Because if we don’t have to worry so much about how much these programs cost, then there is no pressing need to raise taxes in order to pay for them.
After the 21 Club dinner, Drobny invited Kelton to a small, select conference he was hosting in Santa Monica, California, where she met Larry Summers, a Clinton treasury secretary and Obama economic adviser, who asked her to send him the best 40 pages of material on MMT available. By October 2013, Kelton was on stage explaining MMT at Columbia University alongside Nobel laureate and former Clinton adviser Joseph Stiglitz. Charles Schwab wanted her to present at its Impact conference the next month. The month after that, she spoke at Harvard.
Her career had changed tracks. She wasn’t just a clever economist with some quirky ideas anymore. Her credibility with Wall Street began to register as academic clout.
“Kelton never refers to ‘bankers’ or ‘Wall Street’ with the derisive tone common among her political allies.”
The great irony of Kelton’s career is that her breakthrough with the financial elite created her breakthrough with the American left. In the fall of 2014, she got a call from Sanders. He was taking over as the ranking minority member of the Senate budget committee and needed a chief economist.
“We wanted somebody who could walk into a room with establishment economists and tell them that they were wrong,” said Warren Gunnels, Sanders’ policy director.
That was essentially what Kelton did every time she addressed Wall Streeters about MMT. “I never speak to audiences that are already on board,” she said. “It always feels like going into the lion’s den. But then they love it.”
There are thousands of left-wing economists. But it’s hard for the economically inexpert to distinguish brilliant creativity from quackery. Kelton’s social credentials with Wall Street helped her stand out.
And Sanders liked the ambition of her policy vision. Perhaps more important, he liked the way she talked about Franklin D. Roosevelt. When Sanders asked her what he should do on the budget committee, she said he should pick up FDR’s unfinished agenda from 1944 ― an economic bill of rights. The top item on that agenda was a good job for everyone, guaranteed.
Sanders hired her as the minority’s chief economist on the budget committee, and when he started his presidential run, she agreed to serve as an adviser to the campaign.
Like most politicians, Sanders doesn’t get his economic ideas from studying economic theory. They’re an extension of his moral intuitions, according to several former staffers. He’s much more interested in Pope Francis than in Thomas Piketty. Sanders likes FDR because he spoke clearly and forcefully about economic justice as a moral and political right, and Sanders likes Kelton because she can communicate not just about inflation but also about rights and justice.
When she teaches at Stony Brook, she supplements the chart-and-graph drudgery of economic analysis with current events and a strong dose of history. This year she’s going over the Freedom Budget proposed by A. Philip Randolph, a civil rights leader who organized the 1963 March on Washington. The Freedom Budget ― first presented in 1966 ― is an “almost perfect document,” Kelton says after class. She particularly likes that its author doesn’t force the government to choose between providing a job as a civil right, and providing other priorities, like funding the military.
“The jobs pay for themselves,” she says, by creating new socially productive stuff that makes its way into the economy. What matters isn’t the deficit but whether these new work hours can generate something useful.
Kelton thinks it’s obvious that there’s plenty of room for more work today. Poverty and unemployment are tricks played on the economy by money ― there are no material or productive barriers to eliminating either one.
But it’s hard for many to believe that achieving such ambitious goals wouldn’t come with some other searing social price. While she got Sanders’ attention talking about economic rights and social justice, he balked at the implications of her broader theory. He had been pounding Republicans on the deficit for years and didn’t want to give it up. He had voted against the expensive Iraq War, the George W. Bush administration’s Big Pharma–friendly Medicare prescription drug benefit and the Bush tax cuts, arguing they were too expensive and diverted resources from programs that would genuinely help the middle class. While Kelton the radical theorist wanted Sanders to shrug off deficits, Sanders the politician wanted to pay for his plan by taxing the rich.
Gunnels said Sanders “does believe that the wealthy and large corporations need to pay their fair share in taxes and we can use that to rebuild our crumbling infrastructure and Medicare and tuition for all Americans.” And Kelton and Sanders discussed their theoretical differences before she was hired. “He wanted to make sure that Stephanie understood that ― that when she came on she was working to advance the agenda of Sen. Sanders,” said Gunnels.
For all its ambition, Sanders’ agenda wasn’t very creative. It just expanded the scope of existing programs that liberals already liked. The minimum wage would be higher. Tuition at public universities would be not just reduced, but free. Medicare would be available to everyone, with better coverage. Kelton didn’t have a problem with any of it, but almost nothing distinctive about her economic thinking ended up in the platform.
She thought her boss was walking into a trap by insisting that higher taxes on the rich and economic growth could pay for everything he wanted to do. She was right. When the campaign enlisted University of Massachusetts at Amherst economist Gerald Friedman to calculate the cost of Sanders’ platform, Friedman relied on overly optimistic assumptions in his modeling. Economists aligned with rival Democratic candidate Hillary Clinton pounced, accusing the Sanders operation of fiscal irresponsibility and economic illiteracy. Sanders staffers still wince at the memory. The numbers shouldn’t have mattered, but they didn’t add up.
To project some intellectual legitimacy for the campaign, Kelton corralled economists into signing letters in support of individual Sanders policies. She got over 200 signatures from people backing a $15 minimum wage and 170 endorsing his plan to break up the banks. This was not an easy task, since nearly every economist with political experience expected Sanders to lose and most saw little reason to get themselves on Clinton’s bad side a few months before she secured the Democratic nomination. Even Friedman endorsed Clinton.
But by 2016, Kelton had some impressive connections. When she noticed Columbia University economist Jeffrey Sachs criticizing Clinton’s foreign policy on cable news, she reached out to see if he could find other common ground with Sanders. It should not have been a natural fit. During the 1990s, Sachs was a proponent of shock-therapy neoliberal economics ― a swift transition from state-dominated economies to market-based pricing and delivery. It proved a disaster in Russia, where he was a top adviser to the government. He has since drifted leftward, but remains a card-carrying member of the D.C. establishment, a mainstay of MSNBC’s “Morning Joe” and superelite conferences like the Aspen Ideas Festival and the World Economic Forum in Davos, Switzerland.
Sachs endorsed Sanders and invited him to a conference at the Vatican, where the senator got to meet one of his heroes, Pope Francis. In one of the oddest political unions of the past 30 years, Sanders returned the favor by writing the introduction to Sachs’ latest book. The Sachs connection boosted Sanders’ credibility in Washington, and the campaign relished getting him in front of the camera. Economics is as much about prestige as it is about math.
Kelton refuses to criticize Sanders or her time in his employ. She likes him, and she’s proud of her work for the campaign. But other staffers say she was obviously underutilized by the three white men at the top of the organization. The Sanders camp’s struggles with race and gender aren’t exactly breaking news, but in Kelton’s case, it’s hard to distinguish the campaign’s gender trouble from general incompetence or the sexism that pervades the economics profession.
Male economists dominate senior positions internationally and hold 86 percent of tenured jobs in academic doctoral programs, while the number of women entering graduate programs has flatlined at about 33 percent for nearly two decades. The pattern overflows into journalism: The people who cover economic policy for major news outlets tend to look like this. (Hi!) Power and expertise are heavily gendered ideas in America, and so economics, the most powerful form of modern expertise, is a heavily gendered discipline.
Economists don’t like to acknowledge this because it undermines the status of male economists ― who tend to hold more conservative views than their female colleagues ― and the intellectual primacy of the field. It’s a reminder that politics are ultimately governed by social relations, not financial abstractions. In 2005, Summers, the most prominent Democratic Party economist of this generation, gave a lecture downplaying sexism in academic sciences while positing that “issues of intrinsic aptitude” might account for the dearth of female science professors.
He quickly apologized amid a tremendous outcry. But econ is still a bro’s world. A study published last year analyzed the words that were most closely associated with women economists on the popular message board Economics Job Market Rumors. The results are gross: “hotter,” “lesbian,” “bb,” “sexism,” “tits,” “anal,” “marrying,” “feminazi,” “slut.”
Kelton hasn’t been immune to this. She knows men don’t get lectured about rubber hoses, but she doesn’t volunteer complaints about the discipline in casual conversation. Her passion is for economic theory ― probably the most male-dominated sector of the field ― and she’d rather explain to Summers why he’s wrong about Keynes than why he’s wrong about women.
When pressed, she acknowledges the profession can be a minefield. Kelton teaches plenty of feminist economics in her courses, but early in her career, she avoided publishing research on policies that are obviously gendered, like child care and the pay gap.
“It’s easy to get pigeonholed as a women’s economist,” she said. “I’m an economist.”
“The basic idea is that the government can’t run out of money. It creates money just by spending.”
Usually, being on the losing end of a lefty Democratic Party presidential run is a career blow. But Clinton’s loss to Donald Trump exploded the existing hierarchy of party experts. Her team of economists, which had expected to be running various government agencies, is instead plugging away at think tanks and universities just like the Sanders crew.
As a result, a new class of intellectuals is getting a shot at crafting the next slate of Democratic priorities, and Kelton is one of the most important economists in their ranks.
When she isn’t busy teaching or working out the economic effects of eliminating student debt, she gets invited to strategy sessions with Senate Minority Leader Chuck Schumer (D-N.Y.), and maintains a strong relationship with the Sanders team. She’s no longer working for his Senate office, but she’s a fellow at the new Sanders Institute, a think tank devoted to progressive policy ideas. In February she connected Sanders with Darrick Hamilton and Sandy Darity, two economists who specialize in the economics of racial inequality. Darity, who teaches at Duke in North Carolina, and Hamilton, who works at the New School in New York, had been putting together a proposal for one of Kelton’s favorite ideas: the job guarantee.
Kelton was already developing a similar proposal with MMT economists. But Hamilton and Darity’s work, which had a stronger focus on infrastructure than Kelton’s, intrigued Sanders, as did their more straightforward focus on economic and racial inequality. Both proposals envision the government’s hiring more than 10 million people who are currently sitting on the economic sidelines, though they differ in the way the program is administered and what kinds of jobs are offered.
After the call, Sanders announced that the job guarantee will be his next major policy initiative. Though the legislative details haven’t been announced, anybody in the job guarantee program would receive at least a $15-an-hour wage and health insurance. Just about everyone in Washington expects it to be the centerpiece of a 2020 Sanders presidential run.
Plenty of liberal economists are skeptical. Even if Kelton doesn’t like focusing on the cost of the plan, the price tag is big: Hamilton and Darrity’s version would run $543 billion a year, or about 3 percent of the U.S. economy, and Kelton’s would come in at about $378 billion a year for the first five years before rising modestly. It would reshuffle labor markets, automatically raising the minimum wage to $15 an hour, requiring significant corporate reorganizations and unpredictable price increases.
The logistics are also formidable: The federal government would need to coordinate with states, municipalities and nonprofits all over the country to get millions of people into new jobs and establish an effective bureaucracy to manage the enterprise through the ups and downs of the business cycle.
Kelton isn’t too worried. People are debating the idea seriously. Some lawmakers are thinking beyond the deficit and asking how much it would grow the economy (hundreds of billions of dollars a year), or improve productivity by developing and maintaining new skills. In April, freshman Rep. Ro Khanna (D-Calif.) called Kelton “one of the most thoughtful and creative economists of our generation,” saying her ideas had “moved the entire debate in Congress.”
It’s too early to know if she can move the country, as well. But nobody is screaming about rubber hoses.
“I believe employment should be a right,” she insists. “Values come first, technical details are next.”