Before U.S. President Nixon abandoned the gold standard in 1971, anyone with U.S. dollars could exchange them for gold at a fixed price.  Now that the U.S. government (as well as other governments including Canada) can issue new money at will, we call it “fiat money.”  Stephanie Kelton, former chief economist on the U.S. Senate Budget Committee, claims that this ability to create money at will has profound implications that she explains in her book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy .  Modern Monetary Theory is certainly a different way to think about government finances, but whether it really has profound implications is less clear. Under the gold standard, government finances resembled a family’s finances.  To run a deficit, the government had to borrow.  However, today the government can just create new money.  Governments typically choose to issue bonds (treasuries) to cover deficit spending, but such bonds ar...

In his book Narrative Economics: How Stories Go Viral & Drive Major Economic Events , Nobel Prize-winning economist Robert J. Shiller calls on other economists to incorporate the study of narratives into their predictive models.  He believes the stories we tell each other that go viral are important factors in how economic events unfold.  The book is clearly written and makes its case convincingly, but there isn’t much for individuals to apply to their own lives unless they are economists or politicians. A simple example of how narratives can cause future events is a viral story about deflation.  At times in the past, people have widely believed that prices were going to fall.  As a result, consumers delayed purchases expecting to buy cheaper later.  This caused spending to fall, and ultimately contributed to sellers lowering their prices.  Narratives can become reality. Shiller gives many examples of different classes of narratives, including the moral...