The problems we face today can seem insurmountable. Who can even count all the good causes that require funding in order to address poverty, climate change, terrorism, money in politics, environmental degradation, species extinction, renewable energy, prison reform, health care, child care, on and on. Yet we are told by the economic establishment that at worst there is no money available, and at best we are constrained by the sheer volume of causes demanding our attention. It is tempting to despair or become cynical at prospects for the bold, transformational changes we need.
Enter MMT, or Modern Money Theory. It’s the new economics. With support from progressives, it could change everything.
Do you see the goldfish swimming upstream in the logo above? That’s MMT in the neoliberal sea we call the global economy. They are the Young Turks calling out neoclassical economists and explaining, piece by piece, why their clothing no longer hides their naked failures. MMT advocates a new approach to macroeconomics and federal government fiscal policy. They are knocking on the doors of academics and policy makers who are guarding the economic gates of a system that is failing us and in serious need of fiscal repair. Swimming upstream can be tiring and frustrating. But the payoff will be worth the effort.
MMT has deeper roots than will be discussed here, but it offers a post-Keynesian, macroeconomic approach that integrates the missing fiscal piece capable of freeing federal government investments to benefit the “99 per cent.” Current fiscal policies, by design, benefit private sector mega-banks and the transnational corporations they serve.
MMT economists offer a paradigm shift in economics. They argue that the federal government, as the issuer of the currency, can never “run out of money.” The Treasury can always issue more money to cover any potential expense, so long as inflation is managed. This opens up the space needed to spend money to fully fund a progressive agenda.
Most politicians, including economists from the right who are focused on austerity budgets, and those on the left who support stimulus funding during recessions, reject the MMT approach to spending. It seems we are stuck with the deficit hawks and the deficit doves because both believe the government must balance spending with revenue from taxes. That is true for state and local governments, businesses and households, but NOT for the issuer of the currency.
MMT guru Stephanie Kelton, is the new deficit owl. Zach Carte, writing about Kelton’s “big idea” in a recent HuffPost article, put it this way:
“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.”
MMT economists believe their “theory” is really just a more accurate way to account for federal spending and they are champing at the bit to prove that they can manage an economy that serves the needs of ordinary working people.
Until that day arrives, there is much that can be done even at the state and local government levels. Many MMT economists are aligned with the public banking movement. The state bank of North Dakota offers a model, since 1916, of how banks can serve the public interest through times of economic boom and bust. Their well-documented success is now being studied for potential replication in 50-plus cities and states.
If a state bank can work successfully alongside private sector banks, imagine how much greater the impact might be if the federal government were to dramatically increase public investments in developing renewable energy, infrastructure improvements, and employment programs?
Such investments may seem impossible in today’s political environment, still dominated by Reagan era anti-government intervention policies in the global economy. In reality, even the very institutions that govern the corporate oligarchy have begun to recognize the failure of unregulated capitalism.
The World Bank has repeatedly warned that the fossil fuel economy is no longer sustainable: oil companies must begin to leave deposits in the ground and write off stranded assets. The International Monetary Fund reports that record income inequality will lead to ever greater political instability: focusing on short term quarterly returns is not sustainable in the long run. The world’s scientific community, through the United Nations’ Intergovernmental Panel on Climate Change, sounds the most ominous alarm that business as usual is leading to catastrophic climate change. Even Pope Francis has warned that the current neoliberal economic system is no longer sustainable.
These warnings, while unheeded by the absurd policies of the Trump administration, are beginning to wake up both the liberal and conservative establishments. Recognizing the imminent dislocation of entire economic sectors due to automation, proposals for a Guaranteed Basic Income (GBI) are being floated. While GBI may play an important role in the future, it is more likely to play only a stop-gap role in the near term and will further reinforce the “precariat” of precarious, contract workers in the global “gig” economy.
The good news is that the neoliberal era is coming to an end. The spirit of FDR is being heard once again in the form of federal job creation programs. There are now establishment proposals to address the scandalous level of poverty in the U.S. Bob Rubin, Obama’s Treasury Secretary, proposed a federal jobs program in a NY Times Op-ed last year. Even Kevin Hassett, chair of Trump’s White House Council of Economic Advisors, has championed a federal jobs program that received a positive review by John Harvey in Forbes Magazine.
Feeling the Bern?
The time is now right for serious consideration of Bernie Sanders’ new Job Guarantee legislation. This is a well thought out proposal that has already picked up co-sponsors from powerful senators like Elizabeth Warren, Kirsten Gillibrand and even centrist Corey Booker. You may be surprised to learn that the Sanders Institute, headed by Jane Sanders, has been working with leading MMT economists, including Stephanie Kelton, to design this ground-breaking legislation.
The MMT Job Guarantee (JG) program is designed to address the problem of poverty directly by providing jobs, not just job training. The new JG program avoids the pitfalls associated with federal administration of job programs and the inevitable objection to “socialism” by offering jobs through local, nonprofit organizations serving the needs of local communities.
The economy is divided into the private business sector, public or government agency sector, and the nonprofit sector. By design, the JG proposals kick in only when the private and public sectors are not able to provide jobs for those who are willing and able to work. Nonprofit organizations are focused on community based needs and have the capacity to hire but lack the funds to do so. When there is unemployment (including those who are underemployed and have given up their job search) then federal funds are made available to nonprofits on an application basis. When private sector employment expands businesses can hire from the public and nonprofit labor markets.
The nonprofit sector is not small or negligible in relation to the overall economy. Roughly 1.6 million nonprofits account for 11.4 million jobs, 10.3 percent of all private sector employment, and contribute about $880 billion dollars to the economy, or about 5.5 percent of G.D.P. Building the capacity of these organizations to innovate, develop social enterprises and increase services where needs are critical is a strategy that is attractive across the political and ideological spectrum.
Surprisingly, net cost projections for JG programs, even when based upon hourly wages of $15, $18, and $21, are in the modest range of $6-700 billion dollars. While costing about the same as a government economic stimulus program, significant cost reductions can be anticipated as poverty rates decline. There will be less need for public sector social welfare programs that address the symptoms of poverty: crime, housing, health, etc. Even more importantly, offering living wage jobs will force the private sector to raise wages across the board – a systemic solution that avoids separate battles for wage increases in every low wage sector of the economy.
MMT economists and their fiscal policies offer the potential to fully fund all aspects of the progressive agenda – poverty, rebuilding of our transportation infrastructure, transitioning to 100 percent clean energy, investing in neighborhoods that have been neglected for decades, cleaning up brown field sites, transforming our industrial food system and implementing agro-ecological practices that support carbon sequestration and policies designed to revitalize local, organic, farms serving local cities and towns.
This agenda is supported by large majorities of the American people and is essential if we are to address climate change. The MMT approach to economics is hiding in plain sight, and thanks to Sanders’ new legislative proposal, more people are becoming aware of its potential to drive the bold systemic changes we need.
For example, a new group calling themselves “Real Progressives” is attracting thousands of followers online and on Facebook. They share a common commitment to MMT economics and play an intermediary role to bridge the gap between economics and political policies.
The climate justice movement, especially the younger generation, has discovered MMT as the essential toolbox needed to address global warming before it is too late. In These Times recently published “It’s Time for the Climate Movement to Embrace a Federal Jobs Guarantee. by Varshini Prakash and Sarah Meyerhoff. The authors argue…
Framing the climate movement’s efforts around empowering Americans from all walks of life to build an inclusive economy will not only garner more popular support for climate justice goals, it could also help build stronger relationships with labor, economic, social and racial justice movements which will likely also throw their weight behind such jobs program proposals.
As Victor Hugo famously said, “Nothing is more powerful than an idea whose time has come.” MMT’s approach to public finance and advocacy of alternatives to debt-based money creation could be the mechanism that unlocks needed capital investments directed to local economic development and green infrastructure projects. The resources listed in the sidebar reflect the growing movement toward a New Economics with a new fiscal engine capable of driving a bold, transformative, progressive agenda.
MMT Resources for Progressives
Stephanie Kelton, Professor of Public Policy & Economics at Stony Brook University is a leading spokesperson for MMT (Modern Monetary Theory) and founder and editor of the blog, NewEconomicPerspectives.org, See her website: StephanieKelton.com.
Fadhel Kaboub, President of Binzagr Institute at Denison University
Dr. Kaboub organized a national conference on MMT in the Fall of 2015 and has established the Institute as a research and policy think tank. See the website http://www.binzagr-institute.org/for a rich collection of print and video resources
Ellen Brown, President of Public Banking Institute
The Public Banking Institute was founded by Ellen Brown in 2010 to further the understanding and implementation of public banks. Brown, an attorney and author of Web of Debt, began researching alternatives in the banking/financial sector that might empower regional governments, Main Street, and the middle class against the ruthless hegemony of Wall Street and the big banks. See their website http://www.publicbankinginstitute.org/to learn about the success of the State Bank of North Dakota and other cities and states exploring public banking alternatives.
Chuck Lynd is a founding board member of Simply Living and an advocate for investment in Ohio’s local economies. Email Chuck.Lynd@gmail.com.
