cover by Hachette Book Group, 2020. Design by Pete Garceau.
Dear Citizens and Elected Officials:
Preface
During President Obama’s very dignified two terms in office, he made a number of statements equating a household’s economics with the Federal Government’s, little sermons all pointing in the direction of “living within our means...tightening our belts...not spending until we had the income and savings to pay for it...” In essence, the President was equating the average citizen’s household with the sovereign, sole currency issuing power of the giant federal government, and the most contemporary manifestation of that power, the ability of the Federal Reserve to create money, reserves in private sector accounts, by merely keystroking on its computer keyboard — without using taxpayer money and without direct congressional authorization. In other words, what if a good part of conventional economic thinking is wrong, has been displaced by the flows and events and realities in the modern economy?
It’s very relevant right at this historical moment inside the Democratic Party and Congress in September of 2021, where the entire dialogue centers around how much federal spending to authorize and how it will be paid for in tax revenue or reductions in existing programs...and the tired old game from the Clinton and Obama years, re-runs of Republican obstructionists threatening to not raise the federal debt ceiling...
What if the true sequence of federal governmental action is that it spends its currency first into private accounts, then uses taxes and borrowing via the sale of Treasury Bonds as secondary adjustment levers to fight inflation and sectoral distortions, including the maldistribution of income and wealth?
What if the modern drive shaft of our economy is not just entrepreneurs and our scientists innovating and inventing, but that enormous federal budget spending of $6 Trillion Dollars per year, most of which ends up in private accounts, households and business, and funding a good part of the research that leads to medical and other technological breakthroughs...
What if the truth is that most of the time federal deficits are good precisely because those public deficits represent positive dollar flows into private accounts…
What if the historical record shows that every time the federal government works to balance its budget, a recession or worse, a depression, follows closely, as in the years preceding 1819, 1837, 1857, 1873, 1893, 1929 and 2001?
What if the oligarchy of major firms who control most of the money in our banking system loaned out money first and worried about deposits/reserves later...the loans creating the deposits in the new way of thinking…
What if the Federal Reserve made sure that private banks had all the money they needed, letting them control the money supply (but not the interest rates) in a grand example of “situational ethics?”
What if the new economics of Modern Monetary Theory were driven not by the ideas of German Hegelian Romantics, scientific British aristocratic land owners (whom we fought against in our Revolution) and religiously driven, absent minded Scotsmen wandering the streets of Edinburgh mumbling to themselves...but empirically focused scholars pouring over the details of the actual workings of modern central banks, the Federal Reserve (and its dance with the Treasury Department) and other western Central Banks?
And finally, what if, to paraphrase the words of Professor Stephanie Kelton in “The Deficit Myth,” our central concern was not the federal budget deficit, but the deficits of our citizens in health care, wages, income and wealth, housing, education and jobs...and the huge deficit of caring for Nature, its climate, which our own actions have so badly pushed out of the cycles which first enabled us to emerge as the leading species on the planet? These are all deficits which matter greatly as well, and require a new focus by the Congress of both parties.
And require a new conversation about economics around the citizen’s proverbial kitchen tables.
Introduction:
I’ve been meaning to write about the broad outlines of the major drama unfolding in Washington, DC since August, the struggle between the left and center-right inside the Democratic Party and against the politically nihilistic yet disciplined voting of Trump’s Republican Party. On the table is the content and $$$ scope of the President’s “Build Back Better Program” now standing at $3.5 Trillion (half of what Senator Sanders wanted) and the Senate-passed Infrastructure bill at $1 Trillion. Like a feuding “Dancing with the Stars” couple, the timing and routine contents are also up in the air. John Podesta, a ghost from the party’s Clintonian past, is now imploring progressive democrats to scale back that $3.5 trillion in order not to destroy the chances for both bills. Or the party’s chances in the mid-terms. Goal line stands by either the center or left he says, would be “unconscionable.”
Since most conventional political reporting is focused on the details of the conflicts inside the Democratic Party, I want to shift the focus to the deeper forces at work. And that is the challenge Modern Monetary Theory (MMT) poses to the remains, still dominant but slowly loosing its grip, of Market Utopianism, of private markets over public interventions into those markets, and its “operating system” which has been known as Neoliberalism.
At the core of Neoliberalism is an anti-statist, anti-regulatory, anti-public spending and anti-union “philosophy,” where austerity reigns for the bottom 60%, but the spigots are always open for tax cuts for the wealthy, because we are all dependent on them for creating private sector jobs, which in theory are always superior to public sector jobs.
Since at least the election of Ronald Reagan, fundamentalist and evangelical Christianity, supported at times by conservative Catholics (on abortion issues at least) , has turned its back entirely on the Social Gospel movement from the early 20th century: that is, on a more realistic interpretation of the Sermon on the Mount suitable to modern, post-industrial times. A Sermon which might finally recognize a social component of morality to go along with Protestantism’s predominant fixation on the “state” of one’s private soul: saved or not.
Instead of a Social Gospel, the majority flow of Protestantism on the Right offers much personal striving, pain and suffering, mental and physical. If you are not well off, you must be doing something wrong. Sinning very likely. Instead of national health insurance, one gets low wages, long hours and dictatorial “union free” workplaces, with no safe retirement outside of Social Security and with no significant Social Security increase since Richard Nixon; instead of a livable minimum wage, paid family and sick leave, you’ll find life most cherished inside the womb. After that, it’s like running a mine field on the Eastern Front. And the Religious Right has thrown its ministerial and financial support to climate crisis deniers like Donald Trump and against common sense public health measures to combat a pandemic. (www.nytimes.com/...)
Now I know this is going to strike some as unbelievable, but social critic Chris Hedges, who says he knows something about the Gospels, says the earliest Christians weren’t rich, and didn’t socialize with the Roman Senatorial elite, the elite which had the Gracchi brothers murdered after they upset Senate traditions on behalf of the landless debtors. I’ve read a lot of history about our American founders who were infatuated with the Roman system, but I never recall hearing about the Gracchi Brothers, whom Cicero hated. But I digress just a bit.
It has been the Republican Right which has gone “all in” for foreign interventions, injecting the fear of God, of being “soft on communism” into LBJ (RIP) and the Democratic Center since the McCarthy days (no budget balancing for that cause), and then the open-ended war on “Terrorism.” There is dispensationalism at work here: we dispense with our culture’s usual abhorrence of political emotionalism (not allowed on the left, ok on the right), despite the reality that the know-nothingism which drives these interventions finally, and always, comes face-to-face with the fact that Americans, even our educated foreign policy “elites,” know little of the societies they intervene in - on behalf of noble words - and, ultimately, really don’t seem to care to know more.
Too much of the Right feels it needs only two inerrant books and a “fundamentalist” interpretation of the constitution (what they call “Originalist, original intent”) which is conveniently suspended where necessary to support the crusades. And this has become an interpretation of the Constitution which sits strangely at odds with the other half of the Republican Right coalition, American business, intent on constant change and motion and thoroughly internationalist in outlook, especially on the topic of tax shelters and cheap labor. How could I forget: a good portion of the business Right, family owned businesses of all sizes, is “fundamentalist” in economic outlook as well. Any doubt of that, please revisit Rick Santelli’s “Rant Heard Round the World,” February 19, 2009. Here: www.cnbc.com/… It’s a good if not the perfect example of what the hard Right does, but which the AFL-CIO seems incapable of, even when objective circumstances have called for it for almost half a century. American labor may be mad as hell, but they’ll take whatever the Democratic party dishes.
If Donald Trump managed to locate an exit door from the permanent war in Afghanistan, and another from slanted trade deals, his lack of systematic thought, and disciplined policy execution made a shambles of the premises of what he arguably got right.
Surely part of the rage of rural Red State America stems from the fact that the economic fallout from the Pandemic halted, dead in its tracks, the longest expansion, without a recession, in recorded Western economic history: from June of 2009 until March of 2020, and it was the public interest “types,” and the medical establishment who were urging “shutdowns” and “masking,” thus piling up the fuel for the conspiracy theories about a Pandemic “employed” to defeat the otherwise triumphant Trump.
In reality, the failure to deal with the Pandemic triggered the end of that remarkable economic run with a dramatic plunge in GDP and a very serious but little discussed freeze in the private speculative markets. Both crises were stabilized via federal interventions: massive federal spending and massive Federal Reserve buying of U. S. Treasury Bonds which no one else wanted to buy at the peak of the March crisis. All done without the usual federal budget “offsets,” or tax increases.
Ideologically, the Congressional counter-measures in 2019 and 2020 were made possible by the conviction that an otherwise very healthy economy had been harmed by non-economic forces: the Pandemic and the shutdowns to combat it.
It may not be popular on the left or among Democrats to say this, but without the Pandemic, and its mishandling by Trump, there were no signs of economic trouble heading into the 2020 Presidential election. In the conventional thinking, and on the “surface.” Yet beneath the low unemployment numbers and low inflation, the long term trends of wealth and income distribution continued: since the mid-1970’s, the U.S. has seen the upward transfer of some $50 trillion dollars away from the bottom 90% to the top 10% ( time.com/...). And there were pain indexes to go along with the very small emergency savings in citizen accounts: a drug epidemic, suicides, “Deaths of Despair,” and rotting, broken teeth which Medicare said were not part of its health program.
This greatest transfer of wealth in human history is one of the deeper story lines in this posting as well, involving the slow but steady reversal of the economic, social and labor policies of the New Deal. The “stagflation” of the 1970’s and early 1980’s — high inflation and high unemployment — broke the spell of Keynesianism’s management of the economy, and installed an American version of the Austrian-Chicago school (Von Mises and Von Hayek based), the foundation of Neoliberalism.
Since the late 1970’s, and up until the Great Financial crisis of 2007-2008, the economic Gospel was that striving for low unemployment would trigger runaway inflation, and sustained federal budget deficits would as well. And those proposed universal social programs, like health care for all and a generous federal minimum wage, or a job guarantee, labor law reform? Well, you can’t keep race out of politics, and economics is always wrapped around with politics as well, inseparable they truly are: thus “compassionate” programs would mostly benefit the undeserving poor, mostly black and brown sprinkled with poor “white trash,” who didn’t want to work for them, and didn’t, morally, deserve any such compassion, “Christian” or “Secular” Thus large federal deficits were implicitly conflated with the Right’s charge of national moral deficits, stemming from the breakdown in values passed on by those terrible 1960’s. For businessmen in rural America, the cry “they don’t want to work” is connected to “those bad days” based on “Sex, Drugs and Rock and Roll.”
Whatever has happened to Sex & Rock n’Roll, Drugs have come on strong, a native growth industry so powerful it has opened the door to Failed States and Narco States to our south, and, imagine this: driving immigration.
No discussion of economic policy change in rural Red State America goes on for long, or apparently in the memoirs of those writing to explain the rural American outlook to uncomprehending distant “coasts,” without an outburst of heartfelt bitterness over the mere possibility of including the undeserving poor in the benefit proposals, especially universal program ones. The outrage descends upon the discussion like a heavy “iron curtain” from the right. It was Rick Santelli who rang down that curtain for our times from the floor of the Chicago Stock Exchange (being a reporter for CNBC news) with his “Rant Heard Round the World” — sounded on February 19, 2009. It was the founding siren call for the Tea Party movement and as he explains in this “retrospective” take from 2014, it was a cry for fiscal conservatism and against the Federal Reserve’s market interventions, with the most emotionally and ideologically threatening parts being, for Santelli, federal aid for those who couldn’t pay their mortgages any longer — and might have even gotten their “bigger than yours” house by lying about their income: www.cnbc.com/… ( A very, very one-sided view of what many investigations later showed: systemic fraud by lenders as well as some fraud by the applicants.)
And Mr. Santelli hasn’t changed very much, in temperament, or economic ideology, still ripping into the Federal Reserve’s policies of keeping the system afloat, here on June 15, 2021: www.streetinsider.com/...
And now Modern Monetary Theory arrives to threaten these long standing economic and moral equations, and then, of course, the Green New Deal Resolution, whose ambitious outlines were encouraged by a sea change in the way MMT looked at federal spending, deficits, and how the Treasury and Federal Reserve actually operated. Author Stephanie Kelton compares it, in the Introduction of her book (above) to the change of outlook triggered by Copernicus in astronomy in the 1500’s.
Of course it’s threatening: MMT promises greater economic fairness, and less cruelty, in this the least generous of Western social democracies. And even worse, it threatens to overturn the proverbial “kitchen table economics” of thrifty, righteous families agreeing that they can’t afford “nice things” yet, not this year, even if nice things translates in our brutal economy to the basics of health care, dental care, child care, and a $15 dollar minimum wage, which is also becoming woefully inadequate by 2021.
I wish Professor Kelton hadn’t used the term “nice things” for what is missing in American economic life. To me, the promise of the MMT view of fiscal matters gives a fighting chance, for once, not a guarantee, to the “Economic Rights of Man,” to merge 1789 with the American political rights of 1787, which was the framing for FDR’s Second Bill of Rights, economic rights, eight of them, presented first in 1944 in his State of the Union Address; among the most important being the right to a “useful and remunerative” job, the right to health care, and the right to a “decent” home. There is a huge difference in meaning between a “human right” and “nice things” to have. And it would be “nice” if the left had half the passion, for its far better causes, than Rick Santelli had in his rants.
Enter Adam Tooze, an Economic Historian, Who Drops Anchor in the MMT Harbor
Professor Tooze, an Englishman who teaches at Columbia University, has a new book out this September called “Shutdown: How Covid Shook the World’s Economy.” No sooner had he put forth his summary in an guest column in the NY Times on September 1st, somewhat ominously entitled “What if the Coronavirus is just a Trial Run?” (www.nytimes.com/...) than it was reviewed by none other than Robert Rubin the very next day in the same paper: www.nytimes.com/…
Yes: that Robert Rubin, Secretary of the Treasury under Bill Clinton and head of Citicorp after that, now a robust 83 years old. It must have been something alarming that Tooze wrote to call Rubin out of retirement - and the very next day after Tooze’s column appeared. On the whole, it’s the same “gentle” Robert Rubin mostly agreeing with Tooze, except on China, and on this “alarm” note: Tooze’s “ratification” of the reality of MMT in practice, if not in theory. Here’s how Mr. Rubin handles that very hot potato:
On some of these issues, Tooze suggests a point of view, especially his belief that constraints on spending are artificial. He writes that the scale of government spending and central bank intervention in 2020 “confirmed the essential insights of economic doctrines … like Modern Monetary Theory.” He quotes John Maynard Keynes — “Anything we can actually do we can afford” — and concludes, “There is no fundamental macroeconomic limit that anyone can discern.” On this, we disagree. Not with the scale of coronavirus response (or the potential scale of future crisis responses), but with the notion that it forever obviates the need for responsible fiscal policy. You don’t have to know where the limit is to believe it’s highly likely there is one.
But resolving policy debates is not Tooze’s aim. Rather, he largely allows the facts to put the questions he raises into sharp relief. To whose benefit do we mobilize the machinery of the state? Who is left behind? Do those choices contribute to the fracturing of our politics? Was 2020 “the death of the orthodoxy that had prevailed in economic policy since the 1980s?”
Rubin can really muffle the ideology here: “Yikes — can you image a Columbia economic historian having ‘a point of view’ (as if Rubin doesn’t have one!). And the nerve of Tooze bumping up MMT from a mere competing theory to the dignity of an “economic doctrine.” (The link Rubin supplies to a New Yorker article from August 20, 2019 entitled “The Economist Who Believes the Government Should Just Print More Money” — a real cheap shot at Stephanie Kelton to be sure — tells you what follows: a lot of rough elbows.)
Other than that and Tooze being too easy on China’s method of controlling Covid, Rubin and Tooze are good to go down the aisle together.
The Conversation: the NYTimes’ Ezra Klein Interviews Tooze, Sept. 17, 2021
Readers here at the Daily Kos can view a 1 hour & 17 minute Podcast, or use the Transcript provided in the NY Times here: www.nytimes.com/… (I’ve worked from the transcript.)
I’m going to spotlight quotes from each participant to illuminate their views of topics I presented in my Preface & Introduction and then add some commentary where needed to clarify, agree or dispute.
Before I begin with Klein’s “overview” on Tooze, let me say this about Klein himself. He may be the most prominent NY Times commentator by far on economic and social policy, right after Paul Krugman; here, judged by space and “weight,” I think he may have had more to say than Tooze himself, which is a rather interesting way to “interview.” ( He’s no self-effacing Terry Gross (of Fresh Air fame, public radio: completely opposite styles)
And let me go out on a limb a bit: I doubt Klein would still have his job with the Times if he gave a ringing endorsement of MMT, even in the low key, matter of fact manner that Tooze does. Klein’s “hedge” on MMT is apparent in his handling of Larry Summer’s - who has meat-axed MMT any number of times. Klein says he agrees with Summer take, but not his manner of presenting it.
Now let’s start with Klein’s “overview” on Tooze’s methodology, closely connected, in my view, to the economic historian’s conclusions, derived not from theory but observation of the way the economic world works, decade by decade:
Tooze’s angle...is using financial crises as a lens into the ideology of economics, using them as a way to understand where our economic theories and models match the world, how they’re really created and then the moments in which they are changed by the world, whether or not the economists behind them admit it. And in just the past 15 years we’ve lived through two such moments. And so that is what the conversation is about.
A good part of this conversation, and a good part of the MMT outlook builds from John Maynard Keynes observation from World War II that “anything we can actually do, we can afford.”
Tooze then adds his support and qualifiers:
So it’s double-edged...But 2020, I think, illustrates both sides of this. So on the one side, this is the emancipatory promise, this open-handed ‘we can afford anything,’ by which I think Keynes means, money is a technical issue.
In the end, it’s a question of mobilizing finance, stringing together the financial engineering, doing some of the central-banking arithmetic we might need to do. But in the end, what limits what we can do is not whether we can afford something, but whether we can actually do it.
Notice in Tooze’s assessment that fear of inflation, the ride of the bond market “vigilantes” to head it off, is no longer operating, as it did during the Clinton administration, where pleasing that bond market by fiscal austerity in the federal budget to cut the deficit and debt, became the deciding factor on what could be proposed: nothing big. The bond vigilantes came back during the Obama administration as well, limiting the size of the stimulus package in the wake of the 2007-2008 collapse in the financial markets and serving as the prelude to the rapid rise in unemployment to 10% levels. (And very slow recovery).
Which brings us to the grand question: Why? Why is inflation no longer the great worry it was coming out of the late 1970’s and early 1980’s until Fed Chairman Paul Volcker (who served from 1979-1987) recessioned it under control by pushing the Fed target rate into the teens (it’s now between 0 and ¼ of a percent by comparison); then only to have the worry crop up not under Reagan’s growing deficits but under Clinton’s watch, and then Obama’s (no worry under the tax cutting of George W. Bush’s administration, no worry under Republican deficits with V.P. Dick Cheney famously stating that “deficits don’t matter”) ; Dems had become the party of fiscal austerity, a hat which seems to switch parties in a very bad case of economic “situational ethics.”
MMT takes deficits out of the old moral category of profligate household budgeting and into the more practical analysis of what programs are serving broad public needs, looking closely at where federal spending may cause supply side shortages and thus sectorial inflation; and taxes may be mis-targeted: instead of relieving spending pressure on limited resources. (Or ritualistically cut again for the financially well off.)
And Cheney’s notion that deficits don’t matter may have come from his and Donald Rumsfeld’s interest in the work of Warren Mosler, a financial market player who turned theoretical, considered by Stephanie Kelton and L. Randall Wray, to be one of the real fathers of MMT; along with the “functional finance” of Abba Lerner going back to the 1940’s and the work of Wynne Godley, Hyman Minsky, and more recently, Bill Mitchell in Australia...Pavlina Tcherneva, Mat Forstater, Ed Nell, Scott Fullwiler and Eric Tymoigne, all named in the Preface of Wray’s primer called “Modern Money Theory” (2012).
Once again, why instead of inflation with growing federal deficits do we have deflation worries? Here is Tooze’s answer, which is widely accepted among the economists I read: It
...is the shift in the power balance between labor and employers, and that it helped to explain profit margins. It helped to explain inequality. It helped to explain the tending towards low inflation that we see across most of the advanced economies.
The amazing testimony that both former Federal Reserve Chairman Alan Greenspan and Ben Bernanke have delivered to Congress, admitting that taxpayer dollars are not directly used when the Fed intervenes to stabilize collapsing private financial markets, including massive speculative ones, but instead creates the money outside the Congressional authorization process by electronic keystrokes (what the popular voice denigrates as “printing money” or “helicopter drops”) is very upsetting to both the economic right and the left, but for different reasons.
Ranting Rick Santelli, he of the Tea Party speech at the Chicago Exchange on February 19, 2009, memorialized five years later in this video, is a near perfect example of an old time fiscal conservative outraged at the power of the Fed to keystroke wealth to those who may have not earned it (at the top), and heaven forbid Congress ever tries to do the same for the undeserving poor at the bottom, through things like universal health care, a job guarantee or stopping evictions: www.cnbc.com/...
On the left, Ezra Klein ponders that
And it is just weird that we have an institution of checks and balances and filibuster and committees and divided government that operates when you need to ask, should people get help in their everyday lives? And then an institution functionally just run by Chairman Powell and the Fed Board that operates and the question of well, do we just need to begin buying up all the debt anyone wants to sell us?...there’s just no doubt that it is a profoundly unfair way to run the system.
And that is why I included, in my title, the idea that MMT is very threatening to the financial establishment, whether of the right like Rick Santelli, or the purported center-left of Larry Summers; MMT puts the unfairness and imbalance of the Fed’s interventions under the spotlight just as the strange case of an America without national health insurance, without a living minimum wage, without a job guarantee and/or new CCC...and on and on about our non-existent or moth ridden social safety net from the 1930’s...all converged center stage thanks to the Sanders’ campaigns and the Green New Deal concept….and added to the giant cost and physical task of remaking our economy to give Nature a “Bill of Rights” too...and by doing so bestowing on ourselves elemental “survival” rights.
Here is Tooze’s take on these provocative, troubling dynamics:
The added twist of that tale is the paralysis of fiscal policy because of the complexity of politics...The obdurate objection from the right to measures which folks like us, on the progressive side of things, think are essential — that paralysis means that, for a long time...the only game in town, in terms of active economic policy is the Fed…
And the Fed’s interventions have the effect of not just underwriting speculation to date...but further accelerating and exacerbating and forcing the process of financial accumulation and growth and profit-taking. So it’s really a very difficult and deeply entrenched structural bias.
Concluding Thoughts and Observations
MMT should be proud of itself for basing its new conclusions about how the economy and especially the financial economy work, basing them on careful studies of how Central Banks, including our own Federal Reserve actually operate at the sole issuers of the national currency, the dollar being just one example in the West of a “fiat currency.” This seems straightforward enough, until you realize that there is not just one, but many “Green Curtains” (The Wizard of OZ is worth re-reading as an adult wondering...) which obscure the complicated dance, part reality, greater part symbol of the national fiscal and monetary myths, between the US Treasury and the Federal Reserve. And Congress: let’s not forget the Congress. For this task, Professor Kelton is the mainstream, folksy even, public “explainer”; L. Randall Wray the economist who works to keep the rigor of “economics as an attempted science” alive by making his formulations (mostly) logically consistent with one another; and finally economic historian Adam Tooze, who takes the long term view focused on what actually happens in economies and related institutions, whether inside or outside of existing paradigms.
What would Professors Kelton and Wray want you to take home from this exercise in economic ideas? Well, here’s my translation: First, the issuer of a sole sovereign national currency with a powerful and respected Central Bank can never go broke, never default (unless it’s a conscious Congressionally willed default, the regular Republican strategy to oppose Presidents Clinton, Obama and now Biden. In full bloom again as I write)
How can that be? Because as former Federal Reserve Chairmen Alan Greenspan and Ben Bernanke both stated in Congressional testimony, the Fed can, without using Congressionally approved taxpayer dollars, deposit money (actually reserves) in private accounts to make “payments” — as it did almost exclusively into major private financial institutions accounts during 2008-2009 and most recently at the peak of the Covid crisis in March of 2020 — buying Treasuries from private holders.
And taking the MMT logic further, the Fed might also do the same for buying US bonds from the Treasury itself ( a Rubicon of sorts to never cross in conventional thinking) or creating reserves in the Social Security “funds” or defense contractors accounts. Or, in an even greater theoretical scenario, paying all the parties to fulfill a Green New Deal program authorized but not paid for under Pay-Go or anything else...but that’s the extreme situation.
MMTers like Kelton want you to know that it is not a religion, not a panacea, and is hedged about by fears of inflation just like more conventional economists are — only the MMTers fears of inflation come not from federal deficits and debt nor the interest rates that the Fed so increasingly targets, so low for so long...but rather physical constraints: is there enough capacity in materials, a well trained workforce, productive structures and increasingly, supply chains, to fulfill the public purposes Congress has legislated for — without igniting structural inflation across many sectors.
And MMTers want you to know that the real cause of inflation is not the size of the federal debt or deficit, but trying to coax, to force “more” out of an economy already at or near full employment. And those unemployment numbers are tricky in themselves because of the way we tabulate who’s counted or not in the workforce. It’s been a standard premise of MMTers working for a “job guarantee” to find that many not counted in the workforce have dropped out, and could become full time workers given the right job and better pay and benefits...and that observation is being confirmed in the wake of Covid fallout: frontline workers who don’t want to risk their lives for $7.25 an hour and no health benefits...current national policy for workers making a mockery of all the tributes paid to frontline heroism and risk taking. It’s outrageous and no wonder some don’t want to play this deadly game for so little compensation.
One of the obstacles MMT must overcome is the reluctance of economists to buy in fully to its “origin theories,” origin theories about creation, the social contract and government itself, not to mention the “first markets” - are always dicey and conflicted. And MMT asks you to accept a reversal of the old kitchen table common sense not only on debt and deficits, where the federal government is not subject to the rules of the “household economy,” but also this: the federal government does not need your tax dollars or private loans from bond purchases to spend money; first it spends into the economy to purchase what it needs for the country, and it uses taxes and “loans” only as secondary tools to control inflation (pull money out of private hands) moderate inequality, or dampen demand in overheated — or ethically undesirable sectors of the broader economy.
There is a short hand for this role reversal from Neoliberalism’s (and the original conservative “Liberal” economists, the founders of capitalist thought in the late 18th and early 19th century) cherished pecking order — putting the entrepreneurs of the private sector first, exalted, and government its servant, left to policing, especially policing of contracts, and of course: warring abroad while keeping labor organizing at home in the shadows. Here are the abbreviations: from the old: TABS — Taxing and Borrowing precede Spending; and from the New: STAB — Spending precedes taxing and borrowing (that’s federal spending of course).
It’s a huge conceptual shift that Kelton is short handing here in her very first chapter, appropriately called, “Don’t think of a Household.” Listening to the Democratic Party leadership speak in the week of the Autumnal Equinox, September, 2021, or to the CNN commentators dwelling on “how they will pay for it” — with nary a MMTer in sight, or any of their key frames ever prompting a question, this ought to assuage people like Larry Summers, and Rick Santelli that MMT has nowhere established much more than a foothold in either popular or learned commentary: left (Sanders), right (Santelli) or center (Summers, Pelosi, Schumer).
And that brings us to the tough part of the landscape which Adam Tooze has brought us in his new book, what Covid has dramatically revealed. We are a nation incapable of doing big things anymore, whether it is a life or death matter of fighting a Pandemic, or keeping Nature from going off our own steep cliff by passing a Green New Deal, and addressing the terribly imbalanced way the Federal Reserve uses its newly found MMT tools to prevent another1929.
Tooze has caught us, and economic thought as well, suspended between eras, the fading light of Neoliberalism, and the yet to be risen sun of “freedom from deficit worries” and freedom to better meet the needs of the American people:
And that’s why he see us, and most of the West, caught in “a situation of profound uncertainty...the situation is genuinely opaque. We are in a broken play here. We’re in a gray zone.”
And that’s always been my greatest worry as well: that at the heart of the political divisions in the US are huge disagreements on the role, or not, of the federal government and what Tooze sees as its most competent institution: the Federal Reserve. Whether under Clinton, Obama or now Biden (who moved left, to be sure, pressured or by choice is not clear), the political situation in Congress seems always to push to the right on content and scope. And I express this by stating my two paradigms for the US since Reagan: one, heading towards Civil War (low level, non-shooting I hope...) as in the 1850’s, or two: towards the legislative paralysis of the Weimar Republic in Germany between 1921-1933, where even in the wake of the severe impact of the Great Depression, the parties of the Reichstag could not agree to increase unemployment insurance for the millions thrown into poverty — and hopelessness. The center-left had no cure, despite the millions who voted for the Social Democrats. But the nationalist right did, and you all know what happened.
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