Modern Monetary Theory is so breath-takingly different from the conventional view of economics that it takes some getting used to. Those interested in the long version might be interested in these excerpts from the Fiscal Sustainability Teach In Counter Conference, which was my first exposure to MMT.
I support MMT simply because it is an accurate description of the world as it is. Taxes do not fund the government. Let me provide two examples of how that is the case. From Scott Pelly’s interview with Federal Reserve Chair Ben Bernanke:
Asked if it’s tax money the Fed is spending, Bernanke said, “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing.”
“You’ve been printing money?” Pelley asked.
“Well, effectively,” Bernanke said.
So when banks are in trouble the Federal Reserve can, if it is so inclined, print money to bail them out. Banksters already have MMT, we just need to take this public resource and put it to public purpose rather than continuous bailouts of ailing banks.
Warren Mosler illustrates MMT by explaining that if you went to the IRS personally to pay your taxes in cash the IRS would hand you a receipt, thank you, and put your cash in the shredder. From the point of view of the IRS your cash is simply a symbol of your compliance. By contrast if you went to the D.C. Department of Taxation and paid your taxes in cash they would give you a receipt and put that cash in the bank. From D.C.’s point of view your cash has value. Clearly if the IRS puts your cash in the shredder they are not planning to use it to pay for government expenditure as would be the case in D.C.
These two examples demonstrate that Modern Monetary Theory explains the world as it is. Taxes do not finance government expenditure at the federal level. That alone is reason to embrace MMT. If it explains the world as it is, and I put it to you that it does, than we should use it as a basis for public policy.
I will try to address some of the inevitable doubts that spring up about MMT. Here I confine myself to honest critics of MMT, people who are sincerely trying to understand it. I will ignore those who I regard as propogandists for plutocrats, who are using the myth of scarcity to maintain control over our economic discourse.
The first objection people raise is that of inflation, what about Weimar? Zimbabwe? The problem in both cases was not printing too much currency, but the collapse of productive capapcity. In the case of the Weimar Republic what was not destroyed in World War One was taken by France when they seized the Ruhr valley. When there is nothing to buy, the what little there is becomes very expensive. Retricting the money supply will not fix that, you need to expand productive capacity. The same is true of Zimbabwe, in that case farms owned by white farmers were seized and handed over to army veterans. Since the veterans had no agricultural experience production collapsed and a nation that had been a net exporter of food experienced famine. Restricting the money supply would not have fixed that, only restoring agricultural production would. That is why MMT economists focus on productive capacity and see unemployment as a symptom of a dysfunctional economy. It is appropriate for a government to keep spending into the economy as long as it results in the expansion of productive capacity.
Speaking only for myself, I consider increasing taxes on the rich as necessary for preserving democracy. It is clear to me that when inequality becomes too great the uber rich, the .001%, form a cabal to seize power and strip society of its assets. That is what is happening now in Detroit and will happen to the entire country if we are not careful. In my view, higher taxes on the uber rich are part of the checks an balances that preserve democracy. We limit the power of the President, Congress, and the Courts. Each institution serves as a check on the other two, and a free press, the right of assembly and petition, and free elections serve as a check on the system as a whole. In addition to these checks we need to tax the uber rich to limit their resources so they can’t destroy the rest of us, as is the case in unchecked wealth. But this is a political arguement. We don’t need this money to fund the government, we need for no one to have so much money that they can destory society.
I would go farther, I think we need a requirement that no war can be taken without an increase on income taxes at the highest bracket. If it is not important enough to the elites to pay higher taxes, if it is not importnat enough for the elites to make so trifling a sacrifice, while sending others to their death, then it is not important enough for the nation to go to war. But that is a political arguement. We don’t fund wars from tax revenue.
MMT destroys the argument for austerity. Since we can indeed print money, unemployment is completely unnecessary. It is true that nothing in the theory of MMT requires a job guarantee. We can continue with the present system, endless MMT bailouts for banksters and austerity for the rest of us. But once the general public understands MMT that will be politically unsustainable. Once the public understands that the Federal Reserve can simply put money into the accounts of banks the questions arises, why can’t the Federal Reserve put money into our Social Security accounts? Why can’t the Federal Reserve put money into the account of the city of Detroit? Indeed, why not every municipality and state? Why not indeed. As long as that money is used for increasing productive capacity, schools, hospitals, transportaion, and the like, there will be no inflation. There is no justification for austerity. Which is why the elites hate MMT and are keeping it out of our public discourse.
Modern Monetary Theory is as destructive to economic plutocrats as the idea of popular democracy was to royal abolutism. That is why we need to bring it to the general public. Help us do so, help fund Real Fiscal Responsibility Today.