An MMT view of the monetary system changes the way we think about what it means for currency-issuing nations to “live within their means.” It asks us to think in terms of real resource constraints—inflation—rather than perceived financial constraints. It teaches us to ask not “How will you pay for it?” but “How will you resource it?” It shows us that if we have the technological know-how and the available resources—the people, the factories, the equipment, and the raw materials—to put a man on the moon or embark on a Green New Deal to tackle climate change, then funding to carry out those missions can always be made available. Coming up with the money is the easy part. Managing the inflation risk is the critical challenge. More than any other economic approach, MMT places inflation at the center of the debate over spending limits. It also offers a more sophisticated array of techniques for managing inflationary pressures than what we have today.
Kelton The Deficit Myth (pp. 234-35).
I've been reading Stephanie Kelton's The Deficit Myth, and it's one of the best things out there to clarify why Bernie was right and why the Clinton/Obama/Biden/Pelosi wing of the party was wrong--not to mention all Republicans of the Paul Ryan ilk. The federal deficit isn't really a deficit, and anybody who uses the term "deficit spending" pejoratively to justify cutting entitlements or to resist spending on programs like Medicare for All is either ignorant or cynical.
Every time some smart-ass journalist asks a Sanders or a Warren how they are going to "pay for it", they are asking a political, not an economic question. It's political because most Americans think that the federal budget is essentially the same as a business or family budget where expenses have to be covered by revenues. It's just not how it really works. But politicians need to justify their programs in terms that economically unsophisticated Americans can feel comfortable with. So they feel compelled to come up with some pretext to justify their program by analogy to the household budget.
The Republicans might come up with some ridiculous pretext to justify their tax cuts by saying that they will stimulate the economy, which in turn will increase tax revenues that will pay for them. But it's been proven time and again with Reagan, Bush, and now Trump that these cuts only increase the so-called deficit. But each time the Republicans want their tax cut, they bring out their demonstrably false trickle down argument. But even so, the problem with the Republican tax cuts is not that they increase the deficit, but that they aggravate egregious concentrations of wealth and power in the hands of so relatively few.
But even Democrats buy into the 'deficit myth'. Bill Clinton did when he worked so diligently to balance the budget by cutting entitlements, and even now we see the influence of this myth when Nancy Pelosi insists on "PAYGO". The U.S. is not in debt to the Bank of China, as Obama once said. The U.S. is not Greece or Venezuela or Bangladesh. As long as the U.S. has a vibrant productive economy and it has what Kelton calls monetary sovereignty, the government cannot run out of money or default--unless it chooses to, by for instance not raising the debt limit. Everybody--Democrats included-- who thinks that we have a defecit problem or that we are burdening future generations with debt is buying into an ideology that makes no sense after the collapse of the Bretton-Woods system in 1971.
Since then, the U.S. and other countries with fiat currencies can print as much money as they want, and the only limiting factor is inflation. That's a real limiting factor, but running "deficits" is not inflationary if managed competently. China isn't going to call in its chits, and the government isn't going to default so long as the U.S economy remains vibrant and productive. There are no economic reasons for Social Security to run out of money or for not funding universal healthcare or a robust program to renew the national infrastructure. The obstacles for achieving all these things and more are political not economic. The challenge is not lack of money, but lack of imagination and political will.
For many Fiscal Puritans, the phrase "fiat currency" connotes an immoral profligacy. You can't just create money out of thin air, right? Money has to be grounded in something, like gold. Just letting it be whatever a government wants it to be is just wrong. This kind of Fiscal Puritanism runs strong in the American collective psyche, but it is the primary cause of the aforementioned lack of imagination that insists on focusing on delusional moralistic problems rather than real ones. Running the federal government like a business is a false analogy; it simply does not reflect how the economy works in countries with strong economies like the U.S., Canada, Japan, Australia, the U.K. and others that have monetary sovereignty.
I am not going to rehearse all Kelton's arguments here, but there is no more withering, easily understood critique than hers to be found of the Neoliberalism that has dominated the elite thinking of the Washington Consensus whose destructive ideology has played a major role in creating the conditions that allowed for the rise of Donald Trump.
I have some hope that in the post-Trump reconstruction of American political institutions that we will find a way to reset to pre-Reagan when there was actually a consensus built around the legitimacy of the New Deal. We actually had a social democracy there for a while, but after 1980 the Neoliberals came to dominate elite thinking, and everything went badly wrong. It is astonishing how many smart people who should have known better--and who I think wanted to act in good faith--could be taken in by the Neoliberal con. Hopefully books like Kelton's and the emergence of the Sanders/Warren/AOC wing of the party will change that permanently.
The challenge for them is rhetorical rather than technical: how to persuade most Americans that deficit spending is ok. That's a heavy lift because it just seems wrong. It's counter-intuitive, and it goes against everybody's common sense and experience about how money works in their personal lives. If we as individual households, businesses, and even state and local governments have to balance our expenditures with revenues, why shouldn't the federal government? If it doesn't, it should. . . right? That's one point of resistance. The other is Americans' mistrust of big government and their discomfort with giving it too much power. This is a legitimate concern, but big gummint--bigness in general--is here to stay. The question is whether in the future ordinary Americans can make bigness work in their interests rather than in the interests of the oligarchs.
***
Anybody who has read this blog over the years knows that I like to frame issues in loosely dialectical terms, as presenting polarities and then seeking to reconcile them. The fundamental polarity at work in the American political psyche pertaining here is Jefferson vs. Hamilton. The Jeffersonian impulse was carried mainly by Democrats through the 19th century, and the Hamiltonian impulse was carried by the Federalists, then the Whigs, and finally by the Republicans. None of us is completely Jeffersonian or Hamiltonian, but we lean one way or the other with recessive traits of the other manifesting from time to time. Yankees lean toward Hamilton; Southerners toward Jefferson.
Jeffersonians define freedom primarily in terms of freedom from big government and big concentrations of wealth and power in institutions like central banks. Hamilton wanted the U.S. to be a world economic and military power, and he saw a strong central government and a central bank as playing a critical role in effecting this rise to power. Hamilton won early on, but the Jeffersonians dominated the decades in the early 19th Century running up to the Civil War--although among Southerners Hamiltonian recessive traits emerged with their support for the war with Mexico and their fantasies of imperial expansion into the rest of Latin America. The Hamiltonian legacy was developed by his Whig heirs Henry Clay and Daniel Webster.
I think of Lincoln, a Whig-turned-Republican, as a Hamilton-dominant politico with recessive Jeffersonian traits. His greatness lies in his efforts to reconcile both, as so beautifully articulated at Gettysburg, but after him, the Republican Party became the vehicle for Hamilton-dominant thinking between the Civil War and WWI. Equality ideals were forgotten as Social Darwinism took hold in the North and Jim Crowe in the South.
By the second decade of the 20th Century, the heretofore Jeffersonian southern Democrats like Woodrow Wilson morphed into Hamiltonians in supporting the WWI and in bringing back the one thing truly anathema to Jeffersonians--the central bank. The Federal Reserve was created on his watch in 1913. By the time FDR took office, the only members of the Democratic party interested in invoking Jefferson were southern segregationists who looked for any pretext to stymie the federal government from interfering with their post-reconstruction apartheid system. In the late 19th Century Republican phase, the U.S. became a world economic power; in the post-Wilson Democratic phase, it became both a world economic and military power. The Party of Jefferson had become assimilated into the Party of Hamilton.
There were, of course, the cranks like those in the John Birch society who were ok with the big business part of the Hamiltonian legacy, but were appalled that big gummint accompanied it. They were Jeffersonians of convenience like the Southern oligarchs. They hated a big government that would restrict them with regulations and anti-trust laws from doing as they please. They were the country-club Hamiltonians who saw FDR as a traitor to his class. But nobody in the power establishment took those cranks seriously until Ronald Reagan made it ok to be a Neoliberal. And we came to see that crankiness normalized through the efforts of the Koch Brothers and others who fund right-wing think tanks whose sole goal is to give a kind of intellectual legitimacy to ideas that are crudely designed to justify the dominance of the 1%.
Jefferson's vision for America was obsoletized by the Industrial Revolution and by the emergence of the U.S. as a world military power after WWI, and yet his influence lingers in positive and negative ways. We are Jeffersonians when we feel inspired by the ideals articulated in the Declaration of Independence. We are Jeffersonians when we feel uncomfortable not just with how the central U.S. government has grown into this massive surveillance state with hundreds of military bases throughout the world, but also with the way Wall Street and huge concentrations of corporate power and wealth have come to dominate the economic sphere. And we are Jeffersonians when we are appalled at how huge concentrations of corporate power meld with political power.
But we are Jeffersonians in the negative sense when we think naively that our freedoms only thrive to the degree that big government stays out of our lives. Bigness in the private and public sectors is a real problem, but you deal with it by making it accountable, and big government is the only means to keep huge, amoral corporate powers in check. And that requires a vigilant citizenry, not the morally complacent citizenry that lets a quasi-authoritarian crackpot like Trump get elected.
We need to keep those positive aspects of the Jeffersonian imagination of America alive, but we need to realize that we live in a world that is shaped primarily by forces that Hamilton celebrated and are now out of balance. The question before us now is how to effect a political coincidentia oppositorum, i.e., to achieve Jeffersonian ideals using Hamiltonian means. In other words bigness is here to stay, and to wish it away is delusional, and to the degree that bigness leads to greater levels of inequality and unfreedom, it must be resisted by harnessing it. For me the question is whether a new leadership can emerge from the Trump chaos that has an imagination of an American future that embodies what is best about both the Hamiltonian and Jeffersonian legacies.
The challenge is to manage bigness in such a way that the huge concentrations of wealth and political power don't accrue to the 1%--or the 20% for that matter. The challenge before us is to harness American economic power to enact policies that solve the problems of inequality and concentrations of wealth and power--not just in this country, but throughout the world. Going forward, the only real solutions are global solutions.
That might seem kind of unrealistic because it seems to require a mentality and an imagination of future possibility that is so not who we are now. But if we live in this Hamilton-dominant imagination of America at the moment, I believe that our recessive Jeffersonianism--the most positive aspects of it articulated in the Declaration--can emerge as a balancing, integrating factor. Right now we are in chaos; we are anything but integrated and balanced. The thing to be feared is that we will embrace any kind illiberal order as an alternative to the chaos, but that just creates other imbalances that kick the basic problem down the road.
If there is not an aggressive assertion of political will from progressives, the illiberal Right will win by default. Obama was a decent president, but he was a timid technocrat, and his timidity and his acquiescence to the Washington Consensus aggravated the conditions that promoted Trump's emergence. If Biden is another Obama, expect someone to emerge on the Right who will have learned from Trump. He willl have learned how easy it is to do egregiously illegal, unconstitutional things that can be tied up in the courts for years while he bends government institutions to his authoritarian will. If the courts finally decide against him, he will ignore them as Andrew Jackson did. It doesn't matter what the courts decide if the executive branch won't enforce it. But there's a good chance courts will support a post-Trump authoritarianism because Mitch McConnell has been stacking the federal courts with right-wing ideologues.
For now at least I'm going to allow myself to embrace the more optimistic possibilities for an American future, and hope that Trump's absurd, chaotic presidency has created a sense of urgency that make something new possible, and that out of his chaos something new and better can be born. I believe something better is possible even if such a possibly poses an enormous challenge to our collective political imagination.
As Kelton's book points out, we have the resources, the Hamiltonian means, to do very good things. The only question is whether we will be hamstrung by, on the one hand, a tight-assed Fiscal Puritanism, the kind we see on display with Mitch McConnell and the Republicans who just hate the idea of extending unemployment benefits during a pandemic; and on the other hand, by a widespread moral lassitude and ignorance among ordinary Americans that allowed a ridiculous figure like Trump to take the White House in the first place.