Progressives — That’s Not How Money Works!

This post originally appeared at Imagine Democracy. Written by Dave Johnson.

There is a NYTimes Guest Essay, What Kind of Country Do You Want? Start With Taxes.. Supposedly a progressive answer to Republican tax cuts for the rich & their corporations nonsense, it actually reinforces conservative arguments about government spending.

The essay amplifies conservative propaganda about the “price tag” of government tax cuts and spending. It uses conservative terminology like “revenue,” “borrowing” and “fiscal crisis.” This wording keeps people trapped in a medieval/conservative “gold standard” thought system about money that limits what governments can do to make people’s lives better.

The US dropped the gold standard some time ago. In a modern economy the government issues currency, period. The US government is not “funded” and certainly doesn’t have to round up or borrow gold before it can do things. It is not “in debt.” Think about what “bankrupt” means to a country that prints its own currency. It certainly doesn’t mean we can’t find enough gold to hand over and have to sell off the Washington Monument or the US Capitol. (Actually Congress has already sold itself but that’s another post.)

Taxes Are Not Revenue

Taxes do not “raise revenue.” Taxes balance income and wealth distribution and bring fairness. They incentivize desired behaviours. But they do not “fund” the federal government. The US government is not a family around a kitchen table scraping together a few dollars to pay for food, it manages a modern economy.

Instead of the current medieval-based system of superstitiously limiting spending “in case” doing so might “trigger” inflation, governments must do actual work to plan spending according to production capacities, available labor, available resources, etc in order to keep inflation at bay.

Free Your Minds

Understanding how modern money and budgeting works frees progressives to be able to get things done to make people’s lives better. Why can’t government guarantee a well-paying job with benefits to people who want to help solve society’s problems. For example teacher’s aides, elder or child care, insulating homes, etc? Why can’t government do what is needed to fight the climate crisis and transform to a green economy? Once you understand how money works the possibilities reveal themselves.

However

However, the public is not caught up with an understanding of modern budgeting, and these concepts could scare people and leave them vulnerable to conservative fear-mongering about “government spending” and “debt.” Wall Street and conservatives do everything they can to scare the public into thinking progressives will “bankrupt” the country. For now please just stop reinforcing old fashioned terms that limit what we can do while we wait for people to catch up with understanding how money really works. Do not use terms like “funding” and “revenue” and “borrowing” and “deficits” and “debt” in your discussions of budgets and taxes. We can say the same things without reinforcing those harmful concepts.

Simple Explanation of Modern Monetary Theory (MMT)

This post originally appeared at Seeing the Forest.

We dropped the Gold Standard some time ago and don’t have to round up gold to pay for things anymore. Hence the “Modern” in Modern Monetary Theory. MMT just explains how money works in a modern economy. Government “spends” money into the economy and taxes it back out. The amount not taxed back out (“deficit”) is the amount left circulating in the economy. The total over the years (“debt”) is a measure of the money in the economy. “Balancing” the budget means not putting new money into circulation. “Paying off the debt” means removing all the money from the economy.

Also, selling government bonds is a choice, not “borrowing.” There are good reasons to do it, but it is not “borrowing.” There are good reasons to tax – balance distribution, address inequality, fight the influence of accumulated fortunes, behavior incentives – but it is not “raising revenue.”

Application of MMT: Look at what the US govt did when Covid hit. It kept businesses from going under, kept the economy from the worst crash ever, dramatically cut child poverty, etc, followed by the fastest recovery ever. Compare that to what happened after the 2008 crash when Summers kept the “stimulus” low. It was almost 10 YEARS before things recovered completely – leading to Trump.

Simplest way to understand modern money: learn where banks get the money from to give out loans. (Hint: They “create” it.)

Unfortunately certain well-to-do influential interests benefit greatly from the old ways of understanding money and will do anything to keep it that way.

One More Thing

One more thing about MMT – it meets stiff ideological resistance from certain vested interests because the “gold standard” “kitchen table budgeting” thinking keeps the system working for the wealthy. If government could just spend money without “borrowing” from the wealthy to solve problems, then what do we need the wealthy for?

The conservative game since Reagan/Thatcher has been to cut taxes at the top in order to create deficits, and then demand budget cuts and privatization to get rid of the deficits they created. This is a strategy for gutting government – democracy – and moving wealth upwards. Get pesky government out of the way of the oligarchs and their corporations.

Remember the resistance to solving the 2023 debt ceiling “crisis” by “minting the coin”? Minting the coin was completely legal, and made the problem disappear. The problem was, if people could just mint a coin to pay off wealthy bondholders then why can’t government mint a coin to … you name it.

See Why Minting the Coin Is A Threat To The Established Order:

Minting platinum coins with a face value of $1 trillion and depositing them with the Federal

Reserve is Constitutional and solves the problem. But it brings up questions that shake the foundations of neoliberalism. If we can “mint coins” to pay bondholders, why can’t we mint coins to do things that people want and need? Instead of just relying on private capital (the rich) to make investment decisions and get things done in our economy?

So Biden can do the right thing and just … pay our bills. But then the neoliberal order breaks down. If We (through Congress) can decide to … you name it, then why are we depending on “the investor class” (capital) and “market solutions” etc to decide where to invest, allocate resources, do the planning and everything else?

Why Minting the Coin Is A Threat To The Established Order

Cross posted from Seeing the Forest. Dave Johnson wrote:
I really think the upcoming Debt Ceiling fight is going to be a turning point of some kind. The right intends to let the country default to stop “government spending.” They mean it.

Biden’s choice is to let that happen, cave like Obama did, or enforce the Constitution, which says the govt has to pay its bills.

Shake The Foundation

Minting platinum coins with a face value of $1 trillion and depositing them with the Federal Reserve is Constitutional and solves the problem. But it brings up questions that shake the foundations of neoliberalism. If we can “mint coins” to pay bondholders, why can’t we mint coins to do things that people want and need? Instead of relying on private Capital to get things done in our economy?

For those insisting that “Mint the Coin” as a solution to this is a “gimmick” – (as if the debt ceiling wasn’t just a gimmick):

The idea that the constitution providing the power to “coin money” implies the ability to charter Federal Reserve Banks that can issue paper currency and open book entry accounts is much more of a gimmick than just… coining money.

— Nathan Tankus (@NathanTankus) January 19, 2023

Neoliberalism: “Kitchen Table Economics”

Breaking away from the idea that the federal govt operates with “kitchen table economics” is a paradigm shift. You see it completely one way (deficits, debt, govt spending are bad), and then when something clicks you can’t see it that way anymore, only the new way, and are frustrated seeing so many getting it so wrong.

But we broke away from using gold as our currency a long time ago. We don’t mine or “round up” money at the federal level. We (Congress) decide that we’re going to allocate our resources toward accomplishing something, and we issue dollars as an exchange medium toward that. There are two things needed: make sure we allocate resources we have (allocate toward steel increasing capacity before allocating toward using more steel than we have) and tax enough to balance the distribution (tax the rich) and soak up some of those circulating dollars.

So of course we could just “mint a coin” to issue dollars to pay off bondholders. But if we did that, the most dangerous question arises: If we can just issue money to pay bondholders, why can’t we issue money to … ?

And then the neoliberal order breaks down. If We (through Congress) can decide to … then why are we depending on “the investor class” and “market solutions” etc to decide where to invest, allocate resources, do the planning and everything else?

Inflation: Facts & Pernicious Myths

Edited: I meant to add a number of articles to the page on Inflation. Then it turned into more. I think readers will find it worth their time.

Are Major Central Banks Doing Enough to Fight Inflation?
— James K. Galbraith Project Syndicate April 14, 2022
He begins “Say what? Seriously? OK, I’ll give it a try, but promise me this is not a joke…The notion that central banks fight inflation is a pernicious myth, spread by their officers, acolytes, and by credulous reporters. Central banks raise interest rates. The blather about inflation is eyewash.”

Beware the Inflationary Bogeyman • Recent price increases in the U.S., and demands for a forceful response by the Federal Reserve, have brought back memories of the 1970s and all of the economic and political disasters of those years.
— James K. Galbraith Common Dreams, Project Syndicate – November 20, 2021

CPI, commodity charts Quite a few price increases, which the media now calls ‘inflation’ even though inflation is a continuous increase in the price level.
— Warren Mosler (@WBMosler) Mosler Economics/Modern Monetary Theory Nov 12, 2021

An MMT Perspective: Interest Rates and Inflation with Warren Mosler
— Warren Mosler (@WBMosler) Real Progressives June 26, 2021 (01:05:31)

Manhattan Project to prevent Hyper-Inflation
— J.D. Alt New Economic Perspectives March 26, 2020

Campaign Platform & Job Guarantee. Rick DeVoe MN-01

Hopefully we will see, in not too distant future, the inclusion of a Job Guarantee planks in many more platforms.

Campaign Platform – Rick DeVoe – MN1
Good Jobs For Everyone: Full Employment Plus (FEP) is the 2022 version of FDR’s and MLK’s proposals for all Americans to be guaranteed a job at a livable wage working in and for their own communities, when good jobs are unavailable in the private sector. FEP plan jobs will be determined, as to the scope of work, by local governments and nonprofits. Job completion will be locally administered. A Federal backstop program, consisting of work to restore human and natural habitat, will provide work if there is unfilled demand at the local level. Read more

Clarity: Inflation – Labor Shortages – Michael Moore -Steven Hail – Stephanie Kelton

#GlobalMMT Modern Money Lab

An Inflated Sense of Inflation (w/ Stephanie Kelton) #Labor Shortages
— Episode 220: Rumble w/ Michael Moore (@MMFlint) Stephanie Kelton (@StephanieKelton) (01:04:00)

Steven Hail’s Nov 1, 2021 Twitter thread begins:
“Inflation is not in itself some terrible disease which we have to minimize or eliminate.
It is not like Covid, needing to be stamped out. It is not like involuntary unemployment, underemployment and insecure employment, which are genuinely social evils.” Read more.

Debt Ceiling, Job Guarantee, Inflation

Grabbing a moment to catch up:

The Case for Minting a $1tn coin to deal with America’s Debt Ceiling
— Nathan Tankus (@NathanTankus) <em>The Guardian</em> (@guardian) Oct 15, 2021

Good Forms of Collectivity: Low-Carbon Care Work and a Federal Job Guarantee

— Natan Last (@NatanLast) Los Angeles Review of Books @LAReviewofBooks April 26, 2021

Like Haiku, the limits created by Twitter offer opportunities for brevity and coherence. Here’s the first bit of Steven Hail’s admirable Nov 1, 2021 Twitter thread:
“Inflation is not in itself some terrible disease which we have to minimize or eliminate.
It is not like Covid, needing to be stamped out. It is not like involuntary unemployment, underemployment and insecure employment, which are genuinely social evils.” Read more.

The POINT of MMT is Inflation!

The POINT of saying “deficits don’t matter” is that policymakers should be asking “will this cause inflation?” instead of “are we spending too much?”

Budget planners should analyze use of resources, capacities, etc., instead of just looking at “scary” dollar amounts.

Stephanie Kelton, writing at her Substack, in We Need to Think Harder About Inflation, explains,

The MMT lens keeps us focused on the things that matter. It’s not the headline dollar figure—$1.9 or $3.5 trillion—or the budgetary impacts of that spending that warrant our attention. What matters is the economy’s capacity to safely absorb those dollars as they begin to flow into people’s pockets.

Stephanie Kelton, TED Talks & Fast Company

Added to Stephanie Kelton’s page (under Principal…), Deficit Hawks (under FAQ) and Debt, Deficit Spending & Austerity (also under FAQ)

MMT and the deficit myth — Lars P. Syll, Sept 12, 2021

TED talks: The Big Myth of Government Deficits                                                                                                     — Stephanie Kelton (@StephanieKelton), <em>Ted Talks</em> (@TedTalks) Aug 2021, (13:46)

How one economist is making some deficit hawks reconsider • The pandemic has offered economist Stephanie Kelton a chance to help turn Modern Monetary Theory into practice.          — Talib Visram (@TalibVisram), <em>Fast Company</em> (@FastCompany) Aug 10, 2021

 

 

It’s All Connected

Added to Job Guarantee, here.

A Federal Job Guarantee: The Unfinished Business of the Civil Rights Movement • The 1963 March on Washington put a government guarantee to a job at the front of the civil rights agenda. It’s long past time to complete the work.
—  Rep. Ayanna Pressley (@AyannaPressley), David Stein (@DavidPStein <em>The Nation</em> (@TheNation) Sept 2, 2021

A little macro background for Macroeconomics: Provisioning and Prosperity, particularly with regard to universities as a provider of alternative currencies.  

The Rise of the UniverCity • As they come to resemble corporations, universities increasingly wield the kind of power and influence that were hallmarks of ruthless employers in isolated company towns. Historian Davarian Baldwin calls this ominous trend the “rise of the UniverCity.”  — Davarian Baldwin (@DavarianBaldwin), <em>Jacobin</em> (@Jacobin) Sept 2, 2021 #Background #Unis4All #InTheShadow

A new addition to our Blogroll and Kelton’s page under Primary Sources.

The Lens – Stephanie Kelton • “The Lens is a portal into my academic and professional world. It’s a place to visit for economic analysis, commentary on public policy, and previews of forthcoming talks and publications. Never miss an update.”