MMT: A Social Funding Cureall?
Modern Monetary Theory (MMT) provides technical support for the leftist platitude, “If we can afford to bomb the world, we can afford [enter your preferred social program available to citizens in the majority of non-US Western democracies and derided as ‘pony politics’ by third-way democrats].”
Modern is an inappropriate adjective for the theory as the economist Stephanie Kelton uses a 1946 paper written by Beardsley Ruml, a New York Federal Reserve Chairman, to make her point. The title of the paper is, “Taxes for Revenue Are Obsolete”.
Ruml argued that the end of the gold standard and the creation of a central bank created a system where the government could spend infinitely, so long as that spending created at least as much value elsewhere in the market.
According to Ruml, taxes provide four services. (1) They allow the government to control inflation by removing money from the economy. (2) They act as a mechanism to redistribute wealth by taking from places where there is too much and leaving money where there isn’t enough. (3) The can incentivise or disincentivise behavior such as through a tax on pollution. And (4) they can make it easier to track spending on a particular program.
All Spending Isn’t Equal
Spending that creates well-paid jobs that meet a cultural need would blossom in value. Employed people are better able to look out for their needs and the needs of those around them. They have more money to spend on their needs and that money creates more opportunity in the economy,
Spending that protects and grows the stagnating wealth of the already-rich sucks value out of the economy.
The extra money would sit in investment portfolios. It would get used in financial machinations invented by overachieving accountants to turn it into more money. It would get spent on refilling yachts and private jets. And while all of this happened people would still be dying of preventable illnesses and malnutrition.
Accepted Wisdom, Shmazcepted Wisdom
It is accepted wisdom that all government spending needs to be accounted for before it can be approved. You either need to raise taxes on somebody or cut spending somewhere else. This holds true unless we’re discussing military spending and other giveaways to rich folk.
Regarding the funding of the Iraq War in 2002 Vice President Dick Cheney is quoted as saying, “Reagan proved that deficits don’t matter.“ He said this to the then Treasury Secretary Paul O’Neill to counter his fears about a second round of tax cuts.
To Cheney, a politician with tight connections to the war-profiteering corporation Halliburton, government spending on war was worth it because that deficit became a surplus in the pockets of him and his peers.
Kelton argues no differently through MMT. She just believes that government deficits should create surpluses in the public interest.
Accepted wisdom, as humanity seems to learn and forget continuously, rarely makes the jump to truth. Despite the ruckus that people who benefit from that wisdom will make as their authority wanes.
The shape of your cranium doesn’t say anything about your character, nor the color of your skin, nor the date of your birth. All of these ideas became embarrassments upheld by contrarian minorities once exposed to the scientific method. (Sorry to my astrology fans out there. Any advocates of phrenology or racism, history left you behind and I’m not sorry.)
MMT advocates hope that the scarcity of fiat currencies for any initiative beyond killing people abroad and propping up the fossil fuel industry will also become an embarrassing part of our history, only good for reflection.
The theory and its applications were discussed by a panel of economists and activists at Left Forum 2018. The session was called, ‘Money Matters! Why Monetary Theory and Policy Is a Critical Terrain for the Left.’
Further speakers covered applications of the theory. We will come back to this topic to look at policies like the Federal Jobs Guarantee, and community organizers applying the theory at the grassroots level.
Thanks for reading, please come back for more pieces on this topic and other revolutionary ideas.