Two or three years ago, I was economically illiterate. I could barely tell you the difference between a stock and a bond, let alone a stock and a flow. I had no interest in the topic, even though I was engaged with a local activist group.
“I use to think MMT-ers were just copping out every time they shrugged and said, ‘just regulate it’.”
I am nowhere near being as conversant in macroeconomics as I would like, but I am definitely an enthusiast. These days, the newspaper articles that capture my interest are the ones about the state of the economy. The very articles I spent most of my life skipping right past.
I am now of the opinion that Modern Monetary Theory (MMT) is a necessary part of the toolkit for anyone working for social change, and that every citizen should have a basic understanding of macroeconomics, preferably of the MMT kind. How can I convey the importance of economic literacy to my friends whose eyes glaze over at the mere mention of words like “inflation” and “deficit”? Exactly my reaction a few years ago.
Before I set out what MMT has to offer the concerned citizen, I should note that MMT paints itself as politically agnostic. That is certainly so in the sense that MMT is descriptive of the monetary system. However, in the current context, within the current economic and political neoliberal regime, understanding MMT is a political act. Think of the monetary system as a public utility. The monetary system can be used by any political agenda. If you don’t recognise the existence of that utility, if you don’t understand MMT, another agenda can more easily control the monetary system, and hence resources. The concepts that makeup MMT are politically neutral. Comprehending MMT can inform political choice.
In the hands of those who care, the potential of MMT is to help design an economy that serves humanity and the planet. Let’s have a look at that potential in more detail; the reasons you might want to make the effort to #learnMMT.
- MMT enables you to understand the capacities of the state.
Like it or not, the state plays a central role in the monetary system. Once you understand the monetary system, you understand certain “capacities of the state”. These capacities MMT describes are fiscal (the government’s ability to spend and tax), and monetary (the government’s ability to adjust interest rates and issue bonds).
Furthermore, MMT helps you to distinguish when fiscal or monetary policy is best applied, from when another capacity of the state, its regulatory capacity (the ability to make and enforce laws) is best applied. Without MMT, the role of these three capacities remains obscure and confused. For example, with MMT you can better assess when a tax might be used to adjust behaviours, and when it might be better to use regulation, as in the case of lowering carbon emissions.
I use to think MMT-ers were just copping out every time they shrugged and said, “just regulate it”. Now I understand that being able to distinguish when we need regulation, and when to adjust the settings of the economic system, is a very important distinction to be able to make. This is hugely beneficial for active citizens as it enables you to formulate your diagnosis and solution to any issue much more precisely and therefore effectively. It is a distinction that neoliberalism seeks to collapse.
MMT shows us that the fiscal and monetary capacities of the currency issuer belong to the government at the federal level, not to the government at the state or local level. However, I believe you could still lobby at the state and local levels to lobby upwards. Even more radically, you might lobby state and local governments to operate at a loss until “bailed out” by the federal government.
Take the response to climate change. Let’s assume general agreement by climate activists upon a set of policies we’ll call the “Green New Deal”. In the time before the next election, you could invite local and state governments to start implementing their parts of the action plan. And when they ask us “how will we pay for it,” you say, “you borrow whatever money you need, in Australian dollars”. And when they ask, “How will we pay it back?”, you say, “you demand the government bail you out, as it did with the banks”. As an intermediary step, you could get a bunch of state and local governments to sign on to implement a Green New Deal via this funding model. Which brings me to…
- You no longer need to play the “How do we pay for it?” game.
You no longer need to waste precious activist time and energy strategising how to tax the rich. Or, as MMT-ers like to say, you don’t get caught up in “Robin Hood” politics. Dr Stephanie Kelton describes playing the “How do we pay for it?” game as having to fight the battle on two fronts (your policy position & how to pay for it) instead of one.
Kelton goes further and says the posing of the “How do we pay for it?” question is a divide and conquer strategy. It gets everyone fighting over who will pay for it; should we tax corporations and make them pay for it, should we tax the financial sector and make them pay for it, should we tax workers with superannuation and make them pay for it? We end up fighting amongst ourselves over the funding and get nowhere with the policy.
The belief we need to find ways to pay for the “nice things” as we might call our preferred policies, can be used as a trojan horse to wheel in other policy at odds with the public good. Professor Bill Mitchell notes the example of the sale of Telstra. In the late 1990s, the federal government claimed it needed to sell off Telstra in order to fund environmental initiatives and sustainable agriculture. The summary of the Natural Heritage Trust of Australia Act 1997 actually states: “The main source of money for the Account is $1.35 billion from the partial sale of Telstra.”
So what response might you make in the face of this question? As Kelton counsels, you simply state, “The RBA will clear any payment authorised by parliament,” or you just dismiss the question as irrelevant.
Engaging with the “How do we pay for it?” game assumes you need the rich to achieve your policy goals. That misplaced dependency hands over your power to a group that is not likely to share your priorities. You also become an inadvertent part of the problem by perpetuating neoliberal myths. With MMT, you can assert you are being “fiscally responsible”, and insist on being taken seriously while avoiding the assumptions of orthodox economics and avoid bolstering the neoliberal point of view out of ignorance.
Instead, you can focus on the real debate. Do we have the resources? Is this a national priority? If the real resources exist, should they be deployed for public benefit or allowed to be used for private gains? For example, if the policy goal were universal dental care, now you can focus on the real questions. Do we have enough dentists? Do we have enough dental schools? Do we have enough dental clinics? Do we have enough resources to build dental clinics? And so on. You simply outline the resources and the spending required to achieve explicit, concrete goals.
From this example, you might see how such a discussion might galvanise those who know something about dental care. You can see the value of citizens contributing to this and other discussions about national priorities. Widespread knowledge of MMT can potentially motivate more civic engagement and cut through the apathy and powerlessness engendered by the neoliberal TINA (there is no alternative) stance.
With MMT you can stop being apologetic about spending in the name of the public good. Pensioners, social security recipients, and public servants can get out from under the belief that they are the beneficiaries of “taxpayer’s money”. Of course, all such spending should remain transparent and accountable.
With MMT, you will avoid playing those other related games: the “balance the budget game,” or the “fiscal constraints game.” No more will you make impotent arguments, such as thinking you can take out the neoliberal opposition, by accusing them of increasing the government deficit. Further, MMT allows you to see when government deficits are used to put money in the pockets of vested interests, for example via subsidies for corporate donors to political parties.
- You can see through the “we can’t afford it” excuse.
This is the converse of point one. With MMT you can see through the neoliberal excuse for business as usual: “the government doesn’t have the money,” “we’re broke,” “the nation already has a huge debt,” “the government will need to borrow money.” MMT reveals orthodox economics is mostly a load of rubbish, and you don’t have to accord it any respect. Call out the nonsense when you see it, and stick to your demands in the face of these false obstacles. Those who use these excuses will be forced to state their other objections to any policy goal. For example, if a government is opposed to the achievable goal of full employment, MMT might reveal the agenda behind keeping a “reserve army of unemployed” is to drive down wages and conditions.
- MMT offers a good B.S. detector.
From the above, you can see that MMT enables you to score politicians and pundits on their ability to speak accurately about our national situation.
MMT reveals that bad policy is driven, not just by the extent to which the political system is corrupted by money, but also by the extent to which the political system is corrupted by orthodox economics. With MMT you can tell when decision-makers are beholden to bad ideas.
- You won’t be intimidated by the scale of any project.
Take the transition of our economy and society that an effective response to the climate crisis requires. With MMT, you no longer need to be afraid of “big dollar amounts”. In WWII the United States moved 50% of its GDP into the war effort and ran a budget deficit of 25% of GDP, and inflation never rose above ten per cent. They were able to achieve this because they understood the fiscal capacity of the state, and how to use it to create the necessary “policy space” to prosecute the war. Various calculations put something like a Green New Deal at about 5% of the GDP.
With MMT you can stand certain that the mass mobilisation of resources required to meet the climate emergency is possible. Depending on your point of view, you could see the need for a massive mobilisation as a good thing. MMT reveals that the entity best placed to achieve this is the federal government. We can reclaim the optimum role of government, which is to deploy resources at a national level in the name of the public good.
- MMT inoculates against racism and fascism
MMT allows you to tell an abundance story, rather than a scarcity story. That is, MMT enables you to think in terms of collective cooperation, rather than competition for scarce resources. The belief in scarcity, the belief that someone else’s gain is my loss, tends to divide a population along racial, ethnic or gender lines. For example, people operating within the scarcity story start to blame the immigrants “for taking our jobs”. As soon as you head down that track you are entrenching the power of the policy-makers who are the real cause of the problem (for example those with a “surplus obsession”) and you risk encouraging unfair scapegoating.