Governments have been groping toward an MMT world for decades
Modern Monetary Theory had been percolating for a while, especially since the Bernie Sanders campaign of 2016 started taking advice from Stephanie Kelton. Yesterday in the New York Times Dr. Kelton wrote:
“In 2020, Congress has been showing us how MMT works: It committed trillions of dollars this spring that in the conventional economic sense it did not ’have.’ It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s [money tree], the Federal Reserve.”
https://www.nytimes.com/2020/06/09/opinion/us-deficit-coronavirus.html
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Due to fractional reserve banking, the economy could collapse shockingly just as the World Trade Center did in 2001.
https://en.wikipedia.org/wiki/Fractional-reserve_banking
The divergence between outstanding credit and real economic production (GDP) has grown over time. This is a potential problem. Governments have increasingly addressed the problem by printing money. Advocates of Modern Monetary Theory say it’s OK.
It used to be a concern that governmental debt would be a burden on future generations who would have to pay back the debt. But now there is an idea that the Federal Reserve can just print money to monetize the debt, hence, it’s no burden on anyone.
It used to be a concern that Federal Reserve monetary stimulus propping up the prices of stocks and bonds would result in unsupportable asset valuations relative to GDP — and low yields on investments.
Is low-return capitalism a problem? Well, maybe it’s not . . . if the government can hand around money to make up for the low returns of the private sector.
This kind of thinking used to be ideologically anathema. But the truth is that governments have been groping toward an MMT world for decades now. As there has appeared to be no downside to printing and handing around money, they’ve become bolder and bolder going in that direction. As they’ve buoyed asset prices, the old measures of valuation relative to real production/consumption have seemed to become irrelevant. As they’ve buoyed effective demand, an elixir for the problem of economic stagnation seems to have been discovered.
So we may be entering a new era: central bank money trees; governments buying up stocks and bonds when prices tank. It has proven to work in the short run. It may have few adverse consequences in the medium term.
How about the long term? Will it exacerbate the ecological disaster of human excessive production, over-consumption of stuff, depletion of natural resources?
And consider the debate about optimal allocation of economic resources . . .
Conservatives like Daniel Tenreiro have a concern about misallocation re: propping up of unprofitable enterprises, stimulation of over-capacities (i.e., too many steel-producing factories), etc. They maintain that only the pricing signals of the free-est possible market can give the best-possible guidance on allocation: “MMT’s money-financed stimulus would divert resources from productive firms to quixotic government programs. Federal capture of the economy is harmful not primarily because it is fiscally irresponsible, but because it moves the factors of production from the hands of innovators to the hands of bureaucrats.”
https://www.nationalreview.com/2020/06/what-the-deficit-myth-lacks/
Socialists say the government can and should provide full employment — and governmental allocation can be superior (more socially conscious, more democratic).
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The debate is actually more complex than “right versus left.”
Far-left socialists disdain MMT because what it advocates would result in a technocratic kind of social democracy “from the top.” It violates their notion that socialism needs to be the product of a mass working class movement “from the bottom.” But the latter is a delusion of the retrograde Marxist theorizing that has proven to have little relation to reality. Ditto for the “new New Left” idea that we can have a modern, complex economy based on “workers democracy at the point of production” via cooperatives.
There are really four choices:
(a) Relatively free-market capitalism. This is sure to continue the corporate dominance that currently afflicts the world economy.
(b) The Bernie Sanders / European style of social democracy. This has demonstrated that it can improve the quality of life, but it seems to only work well where national populations are not too large and not too diverse. In fact, Europeans have become somewhat disenchanted with it. It’s bureaucratic, prone to be technocratic (a la MMT), and hyper-modernist.
(c) Statist socialism like China and Cuba. Could it possibly be implemented without the horror of the totalitarian control of a single political party?
(d) The long-term project of the “greening of society.” Its deeply transformational vision flows from a recognition that the industrial-corporate-bureaucratic paradigm is problematic in all its manifestations — capitalist, social democratic, or socialist. It involves gradually abandoning the modern Leviathan to build a new bioregional-communitarian world within the shell of the old.
The latter strikes most people as too utopian to merit much attention. But the alternative is to plod along with an unsatisfactory system, unsatisfactory choices, liberal then conservative then liberal, Democrat then Republican then Democrat, left then right then left, decade after decade after decade.
