MMT Economics Offers Key to Funding a New Economy and the Green, Progressive Agenda
Do you see the goldfish swimming upstream in the logo above? It represents MMT, or Modern Monetary Theory. They are the Young Turks advocating a new approach to macroeconomics. They are knocking on the doors of academics and policy makers who are guarding the economic gates to a system that is failing us and in serious need of fiscal repair. Swimming upstream can be tiring and frustrating. Remember Gandhi’s counsel.
First they ignore you, then they laugh at you, then they fight you, then you win. ~ Gandhi (who won India from the British empire)
This essay will focus on Modern Monetary Theory because they are the economists who are actively challenging the fiscal policies of mainstream economists. The status quo accepts that the role of government is to free the “invisible hand” of the private sector to innovate and solve societal problems. Growing the economy is accomplished by minimizing government regulations and cutting corporate taxes. The seeming success of the global consumer society belies the obvious failure of this system to address climate change, which is now an existential threat to human civilization.
These policies have resulted in extreme wealth inequality and the emergence of a handful of transnational corporations that dominate every sector of the economy — production, manufacturing, military weapons, technology, energy, agriculture, food, drugs, retail, banking, etc. Government agencies that oversee these industries are typically led by former CEOs and corporate executives, resulting effectively in public-private partnerships, arrangements justified because of their knowledge and expertise in their respective industries. Lobbyists support politicians financially and use their votes to ensure legislation does not interfere with industry interests. Public interests are overridden by this system and threaten our democratic institutions.
MMT economists are not alone in their challenge of this unstable and unsustainable business as usual. A long line of environmental economists and scientists have pointed out the flaws in our current system:
> Herman Daly was the father of environmental economics, and he explained tirelessly that economics must be understood as a subset of the ecology in order to be sustainable.
> Donella Meadows was the lead author of The Limits to Growth (1972) that reported a study of long-term global trends in population, economics, and the environment. To this day there are economists who believe there are no limits to Earth’s capacity to support human economic expansion.
> E.F. Schumacher’s Small Is Beautiful: A Study of Economics as If People Mattered (1973) argued that the focus on wealth and bigness was the wrong approach to a sustainable economics that valued people and communities.
> Satish Kumar Kumar continued the work of Schumacher. He is the founder and Director of Programmes of the Schumacher College international center for ecological studies, and is Editor Emeritus of Resurgence & Ecologist magazine.
MMT economists are not all focused on the environmental and ecological consequences of economic growth. They are significant because they offer a clear strategy to use the federal government’s capacity to fund and scale up local, bottom up, environmental sustainability initiatives in order to supplant existing oligarchies that are destroying ecosystems and democratic governance structures.
Some form of Green New Deal, nationally and internationally, must be enacted if we are to avoid the inevitable disruption of the earth’s climate and begin to reverse the ongoing mass extinction of species. The transition to ecological economics, and an ecological culture that supplants the global consumer culture, faces powerful institutional resistance. The following background explores how new stories will be needed if we are to shift to a political economy that is responsive to the interests of citizens. Without this transition, corporate interests will continue to corrupt our fragile democratic institutions.
Background: Economic Globalization and Neoliberal Policies
Recall that Bernie Sanders struck panic in the Democratic Party when he called out the consequences of the Clintons’ embrace of NAFTA and global trade agreements. Corporations moved much of our manufacturing base offshore, resulting in the hollowing out of local economies in cities and towns across America. Economic globalization, the flat world dream of billionaire Thomas Friedman and neoliberal economists, created the fertile ground for Donald Trump — and autocrats in many other countries — to scapegoat minorities for failed economic policies, increasing crime, and threatening the breakdown of “civilized” societies.
The anti-globalization movement surfaced in the 90s. Numerous demonstrations at World Trade Organization meetings (notably Seattle in 1999) and Occupy Wall Street demonstrations (2011) drew attention to income inequality and corporate influence on democratic institutions.
Public awareness that economic globalization is the root cause of multiple social problems entered the mainstream through the US presidential campaigns of Donald Trump and Bernie Sanders and Britain’s vote to leave the European Union. The promise of “free trade” of goods and services to support a worldwide consumer society had turned sour. Ordinary people, the 99% as we now say, began to wake up to the downside of so-called Trade Agreements:
1) outsourcing of jobs, first blue collar, then white collar, to ever cheaper labor markets;
2) appropriation of local food and retail markets by large transnational corporations; and
3) a banking system that invests our deposits in the global financial casino of speculation and computer-speed commodity trading.
We didn’t vote for this new global economy but every city and town that lost high wage, union jobs when their industries moved overseas are now feeling the effects. The new “service economy” based on low wage jobs, cheap food and consumer goods leaves many people feeling, as Thom Hartmann’s book bluntly proclaimed, Screwed.
Oxfam reports that 2,153 billionaires have more wealth than the 4.6 billion people who make up 60 percent of the planet’s population. That was in 2020 and the number of billionaires has increased during the corona virus pandemic. It’s clear to most people that the “system is rigged” in favor of our corporate and financial elites. When Corporations Rule the World, as David Korten’s book announced in 1995, there are serious consequences. This is not the place to review the state of the world’s social, political, and economic problems. Suffice to say that economic globalization, driven by the financialization of capital markets, has created a radically new world that works very well for a tiny minority of moneyed elite and perhaps 10% of what Thomas Frank calls the Liberal Class, comprised of college educated professionals.
As Margaret Thatcher famously said, There Is No Alternative, or TINA. Both Liberal and Conservative political parties have fallen under this spell of inevitability. Neoliberal economics and neoconservative foreign policies have joined to create what Mike Lofgren first named “The Deep State.” It chugs along despite the fact that politicians argue on the surface about how and whether governments can regulate corporate behavior as it seeks to privatize every aspect of the Commons in the name of Efficiency. Conservative economists promote austerity policies (limited government, tax cuts for the wealthy) that effectively strip away government’s role in providing social welfare services. Liberal economists promote government regulations and services that offer relief to individuals and communities impacted by job loss, poverty, lack of health care, etc. The drama of conservative deficit hawks versus liberal deficit doves plays out in the larger context of TINA and the Deep State. Corporations continue to dominate the global economy and foreign policies (backed up by the military industrial complex) ensure the free flow of capital, goods, and services.
All this plays out in the even larger context of climate change. Economic globalization is now exploiting the earth’s resources at a rate approximately 1.6 times the regenerative capacity of the earth’s ecosystems. Borrowing against the future is not sustainable for much longer as excessive CO2 in the atmosphere warms the land and oceans of the planet. Even the corporations’ own economic institutions — the World Bank and International Monetary Fund (IMF), warn that the present course is unsustainable. The World Bank cautions that at least 50% of fossil fuel reserves must be left in the ground. The IMF warns that income inequality caused by the current funneling of profits to the tiny moneyed elite threatens the long term ability of corporations to market their products to populations unable to afford them. These warnings have been largely ignored as CEOs and the Investor classes continue to focus on quarterly growth and market share.
Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet, a recent book by Klaus Schwab and Peter Vanham, argues that global corporations must expand their commitment to shareholder value by addressing the needs of supply chains, adopting sustainable operational goals, support for communities where they do business, etc. Jamie Dimon (CEO J.P. Morgan Chase), Larry Fink (CEO of Blackrock) and others promote reforming the global economy as a fiduciary duty to their clients and shareholders. While some corporations have responded by actually changing corporate practices — notably Nestlé — most global corporations have reverted to greenwashing. The New Corporation: The Unfortunately Necessary Sequel (to their 2003 documentary The Corporation), documents the hypocrisy of corporate greenwashing while promoting economic growth and the same unsustainable business as usual practices.
Changing the Story
How does this system continue despite these increasingly obvious flaws? David Korten explains this paradox in his book, Change the Story, Change the Future: A Living Economy for a Living Earth. Briefly, we have bought into what he calls “The Sacred Money and Markets“ story.
“Money, it tells us, is the measure of all worth and the source of all happiness. The market is omniscient. Earth is simply a source of raw materials. Inequality and environmental destruction are unfortunate but unavoidable. Although many recognize this story promotes bad ethics, bad science, and bad economics, it will remain our guiding story until replaced by a more compelling story that aligns with our deepest understanding of the universe and our relationship to it.” ~ David Korten (emphasis mine)
Korten outlines his Sacred Life and Living Earth story, arguing that contemporary science, from cosmology to the evolution of life forms, affirms that “we are living beings born of a living Earth itself born of a living universe.” This grounding supports Korten’s brilliant link to a new story for a new economy that works with and within nature’s ecosystems.
Korten offers a hopeful vision that may sound impractical because it contrasts so sharply with our consumer economy and our acceptance that we are at the mercy of TINA and the “invisible hand” of evolving technology and market forces. In fact, here and in his overall body of work, Korten offers a practical, actionable agenda for a new global economy based on strategic, worldwide, internetworked, localization of economic development. See his recent paper (Nov 2021): Ecological Civilization: From Emergency to Emergence.
Korten’s “new story” is being implemented locally through networks that are proactively rebuilding and revitalizing cities, towns, and neighborhoods through local food councils, buy local and bank local campaigns, and creating local investment opportunities that support local entrepreneurs as the primary job creation strategy. Localization is a systemic, solutions multiplier that simultaneously lowers carbon emissions, encourages democracy by making policies more accountable, provides more secure livelihoods, all while offsetting the negative impacts of economic globalization. But can this bottom up model of social change be scaled up before climate change becomes irreversible?
The Missing Piece: Modern Monetary Theory (MMT)
The problems we face today in the United States, the world’s richest nation, seem insurmountable. Who can count all the good causes that require funding in order to address poverty, climate change, terrorism, money in politics, environmental degradation, species extinction, renewable energy, prison reform, health care, childcare, on and on? Yet we are told by the economic establishment that at worst there is no money available, and at best we are constrained by the sheer volume of causes demanding complex, time consuming regulations and legislation that each require a battle to get even partial funding.
Enter MMT, or Modern Money Theory. MMT has deeper roots than will be discussed here, but it offers a post-Keynesian, macroeconomic approach that integrates the missing fiscal piece capable of freeing public investments to benefit the “99 per cent.” Current fiscal policies, by design, benefit private sector transnational corporations and mega-banks.
Stephanie Kelton, a leading spokesperson for MMT and author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, is an academic economist who has cut her teeth in policy work. A Fellow at the Sanders Institute, she served as chief economist on the U.S. Senate Budget Committee (Democratic staff) in 2015 and as a senior economic adviser to Bernie Sanders’ 2016 and 2020 presidential campaigns. Kelton’s comments below on deficits is one you will rarely hear in mainstream reports on the economy:
Deficits can be used for good or evil. They can enrich a small segment of the population, driving income and wealth inequality to new heights, while leaving millions behind. They can fund unjust wars that destabilize the world and cost millions their lives. Or they can be used to sustain life and build a more just economy that works for the many and not just the few. (emphasis mine)
The last sentence in the paragraph above echoes the dream of Occupy Wall Street a decade ago. The anti-globalization movement expressed the frustration of millions of people left behind by decades of neoliberal economic policies that cut taxes and regulations for corporations while forcing working people to compete for wages with their new “competitors” in underdeveloped countries. Famously, everyone learned a new meme: the economy is rigged for the 1% and against the 99%.
Robert Hockett, an attorney, Cornell professor, former employee of the Federal Reserve and advisor on Fed policies, is the author of Financing the Green New Deal and a frequent contributor to Forbes magazine. In response to Biden’s successful passage of The American Rescue Plan Act and the Infrastructure Investment and Jobs Act, Hockett characterized the legislation as “Community QE” (QE = Quantitative Easing) in contrast to the Fed’s previous use of QE to issue fiat currency to bail out Wall Street banks and financial institutions. The Fed is now exercising its fiscal power to put dollars in the hands of the American people, signaling a break from 40 years of Reaganomics and the return of FDR style government intervention to address societal problems.
MMT, also called “Functional Finance,” uses basic accounting principles to clarify the government’s role in managing the money supply, especially as applied to the national debt and deficit spending. Politicians wedded to the current economic paradigm rail against the evils they claim will occur when the government spends more than it takes in as taxes. Liberal economists like Paul Krugman and Joseph Stieglitz differ only by degree when they call for temporary deficit spending when unemployment in the private sector job market reaches a threshold judged to be unacceptable. Both “supply side” and Keynesian economists share the goal of balancing the budget.
MMT economists offer the Deficit OWL as their alternative to the Deficit Hawks and Deficit Doves.
Click here or on the image above to watch a 5 minute video that explains why it was necessary to do away with the gold standard, and the confusion about the debt and deficits that ensued.
MMT economists explain that balancing income and spending apply to individuals, families, businesses, and state governments, but NOT to the Federal government. The issuer of currency (applies equally to entities that issue local currencies) can never run out of money because it can always print or mint more dollars, pesos, rubles, yen, etc. MMT points out that when accounting for government debt, every dollar of debt that dips below the line representing a balance of revenue and spending is offset by assets that are held by those who received the dollars. Further, MMT economists argue that it is usually sound policy for the Federal government to allow and even encourage deficit spending.
The MMT economists are offering a paradigm shift in economics. Their relationship with mainstream economists reflects Gandhi’s dictum: they have been ignored, they have been ridiculed, and it is fair to say that there Is now an intellectual fight for the soul of the discipline. For those interested in more details about the MMT approach, the Wikipedia entry provides many useful references, including a table that compares MMT policies with mainstream Keynesian economics.
Many MMT economists offer a Jobs Guarantee (JG) program designed to address the problem of poverty directly and, indirectly, the extremes of income inequality that we are now experiencing in the US and around the world. The JG program offered by MMT economists differs from most Federal programs that are provided by government agencies and usually focus on job training.
MMT style JG proposals are funded Federally but offered locally through the nonprofit sector. The economy is divided into the private sector, public or government agency sector, and the nonprofit sector. By design, the JG proposals kick in only when the private and public sectors are not able to provide jobs for those who are willing and able to work.
Nonprofit organizations are focused on community based needs and have the capacity to hire but lack the funds to do so. When the unemployment rate (including those who are underemployed and have given up their job search) rises above a certain level (4% is typical) then Federal funds are made available to nonprofits on an application basis. When private sector employment expands businesses can hire from the public and nonprofit labor markets.
The nonprofit sector is not small or negligible in relation to the overall economy. Roughly 1.6 million nonprofits account for 11.4 million jobs, 10.3 percent of all private sector employment, and contribute about $880 billion dollars to the economy, or about 5.5% of G.D.P. Building the capacity of these organizations to innovate, develop social enterprises, and increase services where needs are critical is a strategy that is attractive across the political and ideological spectrum.
Note that the JG program funds are used to employ individuals, not train them in the hope that private sector companies will hire them after a new skill is learned. Inspired by the work of Hyman Minsky, who argued, during Lyndon Johnson’s Great Society programs, that providing a job with a living wage, regardless of skill level, will address head on all the problems associated with poverty: crime, housing, diet-related health problems, drug and alcohol addictions, divorce rates, abortions, school dropout rates, etc.
Surprisingly, net cost projections for JG programs, even when based upon hourly wages of $15, $18, and $21, are in the modest range of $7–800 billion dollars. While costing about the same as a modest government economic stimulus program, significant cost reductions can be anticipated as poverty rates decline. There will be less need for public sector social welfare programs that address the symptoms of poverty: crime, housing, health, etc.
MMT economists and their fiscal policies fer the potential to address all aspects of the progressive agenda:
> poverty
> invest in neighborhoods that have been neglected for decades
> transition to renewable energy
> transform our industrial food system
> implement agro-ecological practices that support carbon sequestration
> revitalize local, organic, farms serving local cities
> invest in infrastructure
> rebuild our transportation infrastructure
> clean up brown field sites
The recent Democracy Movement is leading efforts to reclaim our political process, free of excessive money and corporate lobbying interests. The time is right for systemic change, and our economic and financial systems are key to real success in the timeframe that is needed — two decades? Perhaps three.
The MMT approach to economics is hiding in plain sight. Stephanie Kelton is a leading spokesperson for the movement. She has appeared on dozens of talk shows, media outlets, and debate forums in university settings. She is the chief economist advising the Sanders Institute, which continues to promote the “progressive agenda” as outlined above. Kelton’s newsletter, The Lens, analyzes current economic issues, such as Inflation, the size of the “national debt,” other topical issues, including rebuttals to criticism from mainstream economists, by explaining the MMT perspective.
The dominant “supply side” economic agenda that has been tested internationally through neoliberal globalization is finally being questioned, challenged, and judged as a failure by an expanding chorus of critics from Naomi Klein to Pope Francis. The need for systemic change is underscored by the imminent threat of climate change, as documented by scientists and, despite huge disinformation campaigns funded by the fossil fuel industry, all major environmental organizations now call for dramatic increases in government investment in both environmental and social justice programs.
As Victor Hugo famously said, Nothing is more powerful than an idea whose time has come. Is the MMT approach to economics an idea whose time has come? Not all MMT economists support local economic development or focus on sustainable development policies. However, their approach to public finance could be the mechanism that unlocks needed capital investments to fund the progressive agenda through a Green New Deal. The resistance from traditional institutions is fierce, especially the desperate lurch to the authoritarian far right by the Republican party, but the majority of the American people support Medicare for All, local economic development, and green infrastructure projects. The time has come for the Localists and the multiple threads being woven together in the New Economy Coalition to join forces with a new fiscal engine capable of driving a progressive, sustainable agenda.
Additional MMT Resources
Global Institute for Sustainable Prosperity is an independent public policy think-tank that promotes international research in the service of an improved quality of life for all members of society. President Fadhel Kaboub. an Associate Professor of Economics at Denison University in Ohio, is an expert on MMT Job Guarantee programs and a tireless advocate for MMT in the U.S. and round the world. Matthew Forstater is Research Director at the Global Institute for Sustainable Prosperity, and Professor of Economics, University of Missouri — Kansas City. An extensive network of research scholars and fellows carry out the mission of the Institute.
Real Progressives. This volunteer run group offers a cornucopia of resources and tools for promoting Modern Monetary Theory. The website provides information on “MMT: The Basics of Modern Monetary Theory” and articles on all aspects of the progressive agenda through an MMT lens. Interviews and videoconferences are published on their YouTube channel. You can also interact with Real Progressives on Facebook.
Public Banking Institute (PBI). Some MMT economists and advocates — e.g. Robert Hockett and Michael Hudson — have joined forces with advocates of the public banking movement. Ellen Brown founded the Public Banking Institute in 2011. Her excellent podcast, It’s Our Money, explores fiscal policies and the benefits of banking in the public interest. Inspired by the state bank of North Dakota, which has operated a successful model since 1916, PBI documents and supports dozens of public banking initiatives in cities, states, and territories. MMT fiscal policies at the federal level could distribute funds to local nonprofit organizations and agencies more effectively through state and local public banks.
