Degrowth, MMT for 2024 America
Degrowth is an idea that’s finally edging its way into US mainstream discussion. Modern Monetary Theory (MMT) is an idea that’s edging its way back into US mainstream discussion, after being widely debated as Bernie Sanders’ political star rose, only to fade when inflation appeared. Together, they could help in pulling the US out of the climate-policy hole it is digging for itself — and for the world, in its role as top oil and natural gas producer.
Degrowth and MMT are both typically explained in an idealized way, divorced from the messy realities of politics, public opinion, and international trade. This can provide “stories” that may eventually help to undermine our deadly devotion to economic growth and regressive monetary and fiscal policies. But we don’t have time for a slow, sequential evolution of theory into stories, into coherent policy. We need climate-positive things to happen simultaneously and soon.
Visible pathways exist to putting some key overlapping principles of Degrowth and MMT to work in the real world of 2024 America. They aren’t politically obvious, but they aren’t politically unimaginable either. Indeed, many policies that align with MMT, and some Degrowth approaches, have already been tried and found effective and popular: activist government industrial policy, non-means-tested payouts to stabilize the economy, and financial encouragement for renewable energy and electric vehicles (EVs).
Unfortunately, the Biden administration dropped or reduced the effectiveness of many of these policies over the course of 2023. A partial Republican takeover of Congress gets some of the blame, but so do the government’s reaction to surging inflation and a seemingly knee-jerk Democratic Party turn toward the center. Maybe coincidentally or maybe not, Biden’s popularity has fallen as he moves to the right.
Turning back to the climate and economic activism of his first two years in office might restore Biden’s voter appeal ahead of the November elections and, by utilizing aspects of Degrowth and MMT theories, start the country down the path to more fundamental change. Even with a Republican House of Representatives, it could happen — if Team Biden will just try.
The Theory
Degrowth holds that the global economy is using more resources than the Earth can regenerate, leading to climate and broad ecological breakdown. So economic activity (GDP) worldwide must not merely quit growing, it must shrink. Resource use must be brought back into balance with current resource availability, not relying on the destabilizing energy of the ages stored in fossil fuel. It holds that rather than just let this happen to harmful or even catastrophic effect, GDP should be reduced in a controlled and selective way.
Those who consume the most should cut back most, and they should mainly cut those activities that most damage the planet, starting with fossil fuels. As one leading Degrowth theorist, economic anthropologist Jason Hickel, explains in “How to Pay for Saving the World”: “A core principle of degrowth is that expanding universal public services, shortening the working week, introducing a public job guarantee, and reducing inequality would de-link human well-being from growth and make it possible to scale down less-necessary forms of production without negative social consequences.”
Those people with too little should be able to consume more, but hopefully not in the same heavy manufacturing, export-oriented way in which developed countries pursued growth at the expense of these very same people, mainly in the Global South.
But how to do this? Hickel argues that governments must play a major role in building clean-energy capacity and in preserving and repairing the ecosystem, because the profits on such activities won’t be large enough to quickly attract the needed private capital. Repeated oil-company explanations that they aren’t investing in clean energy because the returns aren’t high enough confirm Hickel’s point.
And how to pay for it? Here MMT could help. Espoused by advisors to Bernie Sanders, among others, this monetary theory holds that governments with free-floating currencies can prudently spend money on social and environmental goals without concern for how big or small their deficits may be. They also argue that governments don’t need to borrow by issuing bonds to finance deficits, but that’s another story.
What governments should watch out for is inflation resulting from any shortage of goods and services to meet demand. And when prices for socially desirable goods and services rise, the government should respond by increasing the supply of those goods and services, not by crimping demand. When it comes to goods and services with negative impacts, governments can work actively to reduce demand, whether there is inflation or not.
This is in sharp contrast to the monetarist approach favored by most economists since the 1980s. Under monetarism, if inflation increases — regardless of the specific goods and services involved — central banks should raise interest rates, in order to reduce the amount of money available to consumers, until overall demand falls to match supply.
In practice, raising interest rates benefits those who already have money to lend out, at the expense of those who pay interest to borrow money, for example on credit card balances, home mortgages, or student loans. Also, it is only about money. The monetarist response is the same whether the prices that are rising are for desirable things like housing and childcare, or harmful things like oil and natural gas.
Governments could still use spending programs to push desired outcomes and stunt harmful activities, but an activist “fiscal policy,” as this is called, has been discouraged over the last four decades. Neoliberals say the “marketplace should decide.” The climate- and broad eco-crises we’re now facing indicate that the marketplace got it wrong.
The Practice
No major US politicians have come out for either MMT — with the arguable exception of Bernie — or Degrowth. Yet MMT was practiced in the closing days of the Trump and early years of the Biden administrations, with trillions of dollars in extraordinary spending to help families pay the bills during Covid closures, repair and rebuild the nation’s long-neglected transport infrastructure, build new microchip and clean-energy factories, and more. All with scarcely a mention of the deficit impact.
From the Degrowth perspective, these policies might seem questionable, since they aimed to — and did — keep the economy growing. But on the plus side, they also did a lot to dispel the neoliberal conviction that governments can’t do anything efficiently and effectively to improve people’s lives, a belief cogently framed in President Ronald Raegan’s slick slogan: “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’” Shedding such neoliberal baggage is core to MMT, and is seen as a necessary precursor to Degrowth.
Unfortunately, inflation reared its head in the midst of all this, in March 2021. At first, the Federal Reserve Board termed the inflation “transitory.” This was in line with MMT economists, who argue that the rise in prices resulted from multiple disruptions to supply chains and other economic activities. Disruptions that started with Covid-closures and were exacerbated, and extended, by the Ukraine War.
Also unfortunately, the Fed did not have the courage of its MMT convictions. When inflation didn’t immediately disappear, the Fed responded with interest rate hikes out of the old monetarist playbook. Its aim was to rein in consumer spending both by increasing credit-card charges, mortgage rates, and the like, and also by weakening the job market — increasing unemployment and decreasing wage gains. In other words, taking from wage earners and giving to banks that issue credit cards and mortgages.
The fact that inflation did come down was at first hailed as a sign that Fed policy was working. But the job market still hasn’t weakened, and GDP growth has picked up when it was expected to weaken, contradicting monetarist theory. What gives?
One of the best-known academic MMT proponents, former Sanders advisor Stephanie Kelton, recently told the Financial Times: ”I think inflation has come down in spite of what the Fed has done, not because of what the Fed has done.” Inflation came down when the economy finally adjusted to the disruptions that caused inflation in the first place, she explained.
Interestingly, a Wall Street Journal news analysis piece recently said much the same thing, albeit without directly mentioning the Fed: “Fast growth and low unemployment don’t normally go hand-in-hand with falling inflation. The reason they did this time is that since the pandemic, inflation and growth have been driven more by swings in the supply of goods and services than by demand.” Since the Fed was working on demand, not swings in supply, this analysis implies the Fed moves had little impact.
Wrong Direction
That’s the past. What now? As paraphrased by the FT, Kelton says: “The White House ought to focus on building up the US economy’s ability to create more goods and services, by redoubling its efforts to stimulate investment in fighting climate change, building more housing and making childcare affordable.” This is not far off Degrowther Jason Hickel’s prescription to “de-link human well-being from growth.”
It isn’t the direction in which things are moving, however. Government childcare assistance and student debt relief programs have been narrowed or halted. For that, House Republicans can largely be blamed. But the Biden Administration has itself shifted from being a promoter of renewable energy through the much-lauded Inflation Reduction Act to being an impediment to adoption of immediately available technologies, most notably solar, batteries, and EVs.
Trade and economic combat with China, and expensive carbon fixes pushed by the oil industry, have been given priority over the climate. The IRA is being implemented so as to make tax rebates available only for a few EVs that have no Chinese content, and after a brief hiatus, trade programs are again being used to limit imports of Chinese solar panels for which no US substitutes exist.
Biden‘s approval ratings have fallen with virtually every step he has taken away from progressive spending programs. This is particularly marked in climate policy. It’s conceivable Biden will decide that his current approach is not an election winner and resume efforts to make the US a leader in fighting climate change instead of the likely last redoubt of the oil majors.
If so, MMT and Degrowth offer his administration both a theoretical base and a practical guide for how to proceed. Even without House Republican acceptance, climate spending could be funded through the IRA if a different implementation approach were adopted that marries imports of Chinese solar equipment and batteries now with support for development of US manufacturing capacity over time in these and other areas.
Biden will want to be seen as tough on China. But there are ways to do this that go after undesirable imports such as fast-fashion without undermining socially desirable imports such as solar arrays and batteries. It’s all there in MMT and Degrowth theories about targeting government spending to advance human and ecological well-being.
