Risks are ‘a thing’…and so is the death of capitalism

A contribution to the debate on Modern Monetary Theory

“Theory”, wrote the sociologist Stuart Hall, “is always a detour on the way to something more important”. In the USA, the debate over how to fund the Green New Deal (GND) has triggered not just a detour, but something more like an economics version of Fortnite: Battle Royale– a death match between supporters of rival theories of money.

I am reluctant to join in because the actions required are fairly clear, whatever your theory:

  • design the transition to a zero net carbon economy;
  • mobilise the resources to pay for it, via a mixture of borrowing, tax and money creation,
  • and let the humans of the late 21st century deal with any debts and currency effects thus incurred.

In addition, the economists I am going to critique in this article are on the right side of the political debate. They want to spend first, worry about how to pay for it second — and faced with climate change, that’s the right instinct.

However, a detour into theory is necessary — and the backlash from several US labor unions against the Green New Deal shows why. Today the left has to convince Democrat-voting workers that their job security, incomes and lifestyles will not be threatened by the transition to zero net carbon. Tomorrow we will need to show them that, despite the historically high levels of debt and deficit needed to meet this challenge, their savings and pension payments will not evaporate due to high inflation and the collapse of the dollar.

In short, economic theories have a material force. I support the Green New Deal legislation proposed by Alexandria Ocasio-Cortez and Ed Markey: but hitching the project to Modern Monetary Theory (MMT) — an idea that is unproven, has never been applied operationally, and whose supporters prefer invective to peer-review is not going to help.

The way forward is to design, cost and quantify the risks of the transition project, including the fiscal and currency risks, in ways MMT does not seem equipped to handle.

What does MMT say?

At one level, MMT is just a counterintuitive way of explaining the relationship between taxes and government spending. To a layperson, it looks like the government “raises” money from the private sector through taxation. MMT says that before it can “raise” money via taxation, the state must first create money, via the central bank.

To a layperson, also, it looks like it’s a bad thing for the government to run a deficit and accumulate debts, because it raises the risk of the country going broke (like a household). MMT, just like mainstream neo-Keynesian economics, says that a) borrowed money can pay for itself in extra growth and b) there’s no chance of a country going broke if it has a sovereign currency.

The main danger, once the economy hits capacity, is inflation — and this is where MMT moves from being just a neat reframing of the algebra of capitalism to a set of policies. Because MMT says you deal with inflation not, as in mainstream economics, by raising interest rates but by imposing higher taxes.

As to the danger of recession resulting from the tax hike, you counteract it by the government giving a “jobs guarantee”: hiring people on the minimum wage to soak up unemployment.

Finally, because the Treasury and the Fed are both part of the state, MMT theorists say it doesn’t matter which institution you use to create the money needed. So instead of the government issuing long-term debts via the bond market, the central bank could finance growth by buying the government’s debts direct.

The implications today are that the USA should simply start spending the money needed to decarbonise America, and not worry about the size of the resulting debts, deficits, the dollar exchange rate or the reaction of global bond markets. Inflation, though a risk, can always be cooled down by raising taxes.

If you think I’m simplifying MMT’s attitude to the commonly understood risks, read merely the headline of Robert Hockett’s recent defence of the theory: “The Green New Deal: how we will pay for it is not ‘a thing’ and inflation isn’t either.”

It’s a neat theory. It blows away, as if by magic, all the fiscal problems that currently affect 21st century economies suffering from low growth, high debts and populations resistant to higher tax. If it were right it would be worth adopting. But it is wrong.

What’s wrong with MMT?

If we use deficit finance to pay for the GND, and use the central bank to monetise that defict, the key questions are: what is the impact on private sector growth; on the value of money (and therefore wages and savings); on the open-ness of the US economy; on the willingess of savers to lend to government; and on the status of the dollar?

MMT is, for its purists, a way of avoiding these questions. It does so by turning a perfectly sound piece of algebra into a theory of cause and effect.

It’s one thing to say (at an abstract level) the government deficit equals the private sector surplus (savings and profits). It’s another thing altogether to assert that running a deficit causes growth, saving and profitability — and conversely that refusing to run a defict is what causes recessions. Yet that is the theory of value explicit within MMT.

For MMT-ers money creation by the state, using either the central bank or deficit spending, is what drives the accumulation process within capitalism. As MMT theorist Pavlina Tcherneva writes: “since the currency is a public monopoly, the government has at its disposal a direct way of determining its value” (emphasis added). That is because, at root, for MMT-ers money is the expression of a power relationship between states and citizens.

MMT supporters are right when they say that money, and institutions like central banks, are the creation of the state, not the market. They are also right to say a state with its own currency cannot go bust. They are also right to state that in current conditions of high saving and low growth, the danger of interest rates going higher than growth rates, and making high debt unsustainable, is low.

But as numerous Keynesians (both Paul Krugman and Thomas Palley for example) point out, MMT did not discover these ideas. Even core capitalist institutions like the Bank of England and the economics team at Goldman Sachs, now acknowledge them. Meanwhile, even arch-neoliberals like former IMF chief Olivier Blanchard are coming around to the idea that deficit financed growth may be less risky than they previously thought.

What the MMT-ers have uniquely done is elevate a theory of money into a theory of value: the state, by creating money, creates value. If this were true it would annul all the risks involved in the biggest peacetime borrow-and-spend programme ever attempted. It would also, as we shall explore below, provide a neat way to abolish capitalism without class struggle.

A Marxist critique of MMT

The Marxist left shares numerous policy objectives with the MMT-ers. We don’t believe in principle in “central bank independence”, seeing it as a convention that facilitates control by the financial elite over the state. We, too want to finance the GND using budget deficits. We, too, want to put a floor under the incomes of Americans - though for reasons I will come to, it would be more sensible to do this through providing a basic income and universal basic services, funded through taxation.

But we share with all other factions of mainstream economics the belief that the central dynamic of capitalism is a private sector accumulation process.

Marxists believe value is created by human labour in conjunction with nature, not by the state issuing dollar bills. Profits and savings don’t come into being at the command of the central bank but via a process of exploitation, in the workplace, the marketplace and the finance system. It is true that, in a modern state, money expresses a power-relationship between states and citizens. But that power-relationship has a specific class content — the economic relationships between corporations and workers.

And here’s why it matters. While the power-relationship of state vs citizen is controllable by the state, the private sector accumulation process is not.

It is chaotic, subject to challenge and class struggle, and generates laws operating behind the backs of economic agents. As a result, while the state can do a lot of things, it cannot, as Tcherneva puts it, “determine the value of money”.

For Marxists, money is not just a unit of account but a store of value produced by real economic activity. Money is a cypher for real social relationships: it does not constitute those relationships in itself.

As a result, though the financial sector can have dynamics separate from those of the real economy (stock market booms during periods of slowdown, for example), it cannot escape the gravitational pull of real profit rates, wages, productivity and trade imbalances. That’s why Marxists believe that the commonly-anticipated risks associated with debts, deficits and inflation are “a thing”.

Scott Ferguson, a research scholar and MMT advocate, summed up this difference neatly:

“Marxism assumes that money is a private, alienating, and crisis-ridden exchange relationship that ought to be overcome. Yet MMT holds money to be a boundless public utility that, while by no means untroubled, is well-equipped to actualize radical collectivist ends.”

According to Ferguson MMT “de-prioritizes gravity’s causality in political and economic processes, showing how the ideal conditions the real via money’s distributed pyramidal structure” (emphasis added).

That’s our basic difference. To socialists, MMT looks like an anti-gravity machine: a scheme to achieve either a permanently stable capitalism or (for some of its adherents) socialism — without redistribution, class struggle or a change in the function of money.

Why does it matter?

It matters because our job right now is to convince millions of people fed on the “household spending” analogy that the US state can afford to spend trillions of dollars and that their savings, wages, pensions and financial assets will not collapse in value as a result.

The main ideology fed to voters by Fox News and the Wall Street Journal says that borrowing and printing money on a large scale will harm private sector growth, tank the dollar, deglobalize the world economy, reduce the Federal government’s ability to borrow globally and destroy the wealth of American savers through hyper-inflation.

Keynesians like Paul Krugman allow for debt to go higher, and deficits to be run for longer, because they hold a more optimistic view of the multiplier effect when a government borrows and spends. In the Keynesian theory, especially in a recession, when the government borrows and spends money it acutally generates growth. The bang you get for your buck is bigger than the buck itself.

But the Keynesians, too, want to place limits on the expansion of state spending, because they believe it is possible — even for a powerful monetary sovereign like the USA — to: a) suppress growth by taking too much tax out of the private sector b) undermine the value of the dollar by issuing too much debt, leading to unacceptable levels of inflation and c) to become entirely reliant on central bank money creation in a way that tears the global system of convertible currencies apart.

The upside of seeing deficit and inflation risks as “a thing” is that you have to design the GND in a way that: maximises the efficiency of spending, keeps inflation low to moderate so that savers are not wiped out, recognises the danger of “crowding out” private investors, and ensures that interest payments on government debt do not begin to eat the budget of the state.

For MMT fundamentalists, none of these dangers are “a thing” because the central bank can always create more money and lend it to the government, and can always remain in control of the interest rate.

However, where they recognise the risk of inflation, MMT-ers have a dangerously facile solution: raising taxes. For the MMT theorists, there is no need to use the tax system to raise the money to buy the new energy, transport and carbon capture systems, or to modernise healthcare. Tax, in their model, is merely a tool to cool down the inflation generated by printing money once the economy nears full capacity utilisation.

Likewise, for MMT, the problem of trying to co-ordinate monetary and fiscal policy in a world of independent central banks, under the pressure of global capital flows, is assumed away. The central bank is seen — rightly — as an arm of the state. But some MMT-ers then wrongly assume that any problems co-ordinating monetary and fiscal problems are notional.

Bill Mitchell, a prominent MMT theorist, argues that there is no need for government to issue bonds at all, since borrowing is inefficient compared to the Fed simply supplying money to the private sector at zero interest rates via the banking system. Again if you think I’m oversimplifying his position you only need to read the headline: “There is no need to issue public debt” writes Mitchell. Stephanie Kelton, prominent MMT advocate and a former adviser to Bernie Sanders, recently suggested that the Fed could pay off the USA’s $16 trillion debt “tomorrow”.

This tendency to rationalise away the glitches, folds and frictions within a real-world capitalist economy is not accidental to MMT. It is the logical conclusion of the assertion that value is created by states, not by real economic activity producing goods and services. And that is what makes MMT an unreliable guide to action.

As a byproduct — and this is fatal for an urgent project like the GND — it makes it impossible for the MMT-ers to convince other professional economists and the institutions they advise.

If you wanted to make MMT into an operational theory, you would have to build in the recognition that in real world there are states, classes and institutions that are all subject to global market pressures, and to the real social relations of exploitation. It seems weird to have to point this out to a movement that originated from within Keynesian thought, but the real world is a lot stickier than the algebra suggests:

  • Just as wages and prices do not move in the friction-free way that neoclassical economics predicts, neither will inflation risks disappear because you are prepared to raise taxes. Generating inflation is easier than collecting taxes.
  • Just because you believe the Fed and the Treasury to be the same thing, does not mean fiscal and monetary policy are easily co-ordinated. The Fed exists in an informal and ultra-powerful global network of central banks. The Treasury has to issue bonds into a global bond market. The two institutions can be pulled in separate directions by the power-relationships they are trapped within.
  • Just because you decided in theory that bond-issuance is “unnecessary” does not mean the American private sector becomes suddenly willing to forego holding government bonds. Treasuries have for 100+ years been the safest financial instrument on the planet, their yields put a floor under all other rates of return and provide the incomes of millions of retired people.

Kelton, who is the MMT-er most engaged with the practical policy implications, argues that because of MMT’s sensitivity to the inflation risk, policymakers who adopted it would need to “think about the ways in that new spending has the risk of accelerating inflation and then avoid doing that”.

She argues that the GND has to be designed by emulating the inflation-fighting principles Keynes laid out in How to Pay for the Warpublished in 1940. But Keynes’ own experience shows that’s easier said than done.

In the book he proposed: forcing workers to save part of their incomes, price controls, limited rationing, a basic income (the family allowance) paid for from taxation, plus a levy on capital after the war. As with MMT, the explicit rationale was to avoid imposing redistributive taxes on the rich upfront.

But the British government instead opted for upfront punitive taxes on the rich, widespread rationing (which Keynes protested was “Bolshevism”) and a smaller family allowance. The reason was that workers, via Labour’s ministers in the wartime cabinet, resisted the proposals in Keynes’ book and rejected the macro-economic theory that underpinned them. They understood the Second World War was going to be an act of domestic class struggle as well as an anti-fascist military endeavour.

Kelton acknowledges the complexity of the inflation risk and its countermeasures, saying “There is almost certainly no way to avoid an inflationary meltdown without careful planning and at least some offsets to make room for a WWII-style mobilization to combat climate change.”

If so, we need to start work on the careful planning and the offsets — which obliges us do the one thing MMT-ers consistently avoid: model the reactions of agents, sectors and institutions in the global economy, the financial markets and the class struggle, in a way that is challengeable by people who don’t agree with their theory of value.

What can we agree on?

I want the US Federal government to spend money fast, running into extra trillions per year, because as the 2018 IPCC report says, humanity has just eleven years left in which to halve carbon emissions.

Since governments can today borrow at historically low rates, it should be financed through a mixture of running a deficit, hiking the tax take from US corporations and getting maximum bang for your buck in terms of the multiplier effects of government spending. I see no big problem for the Federal Reserve to finance some of the deficit by buying government debt directly — a process known as monetisation.

Blanchard’s article cited above, together with previous interventions by De Long and Summers, is part of a significant shift among elite policmakers away towards recalibrating fiscal risks downwards. Meanwhile, central bankers, who currently hold around 25% of developed world government debt, do not to me seem religiously opposed to hiking that figure closer to 50%.

That gives the left the chance to win the argument for much bigger deficits and much looser and more unorthodox monetary policies.

But in order to design the “careful planning and offsets” we need to construct a model of the US economy’s behaviour under conditions of massive fiscal and monetary stimulus, and simulate the response of the global bond market and the financial system. We need to stress test the assumptions aggressively in order to convince corporations, consumers and the state bureaucracy that the risks can be mitigated.

The model would have to assume that the risks of inflation, the crowding out of private sector investment, deglobalisation, losing control of the real interest rate and triggering a bond-buyers’ strike are “a thing”.

Specifically, though inflation is low today — because of post-2008 capitalism is stagnant, and because organised labor is too weak to push it higher through wage demands — a country that quadrupled its deficit, began building new automobile plants and bullet trains etc, might generate inflation simultaneously from a) a fall in the dollar’s value b) bottlenecks of labour and resource supply and c) rising real interest rates in the commercial credit system.

With MMT you are left primarily with tax raising to counteract inflation. But tax exists in the real world of class struggle. New taxes can be resisted; avoidance behaviour can create distortions. If tax is your only countermeasure for inflation it might not work. Hence — as some MMT-ers acknowledge — you are pretty quickly into needing price controls.

Roosevelt overcame business resistance to his war economy plans because the basic ideas of Keynesian economic management had become embedded in the US corporate elite and civil service, because they were widely propagated by the left, and because there were case studies in the form of Nazi Germany and Imperial Japan.

To stand a chance of matching Roosevelt’s achievement in the battle against climate change, we need a theory with the power to convince voters. That means a fully-costed proposal for borrowing, taxation and central bank money creation that can be tested by economists who do not agree with it. MMT has so far failed to produce that.

Capitalism being doomed is also ‘a thing’

But there is a deeper reason to distance the left’s project from the claims of the MMT-ers. Like the business school economists they despise, many of MMT’s adherents seem completely uninterested in the fate of capitalism itself. Indeed, like the neo-Keynesians, their core assumption is that full employment and price stability can be achieved through policy.

Marxists see capitalism as a time-limited system because it proves periodically incapable of realising the value created in the production process on a scale sufficient to reproduce itself. That makes us profoundly interested in the micro-economics of the firm, the individual sector and the credit market.

Our project is not just a transition beyond carbon but the transition beyond the market and beyond compulsory work.

During that transition, we believe that money — which starts out as a cypher for the social relationships under capitalism — will begin to behave differently. But you cannot abolish capitalism by manipulating the monetary system. You have to dissolve the social relationships of exploitation, for which money is just a cypher.

Having seen a bastardised version of our theory cause famine and chaos in China and the USSR — where it theorised away real-world frictions between agriculture and industry, or planners and consumers — Marxists are acutely aware of the dangers of unleashing abstract and unproven theories into real-world policymaking.

That’s why, since the 1930s, Marxist economic policymaking and analysis has moulded itself around the language and assumptions of left-Keynesianism, while departing from Keynes over the long-term causes of capitalism’s crisis and demise.

Marxist political economy is an attempt to turn an abstract model of deep process (exploitation in the production process) into a concrete model that has predictive power for metrics we can see, like debt, deficit, profit, GDP growth and inflation. The 20th century taught us the hard way not to rely on metaphysical statements about money to guide policy.

For us, the unprecedented peacetime debts of developed countries, the concomitant asset price inflation in the private sector and the climate crisis are all symptoms of the same thing: the end-phase of capitalism.

It is one thing to acknowledge, as Kelton does, that Japan’s 250%+ debt to GDP ratio has not killed the Japanese economy.

But the idea that fiat money can permanently save, let alone stabilise, capitalism is a fantasy.

If you think about it, it a fantasy implicitly shared by Trump and his nationalist neoliberals, who stare at the CBO projection of 150% debt/GDP by 2050 and ask “so what”?

Congressional Budget Office US debt/gdp projection

To arm the generation that has to decarbonise the world, we need a project of transition beyond both capitalism and carbon — and for that we have to become a lot more interested in the world of profit, productivity, globalised finance and the future of work than MMT is.

How to emulate Roosevelt

The designers of the GND say we need to emulate what Roosevelt did in the Second World War. Let’s agree on that. But when Roosevelt had to mobilise the American war economy he didn’t just write a blank cheque. Nor did he insist that the risks were “not a thing”.

He made an estimate (in fact a massive under-estimate) of what the first year of the war would cost, then ordered the Treasury to spend the money and the Fed to support its creation. In 1941 the deficit was $5 billion, around 4% of GDP. In the next four years of the war, the USA ran deficits of 14%, 30%, 22% and 21% of GDP. In the meantime, the war effort confirmed the Keynesian thesis spectacularly by more than doubling the size of the economy.

I am not aware of any fully costed leftwing analysis of the GND. But right wing think tanks have begun to throw numbers around that sound scary — as with the $50 to $90 trillion estimate advanced by the American Action Forum.

For the sake of argument let’s assume the numbers might be roughly parallel in GDP terms to US Federal spending between 1940 and 1950.

  • Today US GDP stands at $20 trillion and the deficit at close to a trillion, roughly similar to the ratio in 1941.
  • To emulate the raw figures of Roosevelt’s war economy would mean running deficits between $4 trillion and $10 trillion a year until 2025 and probably beyond that.

If growth remained static, or merely trailed behind the increased rate of borrowing, the USA’s debt to GDP ratio would quickly mushroom. But there is no need for that.

If we get the execution right, monitoring the risks actively and using strong, centralised industrial strategy, a massively hiked deficit is affordable in the long term. Because — as in the FDR era — it would more than double the size of the US economy in the process.

All of America would feel as prosperous as San Jose and as environmentally clean as Helsinki. Even if it cost $60 trillion over ten years — as its right wing opponents suggest — the GND would be affordable.

But to do it right you have to demonstrate risk awareness and mitigation strategies towards debt dynamics, inflation, exchange rates and the open-ness of your economy. You have to squeeze every ounce of multiplier effect out of those extra trillions — which is why a transformative healthcare reform, massive investment in infrastructure and education are not nice-to-haves for the GND, but an essential part of it. And — as Keynes found out in 1940 — you have to make serious upfront inroads into the wealth and power of the rich.

There is, however, a problem with the FDR analogy. Both Keynes and FDR had a “what happens when it’s over” strategy. Once zero net carbon is achieved, paying down the resulting debt, or eroding it through inflation and capital controls — as happened under Truman and Eisenhower — will not be so easy this time.

After 1945 the USA (along with the rest of the developed world) eroded its 100%/GDP debt pile through 18 months of double digit inflation and by continuing to force domestic savings in a system which relentlessly eroded their dollar value. This is a process dubbed by economists Reinhart and Sbrancia as “financial repression”. With no freedom to move money offshore, savers were forced to go on holding government bonds. The real value of savings fell, but the social impact was offset by rocketing growth and rising real wages.

Since Fox News anchors are capable of understanding the phrase “financial repression”, and what it means for the investment class, we should assume that, in addition to the current demands over “how to pay for it”, the fear of high inflation and the compulsory erosion of savings through capital controls will be stirred in order to mobilise opposition to the GND.

Repeating the financial repression of the late 1940s and 50s — by forcing American savers to buy bonds whose value was eroded by inflation and by suppressing finacial speculation— would for certain deglobalize capitalism. But unlike in the 1950s, it would not necessarily rekindle its dynamism.

Because, as I argued in Postcapitalism(2015) the information-technology revolution destroys more jobs than it creates, and erodes the ultimate source of value and profit by disrupting the price mechanism.

The post-2008 stagnation of global capitalism is not simply the result of governments refusing to run high deficits. It is a signal that there is not enough value in an information economy to erode the world’s debt mountains through growth: they are a symptom of capitalism’s decline, not the product of a temporary emergency.

The additional problem this creates for MMT is that, because of the potential to automate 40%+ of all jobs or tasks in the next two decades, the “jobs guarantee” becomes like pushing a piece of string. It is why I and others advocate the creation of a universal basic income combined with universal basic services out of taxation to finance the one-off rapid automation that will significantly reduce the hours worked on the planet.

In short, the transition beyond carbon requires a transition beyond the market economy itself, using the decisive automation of production, a huge fall in the number of hours worked inside the wages system. It also demands a new form of public ownership which does not (as the GND resolution suggests) create monetary “returns on investment”, but only human ones.

I know, for my American comrades, the idea of adding a critique of capitalism to the proposal for zero net carbon seems like an unnecessary hassle. “How many obstacles do we want to create for ourselves at once?” they ask — and it’s a good question. The problem is, without a coherent theory, capable of convincing a majority of the electorate, the technocrats and the bond markets, we just create our own obstacles.

MMT as a form of anti-capitalism?

For proponents like Kelton, and for its supporters in the hedge fund world, MMT is sold as a way of avoiding redistributive taxes on the rich. Spend money on programmes for the poor without taking money from the rich, argues Kelton, and “everybody benefits”.

But at the other end of the spectrum, MMT has its anti-capitalist wing, in the shape of Bill Mitchell and Thomas Fazi, whose book Reclaiming the State links the proposal for deficit driven growth to an explicit project of economic nationalism. For Mitchell and Fazi, the way to mitigate the risk of investors going on strike as the government adopts a policy of monetising debts is through a “broad renationalisation of key sectors of the economy and a new and updated notion of planning…”

They add that the government should “outlaw all non-productive financial flows. As part of a more general reform of the international institutional architecture, governments should agree to make all financial transactions that cannot be shown to facilitate trade in real goods and services illegal.”

This is the most consistent conclusion of MMT, though not likely to get Goldman Sachs’ approval: it will work, but only if we de-globalise the economy, nationalise the banks and major industries, outlaw about half of all derivatives transactions and begin command planning, throwing in price controls and capital controls where needed.

In this form, you might be tempted to say that Marxism and MMT are two ways of conceptualising the same goal: the transition beyond a private-sector dominated economy.

The difference is that Marxism believes this cannot be done without stripping money of its role as a store of value extracted in the production process. And because Marxists believe value is created in the private sector, we take very seriously the spontaneous and uncontrollable outcomes of state intervention and expropriation. Drawing on the experience of soviet economists like Evgeny Preobrazhensky, Marxists believe that the laws of economic transition beyond the market operate “behind our backs”.

In Postcapitalism, for example, I advocate a fairly restrained use of state ownership and centralised planning, beyond what’s needed to decarbonise energy production and provide universal basic services, favouring the emergence of a granular and spontaneous non-market sector — and the use of government policy to nurture that. I also explicitly advocate a form of left financial repression: capital controls, ultra-loose monetary policy and debt write-offs.

Soviet planning could only ever set the price of a fraction of the commodities in circulation, leaving tens of thousands of other products at the mercy of informal market forces. This problem would re-emerge several orders of magnitude larger in a globally exposed, highly granular and consumer economy like the 21st century USA. So to throw out the suggestion that “if things get tough we just nationalise stuff” is both facile and unconvincing, particularly to an American public with no experience of either a welfare state or a command economy .

But there is another problem with Mitchell and Fazi’s anti-capitalist version of MMT: it is designed to destroy the multilateral global system.

If their suggestion were enacted, you would by the early 2020s be in the midst of a transition beyond capitalism. If so, it would probably dawn on the elite that the Federal debt, by now projected to reach tens of trillions, is probably not going to be paid back. And in a globalised financial market, that is going to destroy the multilateral global system as states, banks and corporations dump their mutual exposure to foreign debt.

Why is that such a bad idea? Because, though America, could probably survive, the effect of tearing up the multilateral global system would be to destroy our ability to fight climate change.

Only through mutual, binding treaties can we force the national elites of capitalism to decarbonise adequately in the next ten years. For the Marxist left, reforming the global system, not smashing it, is obligatory given the short timescales and high risks involved in meeting the climate goals.

The project to achieve socialism through money artistry instead of class struggle is not new on the American left — but it invariably leads nowhere.

What’s the worst that could happen?

Pavlina Tcherneva, a prominent MMT economist, asked following question after Doug Henwood’s critique in Jacobin:

“Suppose a very progressive govt says “Yes, #MMT is right, we have all the financial resources we need” and starts working on implementing a #GreenNewDeal, …. What’s the worst that could possibly happen from the POV of all fervent Left MMT critics?”

For me, since you ask, the worst that could happen is:

  • high inflation — which is always experienced as exploitation by workers and the poor — erodes popular support for this new, progressive government, and the alt-right now have a bunch of bankrupted small businesspeople and savers to hold their flaming torches;
  • meanwhile the private sector market for US government debt dries up, and alongside that a wider “capital strike” occurs, tanking the real economy, as happened in Roosevelt’s second term;
  • the taxes needed to stabilise the system are resisted by the rich, the job guarantee schemes needed to maintain growth are unpopular and don’t work… the notorious “stickiness” of reality defeats the algebra of MMT;
  • and the financial deep state — in the form the central bank and its allies in the Bank for International settlements — refuses go on printing money. This is exactly what the Fed did in March 1951, in defiance of the Treasury, when inflation was running at 21 percent.

Or, long before we get there, the inability of the Democratic Party left to explain how these risks are going to be avoided leads to the whole GND project to be watered down in the post-2020 Congress, or during the 2020 primaries.

Most of these risks also exist for a GND funded by a more traditional left-Keynesian mixture of tax, borrowing and monetisation of the deficit — but the difference is the “fervent left critics” would be obsessed by the risks, whereas MMT fundamentalists believe the risks are “not a thing”, and others, like Kelton, have not yet spelled out how they’re going to be mitigated.

We do not ask for the Green New Deal project to be dependent on redistributive tax policies — what Tcherneva calls “waiting for the class struggle to be won just in time”. It is obviously going to be done mainly through deficit finance — though the redistributive aspects of the tax component could have a major mobilising effect, just as they did for the British workers who rejected Keynes’ plan in 1940.

But we do see the GND itself as an act of class struggle. We just want to win and not lose. And because time is tight we want to use as much of the current institutional framework as we can lay our hands on, and bring the neo-Keynesian policy establishment as far down the track with us as possible.

I don’t ask academics who have made their careers out of perfecting MMT to give up their theory. I just ask them to collaborate in the creation of a challengeable macroeconomic model where we can test the actions we’re going to take, understand the risks and mitigate them.

Because the left tries to embody the historical memory of class struggle, MMT-ers hubristic rhetoric sounds at times dangerous. Revolutionary Marxists been here before, in our battle with the Stalinist planning zealots of the late 1920s, even if it is all new to you.

They too said to their critics “the ship is sailing, we’re leaving without you”. The catastrophic results are known. Entering uncharted waters armed with a theory that says the conventionally-understood risks are “not a thing” is a bad idea.