Thinking about the Magical Elixir of MMT by Josh Marshall

Editor’s Blog – Talking Points Memo / by Josh Marshall / now

I find that as often as not I agree with Matt Bruenig on policy matters. But those points of agreement can be obscured for me by differences of temperament and politics. Here though I find myself entirely in agreement with him on something called Modern Monetary Theory. You may not even have heard this phrase before. But you should and probably will soon. If you haven’t, you should familiarize yourself with it because it bulks very large in many current debates within the Democratic party that you have heard about. It’s a big deal. Bruenig aptly describes it as “about using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation.”

It’s not easy to simply explain what MMT is because it operates at several distinct and not always closely related levels.

At its simplest MMT states that government spending is not funded by taxing money or borrowing it. Taxes serve other purposes but getting money to pay for things is not actually one of them. As one of its top popularizing advocates put it, “Taxing the super rich at 70 or 80 percent is good in itself, because those people have too much money and are screwing up the world with it. But you don’t need it to fund an agenda.” In fact, all government spending, says MMT, is funded by printing money. At a very high level of abstraction there’s a way in which this redefinition of terms makes a certain sense. Indeed, there are elements of MMT that are similar to basic Keynesian economic theory – sort of Keynesianism on steroids or perhaps Keynesianism without a theory of inflation. For a more knowledgable and technical discussion see these two columns (one and two) Paul Krugman wrote on the question of MMT earlier this month. For pro-MMT arguments Stephanie Kelton is probably the most prominent advocate. You can see her arguments at her website.

To me, the discussions about MMT are very hard to pin down because it’s a bit hard to make sense of what level of practicality MMT advocates are trying to make their arguments. It can be a bit baffling like having a discussion about quantum physics and then hearing from the person you’re talking to that quantum physics makes some dramatic new things possible in the skyscraper you’re planning to build. That is quite likely completely untrue. So it is at a minimum quite unsettling. But again, to me the practical issues are not technical but political. And those I feel more comfortable speaking to.

If you look at the Green New Deal, you’ll see that it is actually a mix of two things. One is an extremely aggressive plan to address the climate crisis basically on all fronts: technology, infrastructure, regulation, etc. This is of course vastly expensive. But it’s not the biggest cost. But the really big spending isn’t for things that most of us would recognize as tied to climate or the environment at all. It’s basically the full social democratic policy package: universal healthcare, job guarantees, some version of a universal guaranteed income, free or no-debt higher education, etc.

Many of the things in the latter category are things that most Democrats believe in, others are quite controversial. Probably the bulk are things where the controversy comes down to matters of degree. The point I want to focus on here though is that these things are extremely expensive. (You can find a good discussion of these point in this and other columns by Noah Smith.)

If you look at the advocacy conversations surrounding the Green New Deal and various of these programs on the left and you get to how to pay for it … well, this is where MMT comes in. Setting aside the technical merits MMT increasingly serves as a placeholder to explain that the whole question is bogus. It’s not a matter of where do you get the money. The US government creates dollars and is in charge of how many dollars there are. So the whole question of where the government will get them is silly.

Here for example is The Intercept’s Ryan Grim this month in his email newsletter noting Alexandria Ocasio-Cortez flummoxing NPR’s Steve Inskeep with MMT.

Ocasio-Cortez was interviewed on Morning Edition today and when asked how to pay for a Green New Deal, talked about decoupling the concepts of tax revenue and government spending, which is the cornerstone of Modern Monetary Theory. Amazing to hear that on NPR. Not sure Steve Inskeep quite got it; it could take a little while to sink in.

A month earlier he made the same point on Twitter: “Here’s @AOC talking up Modern Monetary Theory as an answer to how the government can fund a progressive agenda. She’s right.”

One of the seductive things about this popularization of MMT is that it piggybacks on something most Democrats rightly and strongly believe: that deficit hawkery is a greatly overstated concern that is supposedly the biggest deal in the world when Democrats are trying to increase spending and becomes magically irrelevant when Republicans want to cut taxes. Remember that we spent the first four years of Obama’s presidency being told by Republicans that Obama’s fairly moderate post-crisis spending had us months away from an apocalyptic debt crisis.

Debt markets give us pretty accurate reads of impending debt crises and lenders spent years essentially paying the US to borrow their money. That was stupid and mendacious, scare-mongering in favor of austerity. The biggest problem the global economy faces at the moment and in some ways has for a couple decades isn’t inflation but lack of aggregate demand. But with MMT “deficits don’t matter” as perhaps a shorthand for ‘the danger of deficits is greatly overstated’ has become literally deficits don’t matter or more broadly that deficits don’t even exist.

I have no doubt that there are MMT advocates reading this now saying, no, you’re not getting what MMT says or you’re caricaturing it. Maybe. But what I’m able to speak to is how it is playing out in a political context. As Bruenig explains, if you want Northern European-style social democracy you’re going to need to have significantly or dramatically higher rates of taxation. And not only much higher rates on the uber wealthy but generally higher rates on a much broader range of the population. Whatever the theoretical merits of MMT, it’s political role is simply to say that core fiscal policy realities simply don’t exist. Or to put it more concretely, because taxing and spending and debt and money supply are all part of one equation, well, let’s not worry about it! How do you fund it? Well, MMT!

All of this might be notional and sort of irrelevant to our immediate political moment if it weren’t for the fact that MMT is actually central to the Green New Deal and thus at the center of political debate among Democrats without, seemingly, most people even realizing it. We’re seeing top presidential candidates signing on to it without seemingly realizing what’s in it or the levels of taxation that are built into or that there’s no actual plan for where any of those revenues come from – even if they’re sort of hokum’d away with MMT finger-waving.

As Bruenig puts it, MMT is amounting to “using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation.” Bruenig probably supports 100% move in that direction. Maybe I support 50%. But if we’re going to have this debate we should really have it with our eyes open about what we’re talking about. That makes sense just in terms of being in touch with reality. But it’s equally important politically because if you go into a big political fight having bamboozled ourselves in advance that will not end well.

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