At the end of September I attended The Second International Conference of Modern Monetary Theory:”Public Money, Public Purpose, Public Power” at The New School, in New York City.
I was fortunate to participate in a panel on “MMT and Electoral Politics” I believe I was the only elected official in attendance. Before I share my remarks from the panel here’s a bit about MMT and some links to how you can learn more about it:
Modern Monetary theory is a new way to look at money and how governments with sovereign currency (that is with the power to print their own currency) can use monetary policy to meet the needs of there citizens. It is a theory that has come into some prominence in the last decade but still has not completely entered the mainstream. But my sense is that it could transform the kind of economy we are able to create for our nation. It coincides with the ideas I talked about in my book We All Do Better : Economic Priorities for a Land of Opportunity . It suggests that we could create the kind of economy that provided for the needs of Americans, much like what Franklin Roosevelt called for in his economic bill of rights. MMT is also reflective of the efforts of Roosevelt and Keynes put into the Bretten Woods accord along with getting us off the gold standard, which freed our currency from constraints domestically and internationally and Nixon finalized on the international scale.
The theory has been developed by a small group of economists (most who were at the conference) and have been followers of Hyman Minsky (who you may have heard of in relation to the phrase ‘Minsky Moment’ which describes his ideas about the instability of Capitalist economies) his ideas were used to understand what happened to cause the 2008 world recession.
Minsky would be described as an Institutionalist (a school of economics often associated with Thorstein Veblen). He advocated a job guarantee as opposed to welfare to end poverty. The job guarantee has become one of the major policy suggestions of MMT advocates. He also pointed out the difference between true Keynesian economics and the divergent path that Neoliberal economists like Milton Friedman took a divergent path when they tried to rewrite Keynes. Economists at the Levy Institute, and at the University of Missouri in Kansas City carried on his work. New institutions and organizations are also beginning to champion this approach as well.
The most noted advocates who appear in publications and can be found on numerous websites are: Warren Mosler, L. Randall Wray, Bill Mitchell, Mathew Forstater, Stephanie Kelton, Scott Fullwiler, and Pavlina Tcherneva among others.
Here is a recent lecture by Stephanie Kelton of Stonybrook University speaking to the objection most often raised by conservatives when progressives talk about spending on social programs like medicare for all, “How you gonna pay for it?”
This question is what motivated me to write We All Do Better but my emphasis was more on providing an economy where a middle class and upper mobility would continue to be possible.
So what MMT offers is an understanding that governments that have control of their own currency do and can set their priorities differently than those that do not. You might wonder the next time you hear conservatives say deficits don’t matter when they want to spend money on tax cuts or a war or disaster relief but then when it comes to spending on social programs all of a sudden insist that liberals have to show how they will pay for what they want.
What MMTers have discovered in their research looking at economies shaped by nations that have the power to mint and print their own currency is that there is no connection between the taxes they take in and decisions they make about spending.
They print money so that the can spend (and in modern economies the money is created by spending it – a key stroke on the computer). One of the reasons they print money is so that they can tax citizens and the act of taxing is important because there are times when it is important to reduce the money supply to avoid inflation.
Taxing is not used to raise the funds to pay for anything because the printing or creation of money is controlled by the state and it spends on what it wants to. So claims that if we spend more than we take in or if we fall into deficit by spending creates a problem – are a misunderstanding of how things work because the money supply is controlled by the state.
Actually, running a deficit means that the state has spent into the economy often giving private citizens funds which creates a debit on the state ledger, but a credit in the private sector. When the government sells bonds that is a collecting of funds from the private sector, which over time will be paid back as the bonds are paid back with interest to the individuals who have them. So this is not a drag on the economy – as red ink on the State ledger becomes black ink on the private sector ledger.
If this is not clear yet here are a few more links that will help you understand:
“We are asking the wrong questions” – (video) Stephanie Kelton
“Trump’s Socialism claims rejected” – (video) Stephanie Kelton
“Rockstar appeal of Modern Monetary Theory” – The Nation
“Why U.S. Deficit Spending is a Good Thing” – (video) Bloomberg Politics
“But How Will We Pay For It?” – (video) Stephanie Kelton
“Democrats attacks on GOP tax cuts misses the point” – Stephanie Kelton
The profound message in all this is that we can have ‘Medicare for all’ and don’t have to explain how we will pay for it; because if we have the system in place to provide health care to everyone (a mix of private and public institutions and employees) we can do it. Here is a little video of the late Alan Greenspan attempting to explain this very thing to a disgruntled Rep. Paul Ryan, who as you know continues to make the argument that we can’t afford Medicare and Social Security, which is a lie.
Greenspan Schools Paul Ryan On Future Retiree Benefits and SOLVENCY
This is a profound change in our thinking and the most effective way to return our government into a functioning institution that can actually address the real problems that we face, like climate change and failing infrastructure. It changes our thinking away from ‘taxpayer money’ for individual good to ‘public money’ for the common good, which in a democracy means we have some say in what priorities we as a nation should set as opposed to allowing a ruling class set those priorities. I find it fascinating and the most hopeful way to think about our future I have found.
So here are the comments I made relative to MMT and electoral politics:
I live in a small college town in south central Minnesota. I am not an economist but I like to think of myself as a curious problem solver. I was trained as a high school English teacher and spent most of my 30 year career working with at risk students. Before I begin I want to state a couple of truisms I’ve learned about pedagogy – 1) You can’t learn anything you don’t already know (which is why I was trained to offer an anticipatory set to lay the groundwork for new concepts). 2) Prior knowledge supercedes later knowledge, (which means it is difficult for a new way of thinking to take hold and is often overtaken by an accepted way of thinking). All of which is to say the new concepts of MMT are not easily learned or taught and is why I value coming to this conference with clear thinking folks who have spent some time thinking through these ideas.
As I said, I am not an economist but I like to think that my pathway into economics came when I discovered that I grew up and live 13 miles from the home of Thorstein Veblen, who once taught here at the New School. Being also of Norwegian ancestry, I took pride in associating myself with his thinking. My favorite book of his is The Instinct of Workmanship where I learned about his ideas about how institutions are formed and sustained, how science emerged from idle curiosity and the force that habits of mind have on our thinking and behavior and finally how we are not creatures who are naturally adverse to work and need to be coerced or threatened to be steered away from perpetually seeking leisure. Work is not irksome unless forced on us by others and we as individuals will work hard on a chosen vocation because it is an expression of who we are and it is our nature to continually improve on the work we are engaged in. Many of his ideas like the dignity of work support the notion of a job guarantee.
Some years ago I wrote a play about Veblen’s ideas. I was struck by his observation in The Theory of the Business Enterprise that under different economic systems the concern was whether or not the economy could provide the goods and services needed by the people but under the current system it is never seriously considered. He claimed that everything he knew about economics he absorbed working along side his father, a craftsman and farmer.
My political mentor was Paul Wellstone who was fond of using the phrase, “We all do better, when we all do better” and he believed politics should be about improving people’s lives. It is because of Wellstone that I chose to run for office. He lived down the street me and taught at Carleton College in my hometown. He was running for his third term in the US Senate when he was killed in a plane crash days before an election he would have won.
I ran in a district that was very competitive divided between a liberal college town and a more conservative rural agricultural base. The first time I ran I lost by 20 votes and eventually won by 60 votes. I served two terms and then lost in 2010 by 30 votes. I was re-elected in 2012 and re-elected twice after that. When I was first elected in 2006 I was concerned about what was happening to a shrinking middle class and inequality. I asked the Legislative non-partisan research staff to tell me what was the history in Minnesota of income disparity. They reported back that Minnesota up until 2000 had the lowest income disparity in the country. After the election of Jesse Ventura and a huge tax cut we have seen that disparity rise until we now look just like the rest of the country.
It was because of that and the call for more tax cuts and pleas to sign the no-tax pledge that I wrote a pamphlet called “The Middle Class Amendment”, describing how we might save our middle class economy by government investment not in tax cuts but in five foundational constitutional commitments that would bolster a middle class in Minnesota. A constitutional amendment if I could get it to a ballot would by pass a Republican Governor’s veto. Those five vital investments would be in Education, Healthcare, Transportation, a clean and safe environment and living wage jobs. In Minnesota our constitution already had two of these provisions – Education and Transportation so to me it didn’t seem that much of a stretch.
Needless to say I did not get the necessary support to advance my idea. I had hoped thought that by introducing the idea I could continue to talk about it in the next election and maybe even interest politicians at the Federal level to embrace it.
In 2008, when we were facing cuts to important programs the programs ran ads saying, “Can you believe Rep. Bly wants to spend your tax dollars on education, health care, transportation, the environment and living wage jobs. Voters would answer, “Yes.” When I presented my idea to other various groups they wondered why I had not addressed the issue of housing.
In 2011 I heard Professor William A. “Sandy” Darity debate his idea for a ‘universal job guarantee’ and decided to include it in my book We All Do Better and when I returned to the legislature introduced a bill to consider such a policy in Minnesota, knowing that funding it would be more difficult at the State level. In my book I abandoned the idea for a constitutional amendment and just argued for the big picture investments arguing that the piecemeal approach we so often see in legislative action was not going to get us where we needed to be as every proposal was met with the “how you going to pay for it” refrain.
My approach was simply to ignore their question and counter with the evidence of a shrinking middle class and the growing corporate control of the economy that continued the economic divide. Then I discovered MMT. It seemed the perfect answer to the “How you gonna pay for it?” question. The only issue was how do you make it work for state governments. In my mind we already had an example for it in the Obama energy efficiency investment that gave states federal money to improve energy efficiency. There were other investments that came with the recovery stimulus plan that Obama put in place that similar investments would make MMT workable for states even when they are bound by balanced budget restrictions.
The question posed to us on this panel was is MMT a good election campaign talking point. I believe MMT is difficult to use for a campaign but policies like the “Job Guarantee” and “Medicare for All” are things you can run on.
When I talked about the five foundations in my book, We All Do Better, these were ideas that people could grasp especially when combined with policy initiatives like single payer health care, or multi-modal transportation or student debt forgiveness, or college tuition. In addition to these policy ideas, which I introduced as bills, I explored the idea of a state bank like the one in North Dakota. A state bank I believe can help solve some of the problems faced by the necessity to have a balanced budget.
In his book The Folklore of Capitalism Thurman W. Arnold, FDR’s best anti-trust lawyer argues that in 1936 politicians refused to talk about he biggest problem facing the country because they were afraid of being called a socialist or communist. This shows the power of the corporates and the plutocrats to distract us continually from the real problems we face. This remains true today. FDR tried to dislodge the control of our economy from the big banks and corporations but he ultimately failed and ever since the powers that be have undermined the protections he put in place for our democracy.
I believe MMT is related to FDR’s efforts to turn the power of our government away from corporate interest to the public good. His vision include a world wide rescue but this remains our struggle. I believe policies like ‘a job guarantee’ and ‘Medicare for all’ are steps in the right direction. So are the other tenants of the ‘Economic Bill of Rights’ FDR are spelled out for us. As I have said this is essentially the message in my book We All Do Better. It is also I believe much of what inspired the populist movement that was advanced by the Farmer Labor Party of Minnesota and the Non-Partisan League of North Dakota. It also is the main theme of Thorstein Veblen’s message to return to where I began. Also is well expressed by the title of this forum, “Public Money, Public Purpose, Public Power.”
Veblen argued against the dominant view of most in his day that ‘exploit’ and the pursuit of power and dominance by predatory actors was the natural state of human endeavor. It was without doubt at the center (along with the notion that the pursuit of self-interest was good for society as a whole) of the Capitalist ideology. Through his writing Veblen sought to discover and share the idea that there were other possibilities for human beings to organize their societies around. He proposed a theory of what he called fundamental human ‘instincts’ for the survival of the human species. To quote Sidney Plotkin, “The durable and self-reinforcing effects of human experience give increasingly greater weight to culture, habit, and environment in the evolving human make up. But the basic instinctual factors in human psychology have lasting significance. These factors include instincts of workmanship, which encourage us toward useful, effective work; a parental bent that stimulates our concerns for the future well-being of children, community, and species; and an ‘idle curiosity,’ which presses us to search for conceptual, theoretical understanding of the world and its phenomena.”