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Alexandra Ocasio-Cortez is well known and both maligned and praised around the world as is her signature, audacious proposal for a GND. When asked recently on a TV program how she would “pay for” such an ambitious program, she answered with aplomb, “The same way we pay for our military.” To paraphrase, the government writes a check and government checks don’t bounce.
She has learned about Modern Monetary Theory (MMT), a description of the way our economy works that is gaining widespread traction with economists. MMT is also both maligned and praised around the world. It represents an economic model to replace the so-called Neoliberal model that over the past fifty years has resulted in massive shifts in wealth to the rich at the expense of the poor and not-so-rich. Indeed, the disappearing middle class has been well documented.
The Neoliberal model obsesses about national deficits and debts, which it misunderstands. And, through its unconscionable influence on our Congress extracts tax benefits for the rich. The model promises investments by the rich will cause trickle-down wealth for everyone. That has not worked out!
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| https://www.youtube.com/watch?v=_HKhP0nzaAM |
The Neoliberal model by design or ignorance fails to recognize that US Treasury securities, which are private assets, make up the national debt to the penny. Imagine that! The infamous National Debt Clock is also the National Savings Clock. We don’t pay off the national debt. It remains as the record of net private assets created by the government for public use since our republic began.
Government can not run out of money as long as it does not promise to convert it into something it can run out of, like gold. Of course, the world rejected the gold standard long ago.
So, unlike households and businesses, there is no financial limit to government spending. But, MMT recognizes that there is a real constraint on spending, because there is a real limit to productive resources; labor, equipment, infrastructure, and natural resources.
Therein lies a caution. Attempts to buy more goods and services than the nation can produce will cause inflation.
Implied in the above is the counter intuitive fact that government, again unlike households and businesses, does not need to tax or borrow in to spend. Taxes and borrowing, the sale of treasuries, have other purposes beyond the scope of this note.
Actually MMT is not so modern. Marriner Eccles, who was FDR’s Fed Chairman, helped steer the nation out of the Great Depression in the 1930s. Eccles understood that our great nation had the productive capacity to afford everyone a decent standard of living. Beardslee Ruml, 1946, Chairman of the Fed Reserve Bank of New York, gave a paper entitled, Taxes for Revenue are Obsolete. Abba Lerner, 1943, advocated full employment in Functional Finance and might be the father of MMT.
The economic lessons of the 1930s and 40s fell under the sway of Milton Friedman, a proponent of free-market capitalism, in the 1970s. He might be the father of the Neoliberal model. But, we credit Warren Mosler with rediscovering the MMT model in the early 1990s and stimulating solid academic research.
With insights provided by MMT we are going back to the future with the realization that this great country can afford a GND, including a federal job guarantee, and universal healthcare. MMT gives us the vision to look beyond misunderstood deficits and debt to focus on what our nation can do with its great productive capacity.
There is a stark difference between households that must live within their means and sovereign nations that should live up to their capabilities. AOC is on firm ground.
