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OpEdNews Op Eds    H2'ed 3/18/19

On Paying for a Green New Deal with Modern Monetary Theory

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We should perhaps not blame politicians who advocate a GND without telling us how they plan to pay for it. After all, Republican politicians have been getting elected for 40 years by promising big tax cuts without saying how they would pay for them. Still, MMT is not the solution.

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Alexandria Ocasio-Cortez Brands Climate Change Proposal As 'Green New Deal'
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Much of the Democratic Party, including almost the entire pack of contenders for the Democratic presidential nomination, has embraced the concept of a Green New Deal (GND). This is an ambitious plan for slashing greenhouse gas emissions, while at the same time creating good-paying jobs, improving education, and reducing inequality.

At this point, the specific policies entailed by these ambitious goals are largely up for grabs, as is the question of how to pay for this agenda. One way of paying for it, borrowing from the economic doctrine know as Modern Monetary Theory (MMT), is that we don't have to.

Modern Monetary Theory argues that a government that prints its own currency is not constrained in its spending by its tax revenue. Some on the left have argued that we can just print whatever money we need to finance a GND. This claim does not make sense.

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The logic of MMT's claim is that, since the US government prints its own currency, it is not constrained by revenue from taxes, or what it borrows in credit markets. It can always just print the money it needs to cover its spending.

If the government wants to spend another billion dollars paying workers to build roads or paying contractors for steel, who is going to turn down its money? They will just be happy to get the money, end of story.

The limiting factor is that, at some point, this process can lead to inflation. If an economy has a substantial amount of excess capacity, meaning that there are a large number of unemployed workers and idle factories and other facilities, the additional spending due to printing money will just put some workers and factories to use. There should still be plenty of competitive pressure to limit wage and price increases.

This was quite effectively demonstrated in the recovery from the Great Recession, in which the United States, the eurozone, and Japan have all struggled to increase their rates of inflation. In all three cases, the large-scale printing of money had a modest impact, at best, in raising the rate of inflation. The predictions of runaway inflation made by conservative economists were shown to be completely wrong.

While it's true that countries could print money to boost their economies to recover from the Great Recession, that doesn't mean that the United States could now spend a large amount of money on GND projects, without tax increases and/or offsetting spending cuts. The reason is that we have largely recovered from the Great Recession.

The unemployment rate is now under 4.0 percent, lower than it was before the Great Recession started. While there is some evidence of slack in the labor market by various measures, it has tightened to the point that workers are now seeing pay increases that exceed the rate of inflation.

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The average hourly wage increased by 3.2 percent over the last year. That compares to a 2.8 percent rate of increase in the prior year, and a 2.4 percent increase from 2016 to 2017. This tightening of the labor market is great news because it means that millions more workers have jobs and that most workers are now sharing in the gains from growth.

However, it means that we are pretty much at the end of the "just print money" option. If we were to spend an additional $200 billion a year (1.0 percent of GDP) on installing solar panels and windmills, retrofitting buildings, and building electric cars and buses, it would further increase demand in the labor market and almost certainly lead to considerably more rapid wage growth.

While slightly faster wage growth would be fine, this sort of boost to demand is likely to quickly push the rate of wage growth to well over 4.0 percent or even 5.0 percent. Higher wages could come partly out of profits (there was an enormous shift from wages to profits in the Great Recession, which could be reversed), but pretty soon, substantially more rapid wage growth would be passed on in prices.

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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 
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shad williams

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Dear Mr. Baker: Really? After the fed printed trillions, as high as 27 by some estimates, giving it away to those first in line - the ruling class, now you want to cry about how to pay for it? Please provide the readers here with a critique of this fiat activity you noticed as you were driving by it.

The fed's action over its history is analogous to the artist Piero Manzoni's sale of his sh*t in a can. I have a better idea, let's take all of the US gold from the US government until the people get their own US government, otherwise you might as well cry in the toilet.

Submitted on Tuesday, Mar 19, 2019 at 1:02:08 AM

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Robert Cogan

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Dean is an excellent critical economist, but he misses several giant points about MMT. It is more about forever securing our New Deal and Great Society benefits against the needless threats of Thugpublicans like Ryan and Mc Connell and Trump to cut and eventually privatize them than it is about saving the earth's climate. It's anti AUSTERITY! True or False, Dean: The Constitution grants power to Congress to coin money and regulate the value thereof. T or F: House Appropriations committees could simply create, as deposits to Soc. Security and other Trust funds, the sums that are necessary to return them to "solvency," rather that their alleged insolvency requiring benefit cuts. T or F such mere deposits of unit of account money is trapped liquidity and can no more cause CPI inflation than did the bank bailout (all $29 Trillion) of it.

Submitted on Tuesday, Mar 19, 2019 at 5:14:20 AM

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I am not so sure about the "critical" description.

We now have proposals for negative yielding bonds. Who other than the super wealthy can afford to forgo interest earnings and instead give up a portion of their principal?

What mechanism will wage earners have to tell their employers to go f*ck themselves when they insist that workers enroll in electronic deposits, deposits which will become susceptible to "bail in", where the bank can confiscate deposits - who cares what their reasoning for doing so may be?

Perhaps we ought to force corporations with the electronic capitalist means to pay their workers every day, not once a week or every two weeks or god forbid once a month! It is ridiculous that in this day of so called tech prowess workers wages can be sequestered, providing a float to the feudal employer or more precisely slaveowner/employer, so that the worker essentially works for free until they finally get paid..after the ravages of inflation, interest loan payments, payment of banking fees and other criminal sleight of hand bullshit has taken its cut.

These people are out of control and have no clue about what we can do to them if we made up our vague multifaceted minds.

Submitted on Wednesday, Mar 20, 2019 at 11:28:51 AM

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Money is a fiction and all that follows is fiction. The global economy basically puts the lie to fiat(ism). At best the USD is based on military 4-D dominance and the petro-dollar. Period.

Monetary systems are a human contrivance and frankly a major red herring ("how you going to pay for it, bubba?")

The US is a military incorporated empire with plans to complete full spectrum dominance by 2020...and that's no joke buster.

All this MMT wishy-washy thinking is just like the children's crusade to end climate catastrophe. The whole thing is locked and loaded. Tuck your children in, read them a book, take walks in the wilderness, swim in the oceans, bless the holy ground.

As long as we spend trillions on wars and preparations for war (and ending that is not on the agenda) than MMT is just a fantasy. Get over it!

Submitted on Wednesday, Mar 20, 2019 at 6:38:20 PM

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Dean is still in the grip of the Thugpublicans distortion of Austrian economists called "Austerity," a weapon deployed against Obama - democrat recovery programs. Here's a dialog representing austerity thinking, "A" and MMT replies "M."


A: "We're in an enormous $21 trillion debt!"

M: " Our National Income is about $21 Trillion also. Our national assets total about $128 Trillion.

A: "But we're a tremendous debtor nation. Some day we'll have to pay back what we owe."

M: "Who's going to collect it? How?" We have the world's reserve currency, we set borrowing terms, and can roll over debt (re-issue substitute bonds.)"

A: "Interest needed to pay on the mounting debt will dry up capital for investment."

M: "No. By one measure it is still only about 6% of GDP. And we can always create more money to pay interest."

A: "Won't MMT be an invitation to inflation, even hyperinflation?"

M: "No! The Fed. bank bailout required est. $2-$29 trillion. Asset deflation, but no CPI inflation happened, because the 'money' was non-spendable, it was trapped."

A: "The U.S. should operate like a business. Our budget should be balanced every year."

M: "No! Our government is not a business! It exists to secure life, liberty and opportunity for citizens. If the budget needed to be balanced, taxing out a dollar for every dollar spent would mean there would be no new money added to the private economy!"

A: "There are makers and takers. Some people are poor because they're lazy or dissolute. Taxpayer's money spent on them above what's collected is a debt that makers must pay off!"

M: " Many poor are blameless for their condition. Private charities can't collect enough to keep them alive. Our Government can meet general welfare needs even without deficit borrowing.

Austerians: "If we keep spending like this, other nations will eventually stop trading for our valueless dollars."

M: Other nations have accepted our paper bonds. The U.S. does not need collected taxes, not even to RE-distribute $ from Rich to Poor. MMT funding is distribution, not redistribution."

A: "We can't afford health care insurance for all."

M: "Yes we can! Nations much less wealthy (Scandinavian) have such systems whose fairness is not questioned."

A: "Taxes are theft by force from productive people."

M: "Dude, Not since the Sheriff of Nottingham! Taxes are products of class conflict. But currency tokens aren't 'your money.' Taxes return to the government its' motivator of economic activity."


Submitted on Tuesday, Mar 19, 2019 at 5:56:13 AM

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NOTICE: This comment is copywrited (not copyrighted) because I've been repeating this for years, and one day some Nobel prize winning economist in the Milton Friedman priesthood will become famous for discovering it. This is my attempt to avoid being left sucking hide tent. :-)

We don't have to buy MMT to slap down the claim that government expenditures must be paid for with income from taxes and fees and with borrowed money. This is a lie. All government spending is accomplished by creating fiat money from nothing (an IOU) and disbursing it by computer keystrokes.

All government income is paid in the government's own fiat money. What does the government do with this fiat money income? It credits the payer with the payment and promptly extinguishes the payer's debt. It and its previous value disappear from existence. Poof! This recorded accounting transaction conveys no asset into the government's possession. It is simply a record proving that the government has honored its IOU to the bearer thereof. To repeat, when a government IOU is redeemed by the government it is of no further value and is not then a government spendable asset.

So...The government spends by issuing IOUs backed by the full faith and credit of the US government, and it redeems them by accepting them in payment of debt. And, because it is backed by the government it is legal tender for all debts public and private in the US.

I said it was a lie that government expenses must be paid for with government income. I meant to put it that way because it is a very useful falsehood to those who own the Wall Street casino. Using it as a shillelagh, the barons of Wall Street set the agenda for controlling the federal budget every year. (Austerity for the peons; prime rib for us!) Get it?

Get it? That's how we got the budget in 2019. Wake up! We don't have to live that way! Repeat after me: "There is never a need for austerity among the people."

Submitted on Tuesday, Mar 19, 2019 at 2:49:19 PM

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Exactly, Jerry!

The sad thing is, it takes a physicist to understand the workings of the present financial structure. :)

Submitted on Tuesday, Mar 19, 2019 at 4:15:15 PM

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Correction: It takes an angry downsized physicist who now has nothing better to do than to study how it happened. :-)

Submitted on Tuesday, Mar 19, 2019 at 4:29:40 PM

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Angry? Maybe. But still sharp!

It would be unrealistic NOT to get angry about this stuff.

Submitted on Tuesday, Mar 19, 2019 at 7:56:07 PM

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That is for real!

Submitted on Wednesday, Mar 20, 2019 at 11:30:09 AM

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Yes this is not real. Monetary systems are fabricated. The US rules the world through a military empire bolstered by petro-dollar (hydrocarbon energy is VERY REAL). Fiat money is fiction. Money is all based on our implied willingness to grant it value. How does anyone think the US government gets away with 1) endless treaty violations and impunity in all regards? 2) punishing economic sanctions on sovereign nations across the planet if they should opt (even hint) at bending the way of the US master?

One could argue that "MMT" pays for the vastness of the military empire and the soon to be completed (2020) Full Spectrum Dominance that was formally initiated under Truman. It all began in 1492, extended by the European genocide of indigenous people, slavery of millions, expansion and land capture throughout the globe.

Talking about a GND or fictional MMT won't touch the monster. All activism should be on ending the military empire.

Submitted on Wednesday, Mar 20, 2019 at 6:57:59 PM

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Jill Stein and the Green Party first came up with the idea and the coinage of GND, and also have a viable plan for how to pay for everything they propose. Close all the foreign US military bases and cut the DoD budget in half!

Submitted on Wednesday, Mar 20, 2019 at 3:27:16 PM

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The biggest fallacy of this whole discussion is that the Government creates the money supply. The money supply is not created by the Government. It is created by the private banks of the Federal Reserve System. If the government wants money, it has to borrow it from the bank system, which creates it out of nothing, with its attendant interest. MMT does not talk about the necessity to change the Federal Reserve Act to make it so the government issues the money instead of the the banks.

Submitted on Wednesday, Mar 20, 2019 at 10:33:04 PM

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