Is MMT TNT?

“The Deficit Myth – Modern Monetary Theory and the Birth of the People’s Economy,” by Stephanie Kelton, 2020

Reading about MMT is a little like being Mr. Natural in an R. Crumb comic when his head goes ‘bleewy’ after eating an Alice in Wonderland upside-down cake.  It turns the conventional political logic on its head.

Cartoon Thinking - U.S. With Empty Pockets

Kelton was a somewhat conventional Keynesian economist until she started to look into how monetary and fiscal policy in the U.S. actually works.  She was hired by Bernie Sanders in 2015 as the Democratic Party economist for the Senate Budget Committee, but found that both parties believed in what MMT'ers call the deficit myth, even Sanders.  What is the deficit myth?  It is a bundle of deceptive understandings, but at bottom it claims that the U.S. government has to pay for everything through taxes or budgeting, even with a sovereign currency. (Not every country has one…)  This ignores the ability of the U.S. government to create money. Because of this household economy mentality, the deficit or debt becomes a scare tactic that has to be avoided at all times. Yet MMT indicates that Congressional approaches like PAYGO, debt ceilings, budget scores and the Byrd rule are essentially useful fictions for not just Republicans but Obama, Biden, Schumer and Pelosi too.  In effect the whole political regime is partially lying to us.

As anyone paying attention or studying history knows during the Depression, World War II and especially after the end of the gold standard in 1971, federal U.S. debt doesn’t actually matter. It is basically just an accounting fact, not a real debt.  After 1971 and especially recently the massive defense budgets, the huge tax cuts for capitalists and the rich, the repeated trillion-dollar rescues of Wall Street and the financial system, even the present pandemic funding, show that no one asks at the time ‘how will we pay for this?’  It is because the capitalists and their political lackeys already understand the government deficit is a present myth, but persist in the illusion for the rest of us in order to cry poverty and impose different versions of austerity on the U.S. working class.

Modern Monetary Theory (MMT) challenges the notion that a country with a 'sovereign currency' can run out of it – unlike a normal family with a budget, a U.S. state or a corporation. Kelton thinks that the real purpose of federal taxes should be limiting inflation, encouraging certain behaviors and creating equality – not to raise money.  MMT claims that spending comes first in the federal budget, not taxes and borrowing, which come later.  Marx maintained that money comes into its own in a commodity economy, originally starting as a commodity itself and is based on labor and leads to profit.  MMT disappears all this, per Keynesianism.  MMT'ers think money was created by the government to pay taxes.  For MMT inflation is the real problem, as a country with real full employment, which MMT supports, can overheat and generate inflation.  However, this debt in a capitalist context can lead the markets to react negatively.  Kelton says the most important issue is use-values – the real benefits that exist for the population - not what the accounting ledger is saying.

Kelton organizes the book around her list of MMT myths propagated by this  narrative, though she almost never mentions capital or classes.  We’ve all heard these stories our whole lives: 

Myth One:  The U.S. budget is like a household budget.  She mentions that the Republican head of the Senate Budget Committee in 2015, Mike Enzi, used to run a shoe-store in Wyoming and he understood the U.S. budget as if he was running a shoe store.  Unless a household or shoe store has an untraceable $20 printing press in the basement, they are totally different.

Myth Two:  Deficits are created by over-spending.  According to MMT, the evidence for overspending is inflation, not the deficit.  She references Japan’s enormous, long-running deficit and minimal inflation.

Myth Three:  The National Debt is a burden on everyone and will have to be paid back.  Actually the deficit hawks and doves are both wrong, as the national debt is mostly a number on a computer.  Treasury bonds will always be paid off, even though they really aren’t for raising money.  According to MMT it allows the Fed to drain excess reserves and hit interest rate targets.  But it also fills the coffers of the banking industry with interest payments.

Myth Four:  Government deficits impede private investment.  The deficit actually adds to private and state wealth, as a negative on one side of the ledger is a positive on the other side for individuals, corporations and states.

Myth Five:  The trade deficit means the U.S. is losing.   A trade deficit is evidence of a ‘stuff’ surplus.  Again, a negative on one side, a positive on the other.

Myth Six:   ‘Entitlement’ programs like Social Security and Medicare are financially unsustainable.  Kelton ignores the more common fixes, like raising the SS tax level.  MMT says the U.S. can never run out of money, so no program that is legally required can fail as long as real good and services exist to support it – like hospitals, medical staff or medicines.  Kelton recommends making Social Security and the rest of Medicare legally required.

It is Easier to Create Digits on a Computer screen but...

Kelton then discusses the deficits that really matter in the U.S.:  Jobs, education, infrastructure, climate, health care and democracy deficits, not some abstract math figures on a spreadsheet.  She claims that with a proper understanding of money through MMT, a ‘people’s economy’ can be constructed.  She optimistically and naively thinks that the U.S. can use these same methods internationally, as the dollar is still the world’s reserve currency.  Financially weak countries in the world that peg their currency to the dollar, or that borrow in currencies other than their own, or are in debt in dollars are at a disadvantage and cannot be said to have a ‘sovereign’ currency - which is the majority of countries.  

Kelton’s most consistent program idea is a public jobs program that hires everyone who is unemployed or under-employed at socially useful tasks, with adequate wages and benefits.  Socialists have called for this for years and even FDR adopted it.  This is the public jobs option.

Now more negatives, as like Universal Basic Income, MMT is also a modern argument for some strategies of capital. 

Problem 1:  Fiat money is already the method by which the government props up Wall Street, the defense industry and the Pentagon and hands out billions to corporations and the wealthy in tax breaks.  They never ‘pay’ for this funding, these tax breaks, these almost zero-interest loans or asset-purchases, they just credit these entities from a computer at the Federal Reserve or the Treasury or sell Treasuries they know they can pay off. 

Problem 2:  If you don’t need taxes to fund the government, then the corporations will argue you can leave tax havens, tax loopholes, rich individuals and billion-dollar corporations alone.

Problem 3:  An economy that is operating at ‘full capacity,’ as planned by MMT, will still be an economy without environmental sustainability and social controls, along with labor exploitation. I.E. there is no sense of planning or workers power here.  Quantitative easing has not actually created a fully functioning economy, even with the trillions injected.

Problem 4:  The MMT argument implies that both capitalist parties will settle their factional disputes.  This implies that each wing of capital behind each party now have the same particular interests, when they actually don’t.  While united around supporting capitalism, they differ on what capitalist groupings to prop up.

Problem 5:  MMT is a form of Keynesianism.  Capital relies on scarcity and if money is no longer scarce, then capital is weakened.  Capital relies on unemployment to discipline the proletariat, so a permanent public jobs program will also weaken capital.  Capital relies on deficit myths in propaganda, so if these myths are punctured, capital is weakened.  U.S. capital is based on imperialist exploitation of labor and countries in other parts of the world, including its use of the dollar standard.  As a result, few countries in the world actually have a 'sovereign currency.'  Capital relies on profit through labor, but MMT will negatively impact profit and in fact does not understand that money and crisis is related to profit problems.  Instead she believes that “capitalism runs on sales,” not production, as befits a Keynesian.  Will capital give up these advantages?  Felton believes that their ‘misunderstanding’ of fiat currency is just that, and that if only the capitalist politicians would ‘see the light’ the world would change.  She has ignored politics, profit and classes in the process.  

Problem 6:  Taxes and budget changes actually DO provide some funds.  MMT claims they are totally unnecessary for funding.  For instance, she does not discuss the looting of the Social Security Trust fund by politicians to justify other expenditures.

Problem 7:  Felton couches her optimistic narrative as something that will benefit ‘all,’ thus evincing no understanding of class politics, productivity, labor or capital.  She is a professor at Stony Brook University, so her class position as part of the professional strata of the middle class may have something to do with this. In this sense she is quite conventional - but her promotion of MMT is not.

At any rate, a very useful book to understand some aspects of capitalist monetary & fiscal practice, not the one you learn in school or in the propagandist media.   But it ignores the Marxist view of crisis and labor exploitation.

Other prior reviews on this subject, use blog search box, upper left:  “Debt & Capital,” “Debt – the First 5,000 Years” (Graeber); “J is For Junk Economics”(Hudson); “I’m a Gettin’ Gone,” “The American Jobs Bill Speech,” “Who is Ron Paul?” “Paul Krugman & the Class War,” “A Culture War Debate,” “Lockout Over,” “Zombie Capitalism.”         

P.S. - Here is a harder take on MMT from the International Marxist Tendency: 
Marxism v MMT. Marxists oppose MMT as a superficial analysis of capital.

And I bought it at May Day Books!

Red Frog

June 25, 2020