Harry Targ
During the last several years, newer generations of economists have begun to question the proposition that the federal debt constitutes a fundamental threat to the survival of the US economy and polity. For example, Stephanie Kelton, a Professor of Economics at the University of Stonybrook, builds on the emerging tradition of “modern monetary theory” (MMT). (The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Public Affairs, 2020).
Professor Kelton discusses four key elements of MMT. First, using the household budget as a metaphor for governmental budgeting is inappropriate. Family debt can be incurred but over time must be repaid. In the twenty-first century many households and individuals can charge goods and services they purchase but the expenditures have to be paid for in a relatively short order. Politicians of both parties then argue by analogy that government expenditures have to be repaid. Therefore, short-term deficits should be avoided or repaid in subsequent national budgets. Of course, these strictures are not adhered to even by the most fiscally conservative politicians. They give blank checks to the military, and they support pork barrel legislation advantageous to their favorite lobbyists and districts. And, of course, these same politicians who oppose deficit spending are the first to endorse massive tax cuts for the rich.
Second, Professor Kelton argues, however, that while some spending might be irresponsible, sovereign governments are not analogous to household or individual spenders. This raises the issue of sovereignty. Max Weber pointed out over one hundred years ago that states hold a monopoly on the legitimate use of violence. Modern Monetary Theorists argue that nation-states also have a monopoly on the issuing of money. States can print as much money as is needed by the economy. Contrary to individuals and families, who are not sovereign, governments do not have to repay themselves.
Third, therefore, sovereign governments can use their capacity to print money to support projects that promote the general health and welfare of the society. They do not have to accept the myth that the debt will somehow punish future generations, create chaos, and destroy the normal course of social and political interactions.
Fourth, the deficit hawks warn that the printing of money could have negative consequences, the most often discussed is uncontrollable inflation. That is, with the printing of more and more money, the price of goods and services could skyrocket. Professor Kelton and others have referred to historical examples of unbridled inflation that destabilized economies and societies, what former Indiana governor Mitch Daniels called “the failed regimes of history.” Although Kelton argues that inflationary spirals can occur, and have historically occurred, it has been because too much money chased too few goods and services. In other words, if citizens/consumers acquire more money while the production of goods and services stagnate, the price of those commodities can rise to dangerous levels. What this suggests to MMT is that the printing of money should be proportional to societal needs, the availability of goods and services, and the employment of workers.
In sum, MMT suggests that the printing of money can be calibrated to the fulfillment of short and long-term needs. Money could and should be provided for health care for all, support for education (K through university), structural renovation, transitioning away from fossil fuels, the creation of jobs for all and universal basic income programs, and support for a Green New Deal. These programs were vitally needed before the pandemic and are even more essential since its onset. Of course, cutting military spending, pork-barrel legislation, and creating a progressive tax system helps. But the human needs articulated by progressives should be defended. And doing so requires a realistic assessment of the causes and consequences of national debt. History has shown that the idea of “the debt” has been an ideological tool used to challenge the creation of a just society.
