As mentioned in a prior post, Modern Monetary Theory (MMT) “provides an alternative to the dominant neoclassical framework for understanding the federal deficit and modern monetary systems.” As that post noted, this enables the federal government to, among other things, directly (and dramatically) address unemployment via a “job guarantee” (sometimes referred to “employer of last resort”) program.
This post will elaborate a bit on this brief reference, in preparation for a subsequent post that will link MMT to New Growth Theory—another relatively new economic theory—and apply them in concert to U.S. Internet and communication policy.
As described at the MMT Wiki site (hat tip to commenter Hugo Heden):
There is nothing inherently wrong with government deficits. They do not necessarily “crowd out” private activity, they do not “burden” future generations, they can not lead to “financial ruin” of the government. Persistent government deficits are in fact the expected norm in a growing economy. They add to the net financial assets (currency and bonds) of the non-government sector and this accommodates for its desired net saving.
The government must not “over-fund” the desire to net save, i.e deficit spend so that effective demand exceeds the potential for the economy to expand to meet it. This happens at some point when the economy approaches full capacity utilization and full employment, if the government continues deficit spending. Should that happen, demand side inflationary pressure will arise – a general continuous economy wide price level increase.
But if the budget deficit is calibrated correctly – which means that it matches the saving intentions of the foreign and private domestic sectors taken together – then it can be 10 per cent of GDP or 1 per cent of GDP forever without adding inflationary pressure. It is only when the budget deficit accelerates and pushes total spending in the economy beyond the real capacity limits that they become problematic. So continuous budget deficits forever are fine if that is what is needed to offset non-government savings intentions.
For the cartoon-lovers among you, this 12 minute animated video does a pretty decent job of laying out the basic argument that a sovereign issuer of currency like the U.S. does not face the same kind of “budget constraint” faced by households and businesses (and, in today’s world, the European countries that use the Euro and have abandoned their own sovereign currency). The video was created by Joe Hykan, an economics student and Lewis & Clark College.
For those interested in developing a deeper understanding of MMT, there’s plenty of information at the MMT Wiki and the New Economic Perspectives web site, both of which also have links to other MMT-oriented sites.
In this blog I won’t be attempting to dig deep into MMT theory in ways comparable to what you can find on these and other sites. Instead, I’m going to focus mainly on the policy implications of MMT’s claim that federal budget spending only becomes problematic “when the budget deficit accelerates and pushes total spending in the economy beyond the real capacity limits.”
If true (and I’m convinced that is), this claim has very important policy implications, and poses a direct challenge to the deficit hawks that control (or at least heavily influence) federal policy. All the more so today, when both the cyclical and structural components of U.S. unemployment are problematic, and where we face serious long-term challenges related to providing our citizens with high-quality education, healthcare and employment opportunities, and to addressing climate change and necessary changes in how we generate, distribute and use energy.
As I see it, the ubiquitous availability of high-capacity, symmetrical, non-discriminatory Internet connectivity is a key component of the infrastructure necessary to successfully meet these challenges (and also to improve the functioning of our painfully dysfunctional political system). Unfortunately, the evolution of Internet access and related public policies has fallen far short of what I and many others consider ideal.
As I’ll discuss in a future post, MMT appears to have significant implications for addressing these shortfalls in Internet availability and policy, which, in turn, can help address these broader societal challenges. To me that’s a big deal.
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“poses a direct challenge to the deficit hawks that control (or at least heavily influence) federal policy”
Deficit hawks!? If these heavy influences are so heavy and actually influential then why is the current national debt close to $16 trillion? And that doesn’t even count unfounded liabilities such as Social Security and Medicare which are estimated above $80 trillion. So these “hawks” have obligated their serfs to the amount of nearly (or exceeding) $100 trillion. The true terms should be “chicken hawks” and “hummingbirds.”
These neo-con chicken hawks rattle their swords for war, financed through debt and therefore servitude of the class in which they rule over. Why are they chicken hawks? Because they do not themselves fight these wars but place the expendable, usually poor, men or women in these foreign invaded countries. And don’t think that this is just a right-wing thing. Our current savior Barry O. has expanded the wars beyond his predecessor.
The humming birds suck, suck, and suck from the private sector, always on the move frantically looking for where they can stick their power-thirsty beaks next. “You must use this lightbulb, you must pay for more than 48% of the population to get handouts, you must pay our salary for enslaving you and most of all you must pay the interest on this debt, which we “hawkishly” oppose, to the private central bankers at the FEDERAL RESERVE. ”
“we face serious long-term challenges related to providing our citizens with high-quality education, healthcare and employment opportunities, and to addressing climate change and necessary changes in how we generate, distribute and use energy.”
Providing our citizens with high quality education? Why is it that this is not straight out proclaimed and sold for what it is…socialism. If everyone must contribute to the funding of public education, regardless of use or not, then this is actually Communism. Be honest with these implications. A central planned institution of education in which children are forced to associate with others, parents are forced to send their children to, forced to pay for, and all to indoctrinate the child from the age of 5 to 18 (or 25 with the push for higher education with subsidized funding of course). Worship your rulers as they are posted around you on the walls of the classroom. Take these standardized tests so that we can assure you that no round block will fit into this square hole. PROVIDE ME WITH THIS….NOTHING. And while you provide me with nothing please make damn sure that you TAKE NOTHING from me as well. Anyone advocating theft in the name of their, or another’s, cause is a tyrant or a controlled tool of such tyranny.
At the top of the page we read: “this enables the federal government to, among other things, directly (and dramatically) address unemployment via a “job guarantee” (sometimes referred to “employer of last resort”) program.”
Exactly how does one “guarantee” the job of another? Does this involve taking from my job productivity in the form of taxes? Does this involve increased deficit spending in which the little money I am allowed to keep after confiscation becomes devalued and destroys my purchasing power?
Jobs are spoken of as entitlements with complete disregard for the other end of the exchange…the employer. If it is in fact guaranteed that a job is provided, then it is implying a guaranteed servitude to employ. A job must derive from voluntary interaction. What one receives in exchange for their labor or services is not income…. It is an exchange. I decide to exchange $15 for every hour that you dig a drainage ditch for me because I place a higher value on your labor contribution than the $15/hr. You value the $15/hr. more than the cost of time and energy involved in that labor. There is no “income” only exchange, and both sides must be voluntary.
Nice video! But if the US dollar is created through the government supposedly by the people and for the people, why are banks (either central or otherwise) allowed to create the money supply? Shouldn’t the government be creating it and distributing it directly to the people? The people can then decide through taxation, saving, spending or investing how they want their own money to be allocated? Why should a money created by keystrokes at no effort and requiring no work be subject to interest charges by banks?