On Wednesday 16 January an unusual event occurred. FTAlphaville, a news and commentary service for financial market professionals provided by the Financial Times, published an article by Brendan Greeley entitled ‘America has never worried about financing its priorities’.
Its opening paragraph reads “There is nothing inherently socialist about government debt. A government can issue debt to pay for whatever it likes. It can pay to fight a war, to lower taxes for a preferred group, to soften the sharp edges of a recession. The United States has, in fact, issued debt to pay for all of these things. American politicians say that public debt crowds out private investment, that it’s unsustainable and will turn the country into Argentina. Or Greece. Or now Venezuela. But regardless of what they say, what American politicians do is vote for more debt.”
The article references a meeting between Head of the US Democratic National Committee Howard Dean and Professor Stephanie Kelton. ‘I expected some semi-Marxist bullshit’ reported Mr Dean ‘but she’s a real thinker’. That’s a good start. MMT is not a political position, but a statement of how the economy actually works. The realities that it opens up to supporters of public purpose doesn’t alter the fact that it is equally at the service of a repressive military state, as long as they are sovereign currency issuers.
Warren Mosler wrote a letter in response to the FT, which they published as the ‘editor’s pick’. ‘Excellent report’, he writes, ‘and thanks for the mention’. But he picks the FT up on one point. The article states ‘Modern monetary theorists argue that inflation happens only when the real economy – plants, machines, workers -can’t absorb what the government is spending.’ Warren responds, ‘Let me state that you need to omit the word ‘only’ as there are numerous other reasons for what is called ‘inflation’ in addition to what you described.’
Thomas Fazi, co-author of Reclaiming the State with Professor Bill Mitchell, took the time to create a Twitter thread, which he starts with ‘Yesterday was the day #MMT officially went mainstream. Here are the highlights of that historic article.’ Here it is, unrolled.:
Thomas Fazi @battleforeurope
[Thread: 1/11] Yesterday was the day #MMT officially went mainstream, courtesy of @bhgreeley at @ftalphaville: ftalphaville.ft.com/2019/01/16/154…. Here are the highlights of that historic article:
[2/11] @bhgreeley: “There is nothing inherently socialist about govt debt. A govt can issue debt to pay for whatever it likes: to fight a war, to lower taxes … to soften the sharp edges of a recession. The US has, in fact, issued debt to pay for all of these things”.
[3/11] @bhgreeley: “American politicians say that public debt crowds out private investment, that it’s unsustainable and will turn the country into Argentina. Or Greece. Or now Venezuela. But regardless of what they say, what American politicians do is vote for more debt”.
[4/11] @bhgreeley: “Advocates for MMT argue that, for a sovereign country with its own currency, there is no inherently unacceptable level of government debt — that country does not automatically begin to collapse when debt reaches 90% of GDP, or even 200% of GDP”.
[5/11] @bhgreeley: “[The US government] appropriates what it believes is necessary for domestic programs, regardless of revenue. A traditionalist would see this as a prescription for inflation: increase the supply of money and, as with any commodity, you reduce its value”.
[6/11] @bhgreeley: “MMT argues that inflation happens only when real economy … can’t absorb what govt is spending. So: disconnect spending from taxation. Spend until the economy is at capacity. … Raise taxes only to cool down inflation, when real economy exceeds that capacity”
[7/11] @bhgreeley: “We are confident [that MMT] is neither Marxist, nor is it bullshit. … MMT is simply a different way of looking at fiscal policy, a way of describing what the real-world constraints on spending look like”.
[8/11] @bhgreeley: “[MMT] is in fact very close to how people in Washington already approach spending. Again, we’re not talking about what they say. Rather, we’re talking about what they do”.
[9/11] @bhgreeley: “US Congress spends money on stuff it thinks is important. Over last four decades it has only once matched that spending with taxes, in late 1990s. … Like MMT, Congress already appropriates away until it reaches real-world restraints on how much it can spend”.
[10/11] @bhgreeley: “When Wash. wants something — to fight a war, to cut taxes — it appropriates. Arguments about balancing budgets aren’t about constraints. They’re about priorities. Important programs get appropriations. … Unimportant programs need to be paid for with taxes”.
[11/11] @bhgreeley: “[Politicians] who appropriate regularly and wildly without concern or revenue, are basically already in the closet on modern monetary theory”.