By J. D. Alt
In a recent essay I suggested that MMT might be applied incrementally to put people to work creating certain very special public goods. I suggested that the social norms which prevent people from “seeing” the logic of issuing fiat money to pay for sovereign spending might be placated by this incremental approach—especially if the public goods in question were something overwhelmingly and incontrovertibly beneficial to our country as a whole. This suggestion was strongly criticized by Joe Firestone. So far as I can tell, the essence of his objection is that a proposal to mint a smaller sovereign coin—to be used to achieve some specific goal—would more likely be repudiated by the status quo than a proposal to mint a very large one with the express purpose of overturning the status quo itself.
It is possible, I suppose, that Joe is correct—that a complete revolution of how we think about sovereign spending is possible all at once. If it happened, I would be among the first to applaud the revolution and Joe as well. It is also likely that he is correct that the minting of a smaller coin would be viewed by the financial industry as the proverbial camel’s nose in the tent flap—and they would pull out all stops to prevent it from happening. Nevertheless, I find it a more appealing approach than the GIANT coin that changes everything for the simple reason that “changing everything” is not something the average citizen can wrap his mind around, whereas an idea for changing something small, specific, and important might get traction on the street.
I got interested in Modern Money Theory because I saw it as a way to make the argument that we, as a society working together, can accomplish specific things which we otherwise don’t BELIEVE we’re capable of (because we’ve convinced ourselves we don’t have the money to pay for them.) As an example, the president of the Rockefeller foundation, Judith Rodin, was recently quoted in the Washington Post regarding an effort the foundation is underwriting to develop creative ways to finance the flood control infrastructure large American cities are going to require in the coming decades to weather the projected rise in sea-level. “We recognize,” she says in the article, “that there just aren’t enough dollars in government or in philanthropy to solve all these problems.” What she fails to see is the fundamental truth of MMT: if the labor, material and machinery are available in the market, the sovereign government CAN issue the fiat dollars necessary to marshal these resources—and as long as those dollars are used to pay for actual goods and services, and as long as there is underutilized capacity in the economy to absorb those dollars, the spending of them will not create inflation but, instead, will expand the economy and grow the prosperity of the private sector.
Important as flood control infrastructure will be, however, I would not propose to mint the first “Sovereign Spending Coin” for that purpose. Instead, my choice would be a coin dedicated to paying for something much more fundamental to the success and well-being of American society as a whole: I would propose minting a coin specifically to pay for a comprehensive, hands-on, all-stops-removed program to teach our young children to read. The coin would be minted with a face value equal to what would be required to hire, train, and deploy an “army” of Reading Tutors across the nation’s elementary classrooms. The coin would be deposited in the Treasury’s account at the Federal Reserve. The fiat currency thus created would then be dispersed, as needed, specifically to implement ONLY the Reading Tutors Program. No tax dollars need to be collected to pay for this. Nor would any Treasury bonds have to be issued before the spending could occur—so the national debt would not be increased by a single penny.
What would the compelling benefit be? According to the Alliance for Excellent Education, students in the bottom quartile of reading achievement are twenty times more likely to drop out of school as those in the top quartile. According to Statistic Brain, 8,300 American students drop out of high-school EACH DAY; dropouts are ineligible for 90% of the jobs in the U.S.—and most startling of all: dropouts commit 75% of the U.S. crimes. Given these statistics it should be no surprise to learn that 26 countries in the world rank ahead of the U.S. in adult literacy (Caliteracy.org).
By “all-out-effort” to teach our young children to read, I do not make reference to building thousands of computer labs and developing interactive software that will enable first and second graders to teach themselves reading skills. From my perspective, young children need to be taught to read in VERY SMALL groups by a very REAL person who is focused on their individual progress and struggles. This no-holds-barred effort is likely to cost a bit of money. Let’s do a quick, back-of-the-napkin calculation of how much.
How many “Reading Tutors” would we need to hire, train and deploy? There are about 3.5 million first and second graders in public U.S. elementary schools. If we decided the optimal Learn-To-Read group would be one specialized Reading Tutor working with three students for one hour per day in grades one and two, we’d need 194,500 Reading Tutors. If we paid them an annual salary-benefits package of $75 thousand per year, the program would cost $14.6 billion per year.
If this federal spending were proposed in the conventional fiscal framework, we could expect the usual moans and groans: We CAN’T add a new tax burden like that on the American people! Nor can we afford to BORROW those dollars either, and continue to increase our unsustainable national debt! The bottom line (we will tell ourselves) is that making a burn-the-bridges effort to teach each of our young children to be good readers is something our nation simply does not have the dollars to accomplish.
But MMT and the platinum coin seigniorage strategy seems to be saying, very clearly, that we CAN do it! All we have to do is put one foot outside the framework of economic myths that our social norms have so effectively erected around us.
Will minting a $14.6 billion platinum “Coin for Reading” cause inflation? First let’s ask if the real resources—the people who would become “Reading Tutors”—are available. There are currently around 12.2 million unemployed U.S. citizens. If we assume the 15% “full literacy” rate for the U.S. (that’s equivalent to a college undergraduate reading level and, yes, only 15% of Americans are estimated to read at that level!) that translates into 610,000 unemployed people who can read well enough themselves to qualify as an elementary school Reading Tutor. So we have a little over three candidates for each position.
But what will those 194,500 new Reading Tutors do with the dollars they are paid? If they go out and SPEND those dollars (which we assume they will, using them to buy cars, housing, food, clothes and smart-phone services) won’t that be inflationary? The answer depends on whether or not we believe American industries have the unused capacity to create the additional goods and services the Reading Tutors will be wanting to buy. If the unused capacity exists, then the result will not be inflation but, instead, will be an EXPANSION of American industries—an expansion that would reduce unemployment even further. (I believe I read recently that the current utilization factor of the U.S. economy is in the range of 78%. If the American GDP is $15 trillion, and that’s only 78% of what the economy COULD be producing, then there’s a $4.2 trillion “room” for expansion; I don’t think our Reading Tutors would take up too much of that space.)
So why would we NOT do this? To repeat: It is not costing the American taxpayer a penny. It is not increasing the nation’s debt a single dime. It has been established to be completely legal under current laws. It would not be inflationary, but instead could be expected to make a significant contribution to reducing unemployment and getting the economy back into high gear. MOST important, though, every American parent and grandparent would have the satisfaction of knowing there’s a VERY GOOD chance their child or grandchild will be on their way to becoming an excellent reader before they enter the third grade. This singular accomplishment would do more to improve the educational, employment and quality-of-life outcomes for our entire society than anything else we could imagine.
In the very first post I wrote for NEP, I believe, I made the point that ground zero in the battle for America’s future is the US Congress. It’s not the Fed and it’s not the executive branch. If we can get Congress to spend more on the the all of the things we need, then we can get something done. If Congress doesn’t approve the spending, nothing will happen. We should be directing our fire power at Congress.
Dan…I finally made time to read your recent post on democratic public finance, along with this post by J.D. I thought your post was even more clear and inspiring than usual. At the same time, however, your post–and your comment in this thread–remind me (sadly) of the extreme dysfunction and money-based corruption that characterizes today’s Congress and our political system in general. If this is not corrected in a pretty substantial way, I not only don’t see your reform ideas being adopted (which I, personally, would love to see)…but even if they were, I’d be concerned that the level of Congressional dysfunction and corruption we’ve now seeing would lead to some serious and unexpected problems.
In your post you talk of “warts and all” democracy. Unfortunately, I think we’re beyond the “warts” stage, and well on our way to stage-four melanoma.
That being said, I’d still love to see the reforms you propose become a reality. But I also think they should be closely linked (as an integrated reform philosophy and movement) to the kinds of corruption-clearing priorities advocated by Larry Lessig and others. While I support such coupling and have advocated it on my own blog, I’ve become convinced that it should additionally be supplemented by a movement in support of complementary currencies, along the lines of what Bernard Lietaer is proposing. In addition to the added “resilience” he argues this will add to our financial system and economy, it is also a reform movement that can start at the local grassroots level, in ways that are fairly independent of national governments, and that can be designed from the ground up to specifically achieve the kinds of goals J.D. is proposing here.
It would be great to see your ideas (and J.D.’s) embraced in Washington. But I’m increasingly wary of relying too heavily on that scenario unfolding. What I’d like to see is continued advocacy for MMT and the kind of reforms you’re proposing while, in parallel, complementary currencies are developed as bottoms-up financial subsystems that can interact in healthy ways with our national currency system, if and when the latter shifts to a healthier mode of operation. And, if the latter doesn’t happen, then complementary currencies can provide a level of resilience and flexibility to help support human needs to the extent the national financial system fails to do so, especially at those times (which still seem quite likely) when the latter experiences significant system failures.
JD, your heart is in the right place.
If such a program were to be done, coin or not, it would cost $146B not $14.6B. And if the same people stay in control of our education system, you won’t be able to hire the best reading tutors from among the unemployed, you would have to hire Ed school graduates, the same people who are now failing to teach those children to read in 6 hours per day.
I think the $60T coin would be a less traumatic change to the prevailing social norms in our education system.
But you might be able, in your own town, to gather a group of volunteers to be reading tutors for groups of three children for an hour a day.
golferjohn, I’m not great at math, but when I multiply 194,500 X 75,00 I get: 14,587,500,000. I think that’s 14.6 billion?
Yes, and in your last suggestion the cost was $700,000 per job. When the government does it, it costs 10x as much.
Umm, no. That’s silly propaganda. Frequently the government does it for less, whatever it is. Teachers are teaching OK, especially where they have strong unions. The only crisis in education is the ceaseless attack on it by “reformers”, who pretend to fix what ain’t broke, incidentally breaking it, in order to line their own pockets. Surprise, surprise.
I was referring specifically to JD’s previous proposal to fund the FDA’s hiring of 2000 food inspectors for one year for $1.4B
http://neweconomicperspectives.org/2013/01/sovereign-spending-and-public-goods.html
That’s $700,000 per food inspector per year. I just guesstimated that a normal food inspector would earn something more like $70,000, fully burdened, so that these special government food inspectors would cost 10x as much as they ought to. Maybe food inspectors are in the top 1%, and make $140,000, so it’s only 5X as much.
And our latest round of government “job creation” was similarly priced. Something around $1M per job, I don’t recall the exact number. Those were supposed to be middle class jobs, which pay about $50,000 on average, I think.
Public school teachers in the suburbs are teaching OK, but not in the inner cities. That’s why this special tutor program is needed. Private school teachers in the inner cities are teaching OK, often not unionized and working for less money, some of them for $0 in the Catholic schools. I don’t see any correlation with unions. They are strong in public schools most everywhere, often the very same union in both the city and the suburbs.
Government did electricity for less on Long Island, it’s true. Now they’re being privatized again because of too many power outages. There are not many examples of the same thing being done in both the public and private sectors. State liquor stores are popular. State lotteries can’t give as good odds as the “private sector” numbers game used to. The record is mixed.
JD,
I question your number for how many candidates there are for the tutor jobs. In order to allow the tutors into the schools, many of those eligible by their achieved reading level would need additional training in teaching methodologies, also what about physical infrastructure, modification planning to current curriculum, the project is ambitious, worthwhile, and immense! I love it!
This is an overlooked critical component that is sorely missing in our education system, and once implemented for kids should be expanded to be made available at the adult level.
I tend to agree with the initial gradual approach, especially for something that flips everything people “know” upside down. The key is to first to succeed, then to expand, and most important; know when critical mass is achieved and to know it before the interests vested in the status quo know it. In other words, when the Trillion Dollar Coin is Time’s thingy of the year; its too late.
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The idea that a physical policy cannot be carried out unless there is sufficient money available is an illusion fostered by the Banking industry. When there are huge stocks of unsold products available and a situation of “poverty amid plenty” arises, leading to unused productive capacity and massive unemployment – it becomes obvious – this is the time to question the basic flaws of the financial system.
Systems were made for men and not men for systems. The interest of man is self development and that is above all systems whether theological, political or economic.
C. H. Douglas said this back in 1920 and nobody took any notice.
I say either/or…big coin/little coin. Both would be great. However, I think the 1st minting should be to employ everyone who wants a job and let the communities decide what their priorities are, whether it be reading skills or sewer repair.
Either way, there’s VERY little chance either size coin will be minted, not until we elect a true progressive (or at least someone who will accept reality and stop forcing destruction on us because of myths).
Hi J. D. I like your specific proposal completely apart from your proposal to fund it through PCS, but before I comment on that: I’d like to comment on the first part of your post.
I don’t disagree at all that MMT in a very general sense could be applied in this way. But I think you claimed that it would be good to apply PCS in that way. Two different things, I”m afraid.
I think my objections were a bit different. First, I questioned at some length whether a “social norm” of the sort you infer exists among people as opposed to the financial community. I also questioned your use of the term “social norm” as vague and lacking criteria for application, preventing me from fully assessing whether such a social norm exists in the general population.
Also, I don’t think I exactly said that: “. . . a proposal to mint a smaller sovereign coin—to be used to achieve some specific goal—would more likely be repudiated by the status quo than a proposal to mint a very large one with the express purpose of overturning the status quo itself.” My point instead was that “. . . a proposal to mint a smaller sovereign coin—to be used to achieve some specific goal—would more likely be repudiated. . . ” politically, than the ACT of minting a very high value coin such as a $60 T coin would be. My thinking was that while any proposal to use PCS might be repudiated politically by forces arrayed against such a proposal from the financial community; an ACT of minting a $60 T, constituting a fait accompli, soon followed by substantial payoff of that national debt would not be repudiated by the public at all. I also made the point that while such an ACT, might also lead to the repeal of PCS, that repeal would come to late to allow the opposition to succeed to blocking the end of austerity politics. In short, I think I claimed something very different, and much more compelling, than what you’re attributing to me. You also say:
I might agree with you that people in the financial community like Peter Schiff, Rick Santelli, and Erin Burnett, might find it very difficult to get their minds around this change; but, as I said in my post, in a remark you have not addressed, I don’t see what evidence you have for suggesting that “the average citizen” might have a problem wrapping her/his mind around it.
First, the minds of “average citizens” haven’t been polluted by either business schools, or neo-classcial economics, so they will not respond like Pavlov’s dogs to an announcement of the President that he has filled the public purse so he could pay down the debt and cover deficits in order to end austerity and get the economy moving again, by thinking “Weimar! Weimar!” or” Zimbabwe! Zimbabwe!” but, instead, I’m certain, listen to a good speech that will explain why his move is both necessary and very beneficial for the problems of repaying the debt, and covering deficit spending for years to come.
And second, after all, what’s so complicated about the idea that it makes no sense for a Department of the Government of the United States to be borrowing back currency that has previously been issued under the unlimited authority of the Government to create that currency? And what’s so complicated about the idea that the Treasury Department has the authority to mint a coin with a very high face value that its banker and agent, the NY Fed must credit when the Mint deposits that coin in its account? And what’s so complicated about the idea Congress has delegated its constitutional authority to coin money in any denomination to Treasury?
I think these are simple ideas. Even well-known ones; and I also think that the question the average citizen might have trouble with is why, heavens name, the Treasury Department has been borrowing so much and taxing so much, when all it needed to do to cure the debt and the shortfall between spending and taxes was to coin money.
Lastly, while I like your reading tutor program very much; I don’t see how things would be put into the legislation in such a way that the Executive could be compelled to use PCS to fund it. Specifically, say Congress appropriates the money for the program, whether it’s $14.6 Billion; or $146 Billion. Then it’s up to the President to spend what’s appropriated AND to find the money in the TGA to fund that program and all the others Congress has mandated. Some of the money for the TGA will come from its Treasury Tax and Loan accounts; and some will come from the seigniorage produced by the Mint. That happens now. So, while I suppose the Congress could say to the President that it wants him to Mint a platinum coin with a face value sufficient to cover that appropriation. The seigniorage would just go into the TGA; there’s no way to ensure that the seigniorage was used to “pay for” the tutor program as opposed to something else.
So, in passing that appropriation, Congress would in no way be limiting Treasury’s authority to mint a coin of whatever face value it wanted to mint, and it also would in no way be limiting Treasury’s authority to use the revenues it received from the coin to spend on whatever appropriation Treasury wanted to spend it on. You have to remember that Congress is the Legislative Branch. It can pass laws and appropriations; but its authority to tell the President how to execute the laws is limited.
Good points Joe, especially about the “average person’s” reaction to the $60 trillion coin. The average person today has some vague idea that all money exists in the form of stacks of $20s and 100 dollar bills in vaults somewhere, and that the government printed this money and (…big blank spot…) somehow or other it came into circulation in the economy. People think the government ALREADY prints or issues or spends all the money into existence. When he was advocating reform of the Federal Reserve bank-issued money system in the 1930s, changing to a 100% reserves money system where commercial bank credit creation power is revoked and the government issues all the money and lends it to the banks at zero interest, Irving Fisher observed that his reform would simply make the system work in fact the way almost everybody thinks it works already. The “average” person cannot be made to believe that the government does NOT create all the money. They refuse to believe that banks “create” the credit money that they lend out. They think the government creates the money, people somehow get this money and deposit it in banks, and banks lend out this money to other people. Fisher’s plan, and its resurrection in the Benes-Kumhof proposal, would change the system so in fact the government issued all the money and banks would be limited to lending out their depositors’ savings balances. Personally I don’t think credit creation power should be taken away from the banks, because I don’t have much faith in the extremely centralized money power that would put in the hands of the government, merely a transfer of the money power from Wall St to Washington. All we really need is for the government to create some or all of its own spending money by minting the $60T coin and depositing it at the Fed, an act which would permanently gut all the “running out of money” austerity arguments and PROVE that the US government can “afford” to hire the underemployed economy to build public goods. Congress would have a lot harder time denying funding for needed infrastructure and other projects if the people were aware (as every one of them would be) that the government has $60 trillion sitting in its bank account.
“Congress would have a lot harder time denying funding for needed infrastructure and other projects if the people were aware (as every one of them would be) that the government has $60 trillion sitting in its bank account.”
For many, the idea of the government having $60T in its bank account is terrifying. I don’t know if that means there is a lot of educating to do before that happens, or if it means it needs to happen before anyone can object, and then they will learn by experience.
Since nobody here can make it happen, I guess education ought to be the focus. The people will have to make it happen, through their representatives.
All you have to do is ask all the 17-23M unemployed people looking for work if they think the govt should mint some PCS so the govt can spend on projects that will put them back to work. My guess is you would have a resounding yes. I think you hit it Joe, that a vast amount of contention against the PCS would come from the finacial community that stands to loose their govt welfare interest payments, plus a few misguided regular folks who have no understanding other than: We’ll becom zimbabwe
Another well-intentioned, silver-bullet reform to “fix” public education. Ask any teacher you know how many of these magical “solutions” (pushed by an army of technocratic administrators, managers and experts) that they have had rammed down their throat, one right after the other, during the course of their careers.
Is MMT a progressive moment or not? I certainly thought so, so I was more than a bit disappointed to read this suggestion for yet another top-down, managerial class effort to railroad public schools.
You want to improve education? How about a little democratic involvement of the participants, instead of the usual think-tank BS that we’ve had way too much of?
Ask the students, ask the parents, ask the teachers – they are the stakeholders, the participants & front-line workers who know the problems and how to fix them.
This seems to me like a basic, democratic/progressive principle that you’ve ignored in this piece. Very disappointing.
I like the general idea, but now you have conflated two ideas: the minting and the congress’ approval. Both are uncertain in my mind.
I do enjoy these machinations on the size of ‘the coin’, more accurately, the size of the seigniorage gain from ‘the coin’, and what we could do with it.
If, at some point in time, MMT were capable of addressing the monetary science paradigm that is at play, we would arrive at the corner of ‘the coin’ and ‘to coin’.
Deliberations on the size of ‘the coin’ may as well happen inside the pub there on the corner.
Progress, to which MMT claims to aspire, lies ahead. It is on the road marker “to coin”‘.
Congress has the power to issue the currency, ‘to coin’ the money in the parlance of yore.
THAT is the reality to which both the people and the Congress must be awakened.
Unfortunately, the political-economic blinders apparent here are of the MMT tenet that says the ‘government’ already issues the money.
Pity. The government issues no money.
Take the blinders off, guys.
There’s so much potential out there.
And so much need.
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