By J. D. Alt
Chris Hayes’ recent MSNBC show on the Trillion Dollar Coin brought four aspects of the Modern Money debate, for me at least, into a clearer focus. I list them here not in their order of appearance on the show, but in their order of importance and logical connection.
1. The first aspect is structured by Stephanie Kelton’s remarks that yes, indeed, there are very REAL constraints on what the federal government can spend, but those constraints are not on the FINANCIAL side (whether or not the government has “enough money” to spend) but, instead, are on the RESOURCE side—whether the labor, materials and manufacturing capacity are actually there to be put to work by the proposed sovereign spending.
This, I believe, is the central truth of MMT that people are trying to understand and wrap their minds around. In framing it this way, Dr. Kelton takes the focus OFF the idea of “printing money” and puts it instead on the idea of employing people to create useful goods and services. This is a shift in focus that I think serves the goals of MMT well, and there ought to be a concerted effort to continue framing this message.
2. The second aspect is revealed in Chris Hayes’ remarks about social norms (in his intro piece). We like to think of our society as being held together by the rule of law. In reality, however, while laws may form the structural skeleton of the beast, it is “non-articulated” social norms that form the living tissue, muscle and sinew that cling to the bones. Social norms change, but they change slowly, over time—they do NOT, by their nature, change “all at once.”
Clearly, it is a social norm that will not allow the Trillion Dollar Coin to be considered as a plausible solution to the national debt—and which necessitated so much giggling on the show. Legal or not, economy-saving or not, minting trillion dollar coins is NOT how our society pays its bills. Any shift in this social norm has to be very incremental. In this regard it is reasonable to consider that Obama’s position on the debt ceiling debate is exactly what it should be: he is insisting that the social norm be maintained. This might also be a guide to MMT advocates as well: It may, in fact, set the cause back to propose or insist on a dramatic shift in the norm. It may well be more effective to propose, instead, very incremental shifts that people can logically buy into without sensing a threat to the underlying social fabric. Dr. Kelton’s focus on the practical idea of employing people to create useful goods and services, it seems to me, could fit well with this incremental approach.
3. The third aspect is Joe Weisenthal’s potent description of how inflation is driven into the economy. This dovetailed logically with Dr. Kelton’s fundamental truth about constraints being on the RESOURCE side of the equation: If the labor, materials and manufacturing capacity are not actually there to absorb the new spending, that spending could be expected to cause inflation and, therefore, ought to be withheld. By the same token, however, if the resources DO exist to absorb the proposed spending, the result will not be inflation but rather a growing of the economy and an expansion of national assets; in that case, in could be argued, to withhold the spending is indefensible.
4. The fourth aspect is reflected in Chris Hayes’ remarks about the “moral subtext” of the debt and deficit debate. He very entertainingly imagines the nation as going crazy, worshiping the golden calves of profligate spending, and then Moses comes down the mountain calling on everyone to “get good again.” And that means paying your debts and living within your means. This is a very powerful message to the religious psyche that permeates our cultural norms. It can only be countered by explaining WHY, in fact, the sovereign government is in debt (see item no. 5 below) and making clear, over and over, Dr. Kelton’s point that the “means” we have to live within are not FINANCIAL means but, rather, RESOURCE means.
Moral hazard also plays into the fears about “printing money” to pay American citizens entitlements for “doing nothing”—creating a nation of lazy dependents who don’t have the motivation to go out and find work. Again, Dr. Kelton’s framing of the MMT strategy as NOT being about paying for welfare and entitlements, but INSTEAD being about employing people to create useful goods and services, can potentially deflect these “moral hazard” fears.
5. I’d like to add a fifth aspect which was not directly discussed by the panel: Explaining WHY the U.S. sovereign government has a debt of $16 trillion and growing. The common understanding, stated in article after op-ed with off-handed carelessness, is that when the federal government spends more dollars than it collects in taxes it HAS to borrow the difference from the bond market. Hence, out-of-control profligate spending is WHY the debt continues to grow so large. This seems as common-sense-irrefutable as 2 + 2 = 4.
This, of course, brings us full circle because the true answer, which the American citizen must somehow be made to see, is that the sovereign government—if it chose to do so—could simply “issue” the fiat-currency required for any sovereign spending over and above tax collections; in other words, it does not HAVE to borrow the dollars from the bond market. Why does it then? It can only be because the bond market, itself, has influenced Congress to REQUIRE the sovereign government to borrow. And that is the reason the national debt continues to grow.
“Issuing” currency (rather than borrowing in the bond market) to pay for sovereign spending over and above what is collected in taxes might be one of those things that could be done incrementally. Instead of threatening the institutional and social norms of the bond market with total annihilation, MMT could propose that sovereign spending be “monetized” only on a limited basis, to accomplish certain specific and special goals that would strengthen and benefit the nation as a whole. Over time, as people saw the benefits of monetized sovereign spending—and became assured it did not, if properly managed, lead to inflation—the social norm would likely shift. If that happened, the next time Chris Hayes had a panel discussion about the national debt, there wouldn’t have to be so much giggling.