By J.D. ALT
This essay was first posted at www.realprogressivesusa.com
I keep reading the big challenge Democrats face in the 2018/2020 elections is that they have moved too far left, proposing a platform that includes “free” universal health care, “free” college tuition, “free” pre-school day-care—and a national infrastructure building and repair program paid for, not by the states, but by the federal government (i.e. “free infrastructure”). Progressives seem to genuinely wonder why mainstream Americans would object to these proposals. Why would American voters be put off by proposals they’d obviously gain so much real—and in many cases personal—benefit from?
The answer lies in three objections which flow together to become an undercurrent mantra of the American psyche:
- When the government pays somebody to provide a service, it is the government who gets to decide who that provider is, and the quality of the service provided. Americans, in general, do not like that idea: they call it “socialism.” Americans prefer the idea that the individual citizen pays for his or her own services and, therefore, gets to choose who provides those services—presumably based on the value and convenience the provider offers.
- To pay somebody to provide a service, the government must collect taxes. The more services the government decides to provide, the more taxes it must collect. Alternatively, the government can borrow dollars to pay for the services it provides—but ultimately it will have to collect more taxes, again, to repay what it has borrowed. Americans do not like to pay taxes—and they do not like the idea of their government being “in debt.”
- Many of the services progressives want the government to provide can, in fact, be provided at lower costs—and with better results—if they are structured with the same profit-motive that organizes and incentivizes the Market Economy. The need to constrain the federal government’s taxing and borrowing means, by logic, that “costs” for government-provided services must be reduced—and it is a demonstrated fact that costs are reduced by the creative competition of a Market Economy seeking to maximize profits. It is also a demonstrated fact that where the government provides services “for free” (“socialism”) there is no incentive or dynamic for controlling costs, maximizing efficiency, or creating value. The “socialist” model encourages reliance on the government, unmotivated idleness on the part of citizens, one-size-fits-all products and services, and a massive bureaucratic state that is unresponsive to customer needs and obstructive to creative innovation. A profit-motivated structure, in contrast, encourages self-reliance, freedom-of-choice, creative entrepreneurship, and merit-based rewards that keep people busy and constructively motivated.
These are not idle objections. Progressive Democrats ignore or brush them aside at their peril. I would go further and say the only viable HOPE for the progressive agenda is not just to consider these objections, but to embrace them—to specifically frame progressive goals in terms of both the fears and aspirations the objections express. In other words, the Democrats must begin speaking not only to the needs of mainstream America, but to its underlying psyche as well.
Here are a few ideas for reframing the message:
Paying Americans to CARE for Americans: How our fiat-money system works.
Health-care is never “free.” It “costs” real time and effort on the part of doctors, nurses, technicians and administrators to keep American’s healthy. The “government” is not going to provide these services—American health professionals are going to provide them. Paying these care-givers to give the time and effort to heal and nurture disabled, sick and injured Americans is one of the primary purposes of our modern fiat-money system. This monetary system—which has been willfully misunderstood, but operational now for over half a century—pays Americans first, then collects taxes second.
Paying Americans to TEACH Americans: How our fiat-money system works.
Education is never “free.” It “costs” real time and effort on the part of teachers, administrators, (and students). The “government” is not going to provide these services—American education professionals are going to provide them. Paying Americans to spend the time and make that effort to educate and train our future workers, managers, and creative entrepreneurs is one of the primary purposes of our modern fiat-money system. This monetary system—which has been willfully misunderstood, but operational now for over half a century—pays Americans first, then collects taxes second.
Paying Americans to CARE for CHILDREN: How our fiat-money system works.
Pre-school day-care is never “free.” It “costs” real time and effort on the part of early-childhood care-givers and teachers. The “government” is not going to provide these services—American child-care professionals are going to provide them. Paying Americans to spend the time and make the effort to ensure that working parents have a safe and nurturing place for their children is one of the primary purposes of our modern fiat-money system. This monetary system—which has been willfully misunderstood, but operational now for over half a century—pays Americans first, then collects taxes second.
Paying American business to REBUILD AMERICA: How our fiat-money system works.
We know we must repair, rebuild, and modernize America’s infrastructure. There is no choice. The “government” is not going to get this done—American design and construction professionals are going to accomplish it. Paying America’s engineers, architects, fabricators and builders to repair and modernize our bridges, roadways, damns, water and sewer systems, airports and seaports, rail and urban-transit systems—paying Americans to spend the time and apply their skills and creativity to rebuild and re-envision all these systems is one of the primary purposes of our modern fiat-money system. This monetary system—which has been willfully misunderstood, but operational now for over half a century—pays Americans first, then collects taxes second.
When we use our sovereign fiat-money system to pay Americans to provide health-care, education, and child-care services to American families, those families choose who provides them the service. They choose their doctor. They choose their college or technical school. They choose their child-care center. The providers of these services must compete for the “business” of American families.
When we use our sovereign fiat-money system to pay American engineers, architects, and builders to design and construct our modernized infrastructure, it is regional, state, and local communities who decide what should be built—and what should not be built. We have a traditional democratic process that can make those decisions: The Referendum. An “infrastructure referendum” is not a referendum on whether we should tax ourselves to accomplish a needed or desired collective goal—it is a referendum on whether a particular goal is something we want to pay ourselves—as a democratic society—to accomplish.
Because our modern fiat-money system pays us to accomplish collective goals first, then collects taxes afterwards, we can re-evaluate how much taxing the federal government needs to do to drain excess dollars from the economy (to manage inflation). This might well result in reducing the taxes Americans have to pay.
What is at play here is not just framing the progressive agenda in terms of the reality of modern fiat-money—but framing modern fiat-money in terms of the values and traditions embedded in the American psyche. This is the REAL challenge the progressive platform faces.
The only way to drive a nail is repeated pounding with a hammer. Keep swinging, this is oak!
JD another great post. You are def ahead of the curve methinks (and I’m from the UK where the push for a universal basic income is growing from the left). I’m no longer on the fence about it (thanks to your article which has tipped me over the edge). I’ve always believed that ‘something for nothing’ undervalues the something.
We think it will be easier to create our own alternative social currency than persuade policy makers to move towards MMT. We shall see.
Thanks, Mike.
I have been a proponent of MMT for quite a while now, but I find it disturbing that most proponents of MMT do not notice (or do not address) the holes in MMT theory that are big enough to drive a truck through.
The main accounting identity that drives MMT is the sector balance. What MMT ignores is that accounting is a static snapshot of accounts, but the real economy is a dynamic system. Even quasi static analyses are inadequate. When a bank gives a borrower money to buy things now, but also enters a debt that must be repaid over the next 30 years, these two things perfectly cancel each other out in a static sense. Dynamically, buying now and paying later has significant economic impact.
Then there is mark-to-market. When we want to calculate our net-worth including our stock holdings, we value each share we own at the price of the last stock market transaction in that stock. For small, individual holders, you can sell out your stock position at very close to the market price snapshot. Large holders of stock, and the economy as a whole cannot liquidate their entire positions at the snapshot market price. We see the falsity every day of mark-to-market. As the market indices rise and fall every day, there are billions, if not trillions, of dollars created or destroyed by the end of every day.
Steve Keen seems to be one of the few that understands the essential dynamism of the economy that must be included in any model that wants to be accurate over a wide range of conditions.
If you want to sell the public on your model of how money works, you’d better have a darn good model that passes the tests of a few simple observations like the ones I have made above.
I disagree with James Cooley. This is not oak, it’s reinforced concrete. It also doesn’t help that 90% of the publishable economists will publicly claim that “innovative” financial markets do the best job of allocating resources, despite the spectacular immolation of 2007-8. The saddest irony is that the greatest period of social democratic American fiscal policy, the Cold War arms build up, defined itself as the war on socialism. Government funded this wonderful artificial market for high tech manufacturing and all kinds of smart people (I was an engineering student is the early 80’s, it was clear here the “steam” in STEM salaries came from). Politics demanded that the wealth spread around the country. It yielded the computer chip and the jet engine among other things. Compare this to what the FIRE economy gave us, RMBS and CDOs.
@Shortale : The Jet engine was invented as a result of and during WW2. A different era, although still one largely financed by government spending.
Steven, I think that if you wish to examine the dynamics of our social system of macroeconomics you should choose to cover the whole system, to include the parts relating to MMT. Although no computer program for its simulation is yet available, my model to be found in SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling” provides a means that is both simple and elegant for this developing activity.
I am confused by the fact that supporters of MMT are unable to include the rest of our system, and were they to do so in the simplified way shown by this model (which can be used dynamically as shown in the book reference in that paper) they would properly appreciate this matter as a whole of the Big Picture.
You are joking, right?
https://www.researchgate.net/publication/279033276_A_Mechanical_Model_for_Teaching_Macroeconomics
Just as an aside, I don’t think you could call “scientific principle known as Occam’s Razor”. According to WikiPedia for example:
“Occam’s razor (or Ockham’s razor) is a principle from philosophy. Suppose there exist two explanations for an occurrence. In this case the simpler one is usually better. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation is. Occam’s razor applies especially in the philosophy of science, but also more generally.”
And that definition is too generous.
Your simple mechanical model is not even an attempt to model any real system at the level of detail as Steve Keen’s Minsky Simulator.
Thanks for this, J.D. I’ll pass it on to my local chapter of architects as a persuasive argument for how to fund infrastructure.
This response from Steven Greenberg suggests that his kind of thinking is well inside the box of the humanist economics schools. It is not scientific and because of this it misses out what a more sensible and logic process can discover and teach.
The mechanical model that I proposed is based on the analytic process presented in the 8-page working paper SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”. This also is not a joke. Occam’s Razor is not simply a philosophical tool, but it can be said that it is repeated more simply and precisely through this Einsteinian approach, to making good theoretical science using the best forms of hypotheses and their subsequent development into facts.
The detail in this form of simplified modeling will be seen if and when you read my papers and my book. The trouble with many macroeconomics theories is that their degree of complication is obscuring the basic relationships with a lot of unnecessary complication and confusion (and in one case where capitalism is wrongly claimed as landlordism, an over simplification)–but that is outside the confines of the particular box in which Steven prefers to exist.
P.S. I would love to use the Minsky simulator program to apply it to this model. Can anybody help me do it? I suspect that due to the large number of decision-makings (about 8o), necessary when using my model, that it would not be practical in such a (strangely simple) modeling tool.
I suspect your model is not too much different from what I described in April 23, 2015 in a blog post titled “Constructing Models of the Economy”. http://ssgreenberg.name/PoliticsBlog/2015/04/23/constructing-models-of-the-economy/
Unfortunately the link to the diagram and the reference article have gone stale. I am not sure I can find the original.
It is a teaching method like your model, but I never made the grandiose claims for it that you do.
I was able to fix the links in my post. Here is the image I referred to.
https://www.lockhaven.edu/~dsimanek/scenario/labman1/forctabl.gif
It would be very useful for the proponents of MMT to access a search engine and type in: “Zuma” “Guptas” “State capture” “South Africa”. 35% of South Africa’s GDP derives from state spending. 60% of South African families receive a social grant. 100% of South African civil servants and politicians are corrupt. Somehow, economists invariably fail to factor in the iron-clad connection between socialism and corruption and the concommitant collapse of economies.