Alexandria on the Daily Show: the Moral Economy and Modern Money

Michael Hoexter, Ph.D.

The hopes of many progressives in the United States are being hitched to a new generation of left-wing Democratic politicians emerging to challenge both corporate Democrats and the Trump-loving radical-right Republican Party.  This movement has grown out of a group of organizations and institutions originating in, or energized by, the Bernie Sanders campaign of 2015-2016.  Among the most prominent of this new generation and perhaps its first political star is Alexandria Ocasio-Cortez (sometimes abbreviated AOC), a 28-year-old community organizer and economics graduate from New York, who is now the Democratic nominee for New York’s 14th Congressional District, unseating in the process the 4th most powerful Democrat in the House, Representative Joe Crowley in June 6th’s New York Democratic primary.

Ocasio-Cortez is sharp, charismatic and knowledgeable about many of the key issues facing her constituents and the world more generally.  She appears to genuinely empathize with other people, even people who nominally oppose her position.  She is also, critically important, a fighter and has the ability to turn arguments against her around to be used as a political tool for her and her political program, often in a light-hearted or charming way.  It is hard to tell these things from afar, but she appears to have a duty-based (deontological) ethical commitment to social justice, social solidarity, and social change for the better, a rare characteristic in politicians in the neoliberal era.  Such a commitment if she has it, would mean she could restrain herself from enjoying various temptations that come with power and fame for the sake of greater-than-self causes.  She is a member of Democratic Socialists of America and identifies herself as a democratic socialist and is also a Justice Democrat, a new group of Democratic politicians that doesn’t take corporate PAC money.  In full disclosure, I donated to her campaign and on and off tweet support for her from afar here in California, seeing in her a potential leader in the House of Representatives of the great changes we need in our country.

Ocasio-Cortez has given indications that she may understand and may endorse some tenets of Modern Money Theory, MMT, the school of economics that studies and highlights the fiat dimension of national currencies and their necessary stabilizing effects on national and the world capitalist economy more generally.  Ocasio-Cortez has said, in an interview with Kate Aronoff in the left publication In These Times, that the public and Democrats have been conned because “they don’t understand the transformative power of the purse that Congress has.  It’s not just Democrats. I don’t think most of Congress understands how economics works.”

Despite these heterodox economic remarks, Ocasio-Cortez has also had a conventional economics education, so it is not clear yet what are her core views are in the area of economic theory.  At times, Ocasio-Cortez has seemed to endorse any expertise at all in economics as a positive qualification, seemingly without an awareness that much academic and professional economics has been used as either obscurantism or as a means to stifle the political program for which she is standing up. It is not clear if Ocasio-Cortez is familiar with the devastating critiques of mainstream economics by people with whom she might share a lot in terms of an overall political and ethical orientation to life.  In my opinion, her actual operative economic framework and understanding, one that she would use to fight for and propose new policies, matter a lot for her ultimate success as a progressive leader, as they will for any politician.

In a recent interview with Trevor Noah of the Daily Show, Ocasio-Cortez did not seem to so decisively endorse an MMT view of Congress’s fiscal role but instead tended to wander between views of how government fiscal policy works.  There are important conceptual and rhetorical framing issues that arise from examining how Ocasio-Cortez handled Noah’s questions, even as she may move beyond that particular way of addressing the issues.

Because it is counter-intuitive and still outside the mainstream, I will first outline the MMT view of Congress’s “power of the purse” and then trace how Ocasio-Cortez’s message that was relatively clear in her In These Times interview got muddled in the face of Noah’s not unsympathetic but conventional line of questioning.

Congress’s Power of the Purse

As the Post-Keynesian economic school that focuses most on governments’ fiscal operations, MMT economists observe that Congress authorizes the US Treasury to create money out of thin air for public purposes in its budgeted and unbudgeted spending.  Equally important for the purposes of generating demand for the dollar, the Treasury, through the IRS, in federal taxation, destroys some existing money in the economy.  By contrast state and municipal tax authorities actually do collect taxes for later expenditure or bond repayments, as is assumed in conventional economics for all governments.

MMT highlights that, in practice, the federal government operations of taxing and spending don’t depend one-for-one on the other: a currency-issuing government in the post-Bretton Woods, post-gold standard era, is not a giant “piggy-bank” or Fort Knox of money that it collects and then dispenses.  Modern money is not a set of “money things” that federal government needs to collect and manage as a finite set, as in days past when the government was obligated to back the dollar with gold reserves.

Instead, the US government and other currency-issuing governments are credit-based, liquidity-creating public institutions, enforcing the use of their currency by the obligation to pay taxes in that currency, backed ultimately by monetary penalty or imprisonment for failure to pay taxes.  Money and government spending are not backed by precise amounts of taxation but by “the full faith and credit” of the US federal government, supported by its ability to enforce use of the dollar by levying dollar-denominated taxes.  The US government manages the overall liquidity of the US economy by differentially taxing and spending, also in that process and in a targeted manner, creating and operating critical public goods that underlie and support the society as a whole.

MMT economists point out that the political notion that all public expenditures must be “paid for” by exact amounts of taxation is illusory and also actively harmful, if government is to achieve various national missions and also stabilize the always unstable capitalist economy.  The political creation of money that happens anyway as a matter of government fiscal operations, depends also on political arguments that politicians make that, in turn, rest on various and conflicting views of “the good” and therefore ethics.  I have argued elsewhere that the particular subdivision of ethics that underlies political action and the actions of politicians in budgeting and other governing decisions, should be called “macroethics”, i.e. what people think would be best for “the world” or “the nation” to pursue.

The running of so-called “deficits” (which are net injections of cash into the economy by governments and create no lack, hole or deficiency in the economy or government) remains the most politically contentious aspect of how currency-issuing governments operate.  The word “deficit” is an unfortunate and confusing misnomer, perpetuated by too many economists who otherwise understand that a budget deficit is not a lack, hole or deficiency but, for the economy as a whole, exactly their opposite, a contribution or immediate benefit to the private sector in net.

That the US Treasury is authorized to sell Treasury bonds in the amount of the “deficit”, the amount spent over the amount taxed, does not mean government spending is financed by the bond sales, though those bond sales might have a desirable inflation-dampening effect on the demand created by some government spending over tax receipts, as bond sales defer spending on goods and services.  Inflation is also a concern of MMT economists but is not assumed to be the automatic result of net injections of more cash into the economy but rather on levels of actual demand for particular goods and services. The US federal government, as are governments like those of the UK, China, Norway, Sweden, India, Russia, or Japan, is in this “monetarily sovereign” in that it doesn’t get its currency from anywhere else other than its own fiscal operations.

MMT is a set of economic concepts based on description though almost always paired with some form of prescriptive advice for policymakers and for economists studying the world and national economies.  MMT is a strong description of the macro-economy because it does not require actors to understand or “believe” in the theory, for that theory to describe actual macroeconomic behavior.  Modern Money Theory is based on independently verifiable observations over time by central banks of the flow of funds between the three sectors of any national economy (the domestic economy, the national government, and the “rest of the world”) and in this is a stock-flow consistent model of any monetary economy.   Mainstream economic models of the macro-economy that leave out the role of fiat currency-issuing governments to create money are almost never stock-flow consistent.

Turning again to the topic of deficits, with or without a “belief” in or endorsement of Modern Money Theory, governments will be compelled more often than not to run deficits (create, in net, more liquidity in the economy) for a variety of reasons, including

  1. running a trade/current accounts deficit, (which drains the domestic economy of money/liquidity)
  2. the tendency towards concentration of income and wealth in capitalist economies (leading to stagnation of demand),
  3. the boom-and-bust cycle in the private economy induced by private credit creation by banks and the inevitable credit and liquidity crunches that arise thereby,
  4. the economic assumption & prescription that economies should grow overall in size (requiring more money to be injected into the economy), a growth which may often also carry negative ecological costs,
  5. unpredictable national emergencies including wars and natural disasters that require government to always be liquid (able to buy goods and services) to function and protect the population.

With or without an explicit and public endorsement of a Modern Money view of government fiscal operations, monetarily sovereign governments will necessarily run budget deficits some of the time with some positive economic effects.

The choice that MMT highlights to policymakers is whether they will run those deficits, on the one hand, “by accident”, as a “shameful” lapse from supposedly prudent budget-balancing or, on the other hand, will they attempt to design their budgeting, taxing, spending and deficit-spending in a more foresighted, transparent, and thereby potentially democratic manner.

The problem with federal government leaders pretending via accounting rules or political grandstanding to “balance” or “pay for” spending one-for-one with taxation, as instituted in current Congressional Budget Office (CBO) analytic frameworks, is that the benefits of the inevitable “accidental” deficit spending are captured mostly by politically powerful groups like the military industrial complex, the financial sector, and the ultra-wealthy donor/billionaire class, by taking advantage of either foreign policy crises, misbegotten ideas like plutocracy-friendly supply-side economics or (inevitable) financial crises.  Instead of planning to spend and tax according to publicly discussed public priorities in the real economy and society, powerful lobbyists, ultra-rich individuals and families and their bought-off political representatives capture public spending and favorable tax policy for themselves, via well-timed deployment of lobbyists and donations.  The mostly unconditional bank bailouts of 2008 and the recent tax cutting by the Trump Administration are just two examples of how stealth or unplanned permissiveness regarding deficits is corralled by and for the privileged few, while supposedly prudent centrist and “left” critics bind themselves to unrealistic ideas about federal government fiscal policy that see deficits as “shameful lapses”.

Wall Street & the Kochs: Predators on Budgetary Confusion

While existing CBO budgeting guidelines make the capture of “accidental” deficit spending for privileged private benefit more likely, there have been for many years now aggressive political forces attempting to further confuse the picture for the benefit of the wealthy and privileged.  These well-organized, well-funded campaigns, originating either on the far right or on Wall Street, have been attempting to convince lawmakers to make still more macro-economically disastrous policy decisions.  These predatory political actors specialize in encouraging the agnotology (production of ignorance and misinformation) inherent in mainstream economics and weaponizing it for political ends.

Most well-organized and successful so far, has been the Pete Peterson-founded network of Wall Street-based activists who have surrounded policymakers, gullible students, and some academic departments, with an agnotology-based firewall of deficit- and public-debt- worry.  The Peterson-based activists have been able to tie up much of the political center and moderate left, including almost all of the Democratic Party, in senseless exercises where social programs and government initiatives are either cut or lamed in the name of misguided ideas about fiscal prudence.  The name and activities of one Peterson-funded group, “Fix the Debt” expresses in one phrase the macroeconomic ignorance that passes for prudence in some Washington circles.  The Obama Administration was particularly eager to embrace and/or be bamboozled by the Peterson network in prematurely introducing austerity-light after the 2007-2008 crisis, allowing the formation of the Bowles-Simpson Commission, and pursuing the disastrous and inhumane Grand Bargain with the GOP, a Great Betrayal of his own party and Democratic voters.

The obvious, and practically sole beneficiary, of stigmatizing direct federal funding of social and other programs is Wall Street.  Financial services (FIRE sector) companies are looking to expand the market for their risky and generally inferior financing products that require fees and/or interest payments, the revenues and source of profit of FIRE sector companies.  Politicians close to and funded by Wall Street are more likely to scream out deficit and public-debt alarms, drawing on the supposed wisdom of their patrons.  Unfortunately, even left critics of Wall Street, like Bernie Sanders or Cenk Uygur, have been enmeshed in “hard money” illusions, though advocating for different government “hard money” expenditures.

Perhaps more threatening, with the current far-right dominance of many Washington institutions, are efforts of the Koch Brothers to call a Constitutional Convention to pass a Balanced Budget Amendment to the US Constitution, which would ostensibly limit or delay deficit spending substantially by requiring a 3/5th’s vote of Congress to approve deficit expenditures.  Based on the libertarian and far-right notions that government is an expendable or minor part of the modern economy, this Amendment, if implemented, would push the US economy further towards plutocracy and also make depressions more severe, if not cause one long downward spiral of the US economy.  Unfortunately, because of the Peterson campaign and Wall Street’s reach into the Democratic Party and mainstream media and a lack of understanding of MMT economics in Washington, the Koch’s catastrophic idea is treated as respectable.

Intuitively or implicitly, the Kochs also recognize that laming government action, for instance via such a Constitutional Amendment, is critical for them to keep on exploiting their fossil fuel assets into an era of catastrophic climate change.  So such a Balanced Budget Amendment, cloaked in pseudo-economic nostrums, is an aid to the continued runaway greenhouse gas emissions trajectory that threatens the survival of the human species itself.

In such a political-economic environment, an understanding of the critical functions of government fiscal policy is vital for political leaders attempting to use government to serve the public good.  Falling into Washington DC’s or even mainstream economists’ erroneous, consensus views, will likely derail political movements for change and hinder political leaders with progressive intentions that nevertheless hold onto erroneous right-wing economic ideas about government’s role in the economy.

Alexandria’s Economic Narrative in her Daily Show Interview

Trevor Noah, the current host of the Daily Show, is no radical and often reinforces neoliberal assumptions in his humor, however recently on the extended online version of his almost 15 minute interview with Ocasio-Cortez he gave her plenty of room to explain her politics and control the narrative as she wished.  Noah was not playing many “gotcha” games with her so his questions were not particularly challenging.

Asking Ocasio-Cortez how she defined democratic socialism as an opener, enabled her to expand on many of her ethical commitments that underlie her political engagement, including her commitments to human dignity and to stabilizing the climate. Ocasio-Cortez sees as her bedrock belief a “moral and ethical economy”, a position from which “we can legislate and, where it is possible, we are morally obliged to pursue it.”   Ocasio-Cortez explained that her socialism involved supplying many of the basics of life including education for free via government.  Ocasio-Cortez explained that her and other millenials’ socialism was based on seeing others in other countries not having to struggle to pay medical bills or pay for college.  Her model for socialism appears, as with many who claim the democratic socialist label in the US, to be approximately European social democracy.

Noah gave room in the interview for Ocasio-Cortez, in a personal way, to explain her potential appeal to both New Yorkers and those in the Heartland, where she had just been campaigning for other Justice Democrats like Brett Welder in Kansas [Welder unfortunately lost his bid for the nomination to a centrist Democrat heavily supported by the Washington Establishment].  She theorized that it was her personal authenticity that draws people to her who otherwise wouldn’t consider her and her left-wing ideas.  Ocasio-Cortez was able to display more of her engaging personal demeanor, when she using an accessible everyday language and gestures, explained that she didn’t, in fact, campaign either for socialism or for the Democratic Party but for the issues that concern most Americans in the Bronx and elsewhere.

Noah then asked her how she would pay for the ambitious government programs she (and other left Democrats) support.  At this point Ocasio-Cortez started, as she had in other interviews on other topics, to delve into more conventional Washington ideas about government institutions and policy choices.  In a previous interview, Ocasio-Cortez had also after, in another context, decrying Israeli abuses of Palestinian rights and lives, seemingly buckled to conventional ideas when discussing Palestinian rights and Israeli aggression against Palestinians.  In the Daily Show interview, it seemed that rather than redefine her economic framework to support her own moral and ethical vision, Ocasio-Cortez bent then to accept the media- and DC insider- consensus regarding how government uses money.

Ocasio-Cortez, it seemed, felt challenged enough by this, to in an aside “argue from authority” in citing that she had “talked to a Nobel Prize winning economist” about these matters recently, trying at the same time to modestly downplay the appearance of pretension in claiming such an association.  While hopefully it was Joseph Stiglitz or Elinor Ostrom she was referring to, as of yet, no MMT economist has won the Sveriges Riksbank Prize (though in my view they should), which is called the “Nobel Prize” in Economics.  Most economists recognized by the Sveriges Riksbank panel have conventional, limiting views on government finance and the prize has shored up the neoliberal, bank-friendly status quo.

At this point, Ocasio-Cortez seemed to fully accept the “pay for” frame offered by Noah and demanded by the Establishment view of government finance.  Ocasio-Cortez then listed a series of taxes, including a carbon tax that might “pay for” the programs she cited.  To her credit, she recognizes that one function of a federal carbon tax would be as an incentive for the private sector to pollute less, but still she had accepted the framework that collecting money from taxes would “pay for” the programs for which she was advocating.

Ocasio-Cortez also cited Warren Buffett, as, apparently, a means to soften and familiarize the idea that “people should pay their fair share” to generate “revenue” for later spending.  She quoted the familiar quote, having acquired the status of a Washington aphorism, that Buffett says that he should pay the same rate as a his secretary rather than less, hardly a radical idea.  A socialist or even just a left perspective would be that Buffett’s tax rate should be much higher than that of his secretary (from an MMT perspective not as a means to generate revenue but as a means to reduce social inequality).  It seemed to me, that Ocasio-Cortez also was attempting to say “look I’m not a scary socialist” by, among other rhetorical moves, associating herself with Buffett, a figure beloved of Washington insiders and the media.

At the end of the answer to Noah’s pay-for question, Ocasio-Cortez partially recovered by saying that what was most important was a “reprioritization” of spending, allowing moral and ethical principles to guide spending priorities.  Ocasio-Cortez cited a hypothetical representative of the military saying that it didn’t want its budget so increased by politicians (as recently proposed by Trump and Congress) and that they didn’t need another new fighter jet, as an example of misplaced spending priorities.  This final summary of her “pay for” was closer to an MMT perspective but was also consonant with the idea that the federal government needs to allot a certain number of hard “money things” that it can then also redistribute.

Since the Daily Show interview, in an interview with Chris Cuomo of CNN, Ocasio-Cortez used the “prioritization” frame to hint that money might be being created for the wrong reasons.  In that interview and in recent tweets, Ocasio-Cortez satirizes that allocation and/or creation of money for plutocratic or militaristic causes but not for morally just causes.  Ocasio-Cortez stopped short in that interview of saying that the federal government creates money as a matter of its normal operation, though there was an implication that it might do so “incidentally”.

A Modern Money Paradigm Could Help AOC Realize the Change She Envisions

While it may not be her conscious intention, a closer adherence to MMT’s understanding of federal government finance in her rhetoric and in her likely future legislating, could help Ocasio-Cortez more consistently realize her vision of putting moral and ethical values to work in the economy, i.e. create a “moral economy”.  Her interview with Noah exposes some areas where Ocasio-Cortez could become “bogged down”, made to doubt her principles, or even corrupted by Washington insider assumptions about the ability of the federal government to spend on vital programs.  Ocasio-Cortez has the potential to become a trail-blazing advocate and leader for the needed social and ecological transformations we require to sustain and develop our society.  On the other hand, Ocasio-Cortez also has the potential to become another bright political hopeful that will disappoint and accept too many unnecessary compromises too soon.

Ocasio-Cortez’s acceptance of the “pay for” paradigm that enabled her to display a conventional economic “pragmatism” during her Daily Show interview contains within it social rewards for her, including the hope of acceptance in the Washington and media elite, as “responsible” and “respectable”.  However such a paradigm puts her in the position of compromising on her visions, for instance, for a rapid transition to a sustainable society, on Medicare for All, free post-secondary education for all, affordable housing for all.  It also divorces here from the economic reality of currency-issuing government fiscal operations in a capitalist economy.

Searching for sources of money to tax puts her, Sanders, and other “find-the-tax-dollars-first” progressives on a collision course with various interest groups that want to hold onto their money and gives those groups ultimate “veto-power” over spending, if they can lobby hard enough against raising taxes as a precondition for social or ecological spending.  Taxation in general and higher levels of taxation are required to realize ambitious social visions and contain inflation but the “pay for” spending-to-match-taxation paradigm will put immediate brakes on those visions at the critical initial stages of developing the social and physical infrastructure we need for the 21st Century.

Ocasio-Cortez may be following the lead of Bernie Sanders in accepting the deficit hawk, “pay for” paradigm.  Though I have campaigned for and support most of what Bernie Sanders has done, he has continued to follow the “pay for” framework in his public utterances, despite an ongoing association with Stephanie Kelton, a leading MMT economist and the founding editor of New Economic Perspectives.  I am fearful that Ocasio-Cortez will follow Sanders’ path in contributing to deficit worry and “tax as revenue source”.  Sanders, despite inhabiting the leftmost portion of the American public sphere before Ocasio-Cortez, is, in my view, too cautious in presenting a transformative vision for American society and physical infrastructure.

Sanders’ years of relative isolation in Congress, as well as a history of being a mayor of a small city (that needs, as a non-currency-issuing government entity, to balance its books), have, in my view, made Sanders too inhibited in going beyond presenting a vision of European social democracy as the “utopia” that US society must achieve.  To survive in the 21st Century, we need to build a net-zero emitting society extremely rapidly and to rapidly unwind the “once-through” energy and material culture upon which both US hyper-capitalism and European social welfare capitalism rest.  We must also break with American militarism, an area where Sanders has been generally quiet and/or cautious in his views.

I may be selling Ocasio-Cortez short in suggesting that she might need a consistent adherence to a somewhat newer but reality-based economic model to hold to her ambitious program.  She is young, very intelligent and has magnificent political skills already.  She also seems to have a good heart and strong ethical beliefs.  She might be able to improvise her way out of the various political traps in which opponents, journalists and even allies will place her.  However I see no downside in the long run in her tuning her economic framework to more closely fit her own political and ethical vision.  It may mean, for her, forgoing in the short term some of the gratifications of Washington DC respectability.

An MMT perspective provides her with that framework and it is one of the most successful frameworks in predicting actual economic outcomes over the past few decades.  However, I believe MMT itself must present alternatives to current CBO accounting methodology in order to be made replicable and useful to practicing politicians.  Below I will sketch an alternative approach to CBO/business accounting based on Modern Money Theory.

Macroeconomic Accounting Instead of CBO/Business Accounting

I believe that to fully realize her vision of a moral economy, Ocasio-Cortez and a likeminded progressive caucus needs to propose a different methodology by which Congress analyzes and evaluates the federal budget. In the current system, as explained by Stephanie Kelton in a recent talk at University College London, the budgeting process is held up by the idea that everything in the budget must be cut to fit the existing stream of tax “revenue” into the government.  Instead, in her talk, Kelton recommends a “mission-oriented” form of government fiscal policy, drawing on the language favored by her host at UCL, Mariana Mazzucato.

I proposed in 2013 that macroeconomists and in particular MMT economists should develop a macroeconomic accounting methodology for use by political parties and governments as a replacement for business accounting methods.   Rather than just critique existing CBO or “government as household” methodology, economists, ethicists, political scientists, sociologists and natural scientists should collaborate in creating a way for governments to effectively convert commonly held ethical principles and known factual data about the real world into government fiscal policy that will effectively and beneficially transform our material reality, reform government and related social institutions. Macroeconomic accounting would provide a step-by-step methodology for political leaders and their support staff and consulting scientists and experts to follow through on realizing the public good via better government fiscal policy.

Macroeconomic accounting is required as a government and political discipline because the importation of business, i.e. “microeconomic”, accounting methods, leads to distortion and discontinuities in the execution of the mission of governments.  The use of business accounting is based on a fallacy of composition: that the aggregate of all economic entities in an economy must behave like each of the individual parts.  Keynes showed via the Paradox of Thrift that adhering consistently to such a microeconomic path by governments would inevitably lead to economic collapse, especially during a private credit crunch.

Microeconomic accounting, i.e. current CBO accounting methods or similar, reduces the potential for government action in the areas of public safety, public health, and general economic well-being, and sets governments up for eventual convulsive, “emergency” deficit spending measures that will favor cronies and entrenched interests.  Business/CBO accounting views financial resources as “things in themselves” and as a fundamental limit and brake for social decision making.  The only categories of analysis are “more and less” money, with money putatively standing in for “good” or “welfare”.  The use of business accounting methods to evaluate government budgets then leads to perverse recommendations that social welfare is enhanced by currency-issuing government accumulating financial resources from the private sector as a whole, i.e. running budget surpluses as an optimal goal.  Such assumptions and recommendations are macroeconomically ignorant, under most circumstances.

Overreliance on microeconomic accounting also effects the economic narratives and policy proposals of politicians such as Ocasio-Cortez or Bernie Sanders as they communicate with the public and other politicians that any government programs much ultimately be trimmed to fit existing tax receipts or the amounts of taxes that potentially could be paid by billionaires such as Warren Buffett.  Always looking into the coffers of the private sector is not the macroeconomically prudent way to design spending or taxation policy.  Conventional microeconomic accounting is appropriate for use by individual units or programs of government, once they have been allotted a budget line, so as not to distort the overall budgeted expenditure; but macroeconomic accounting is required to create the composite federal government budget as a whole, no matter what the political orientation is of the parties in power.

The formulation of MMT and before it Abba Lerner’s “functional finance” both require the development of macroeconomic accounting methodology.  The further development of both require something on the level of operational manuals,  developed in full public view and with public input, for Congress and other bodies charged with the fiscal policy of currency-issuing governments, which government employees and politicians will use to develop an open, rational and democratic fiscal policy.

Brief Outline of Macroeconomic Accounting

I have already gone on long enough here but a brief sketch of what macroeconomic accounting would entail will give a sense that this is a vital and practical option and not mere hand-waving.   If one accepts that the line of economic reasoning from Keynes to MMT is valid, one would need to accept the need for such a system of government accounting.  The fundamental point of macroeconomic accounting is to keep track of how the financial resources and dynamics in the economy, including those originating in and authored by government, effect real resources and dynamics, among them and including the welfare of the citizenry and humanity more generally (if leaders are so inclined to take into account the welfare of people beyond national borders, which I would advise).

Unlike microeconomic accounting, macroeconomic accounting must assess inventories and potential future inventories of real resources as part of the budgeting process.  Real resources mean people, physical infrastructure, physical capital, and ecosystemic resources.  Additionally macroeconomic accounting should assess the distribution of financial resources within the private sector both by demographic groups, by class, and by economic sector.

The following are steps in the macroeconomic accounting process, steps which may seem thunderously obvious yet are often assumed or overlooked.

  1. Survey and Prioritization of Macroethical Commitments: Within Own Political Tendency and Within the Population The macroeconomic accounting process has to start with what are both the common held “highest goods” that the population values and also what are the “highest goods” of the political tendency or theory from which a politician starts out. While non-numeric in nature, assessing what are the priorities of the society overall, beyond government and its fiscal policy should determine what government actually undertakes in its operations.  However a simple empirical survey of popular views won’t necessarily lead to an optimal outcome: political leaders are supposed to lead, so they may present a new and “better” solution, that was not previously conceived by the population (i.e. a public survey of the US population in 1932 would not have resulted automatically in Social Security being implemented a few years later).  Examples of priorities found in some political tendencies and in the population would include: Health Care for All, Housing For All, Free Education, Climate Stabilization, Sustainable Society, National Security, Tolerant Multi-Gender/Gender-Fluid Society, Crime Reduction, Higher Wages/Incomes, Anti-Corruption, Realization of God’s Kingdom on Earth (for religious fundamentalists), Hastening the Second Coming of Christ (for Christian fundamentalists), Strengthening the Traditional Family (for social conservatives).
  2. Inventory of Real and Financial Conditions: the next step in macroeconomic accounting is to make an assessment of the reality of society and the environment using, as much as possible, quantitative methods, creating an inventory of both real and financial conditions. Many government agencies, at least before Trump’s campaign to increase the production of ignorance, had been keeping track of these data. Areas of assessment should include:
    1. Employment, Wealth and Income Distribution Data
    2. Health Status and Access to Healthcare (Mental and Physical)
    3. Housing Condition Status; Homelessness
    4. Food production, availability and nutritive quality
    5. Distribution of and Performance of Educational Institutions
    6. GHG Emissions: Total, by Activity, by Sector, by Region
    7. Trends in Climate; Local, Regional Endangerment from Effects of Global Warming
    8. Land Use Trends and Changes; Emissions from Land use Changes
    9. Economic Sectoral Distribution of Productive Assets & Employment
    10. Material, Toxin, and Waste Flows within the Economy both by Activity and by Region/Locality.
    11. Distribution of Military Assets and Ongoing International Conflicts
    12. Distribution of Diplomatic and Foreign Aid Assets
    13. Government Investments in Science and Research
    14. Government Investments in Cultural Institutions and Activities.
  3. Prioritize and Categorize Real Needs. While the US federal government is already involved in many aspects of US life, reflected in the complexity of the budget and of countless government agencies, change in budgeting and rule making should be directed by real needs informed by ethical commitments.  From the inventory in step 2 above, a list of priority needs would need to be developed that is in part influenced by step 1 macroethical commitments.  Some of the needs identified may not be amenable to government action so the following categorization should be used:
    1. Priority-Need Soluble Within Private Sector w or w/o Political Commentary
    2. Priority-Need Soluble Largely via Government Rule Making and Rule Enforcement
    3. Priority-Need Soluble Largely by both Rule-making and Government Spending or Tax Policy
  4. Propose Political Program/Budget To Ameliorate/Solve Priority Needs. Many who are ensconced within politics are already committed to a certain set of policy solutions and start here at this step. However there are advantages in terms of openness and political discussion in taking one’s time going through steps 1-3 to arrive at “best possible” policy proposals and a complete political program.  If one can go back and “show one’s work”, one’s arguments are stronger for a particular policy.  Current large-scale policy solutions under consideration by those on the progressive left are:
    1. Medicare for All
    2. Free post secondary Education
    3. Student Loan Debt Jubilee
    4. Green New Deal/Climate Mobilization (I prefer second)
    5. Carbon Tax
    6. Job Guarantee
    7. Job Guarantee/Universal Basic Income Combination
    8. $15/hour National Minimum Wage
    9. Enhanced Social Security/Public Pension System
    10. Postal Banking
    11. Reinstatement of Glass-Steagall/Strict Bank Re-Regulation
    12. Financial Transactions Tax
    13. Reinstatement of Highly Progressive Taxation Including of Estates
    14. Strict Regulation of Internet Commons/Tech Monopolies
    15. Reinstatement of Strict Anti-Trust Laws
    16. Public Finance of Elections/Banning of Dark Money and Corporate, Large Donor Donations to Political Campaigns
    17. Increase Funds for Public/Social Housing
    18. End an Interventionist, Militarist Foreign Policy
    19. Stop US support for Authoritarian & Warmongering Regimes/Principled Support for International Human Rights
  5. Rough Draft Pricing of All Budget Lines and Tax Proposals – The next step involves costing out each individual budget line over a single year or multi-year timeframe. This is a somewhat more conventional budgeting activity in that spending lines of the budget must at least mobilize resources from both the government and the private sector to achieve the program or institutional objective of that program.  However at this point no effort should be made to balance the amount taxed with the amount spent.  Instead each spending proposal and taxation proposal should be estimated to achieve the optimal realistic policy impact in any given year or in tranches over a multi-year period to achieve an overall objective or mission.  For instance, the level and progressivity of income taxes should be levied to achieve a certain level of income equality as, as well as maintain the liquidity of private sector actors in a reasonable and fair manner.  Alternatively a carbon tax should be levied in the amount to achieve real behavior changes in energy and resource use and not to target a certain total revenue.  What will make this a macroeconomic accounting activity however, is that the real impacts on the area of policy targeting will determine amounts of spending or taxation, not the amount of imagined “revenue” available.
  6. Initial Assessment of Inflationary/Deflationary Pressure and Crowding Out – The total draft budget lines (negative by convention) and tax proposals (positive by convention) will be added together and an initial deficit or surplus (most likely a deficit) will be assessed. As per the earlier part of this piece, it should be assumed that a deficit is desirable, though the size of that deficit will then be subject to further modeling with regard to its potential negative impacts.  A general target range for the deficit will be announced but more important specific modeling of any inflationary or deflationary impact of spending and taxation on specific sets of vital goods and services.  Also realistic assessment of where government may be crowding out private economic activity in areas where it is determined that such crowding out is undesirable.  In some areas, crowding out and socialization/nationalization of economic activity will be desirable, such as in health insurance, or, in my view, a national publicly-owned railway infrastructure.
  7. Adjustment of Budget Lines to Minimize Inflationary/Deflationary Pressure and Undesirable Crowding Out – Tax or spending lines will be adjusted to maximize desireable and reduce undesirable effects as per the overall macroethical commitments/prioritization and real world needs in steps 1-3.  As, per the reality of capitalism and the crises we currently face, erring towards larger deficits means that more attention should be paid to inflationary pressures and perhaps specific inflation dampening taxes and programs (such as special bond issues) could be offered.
  8. Budget Finalized and Presented for Vote – With stabilizers included in the package, the budget should be presented for vote.
  9. Mid-year Monitoring – Once passed and implemented, the budget should be assessed in 6 months to adjust for increased policy impact or for stabilizing financial impacts. In addition to adjustments. 

The above is a brief sketch of how budgeting might occur that replaces inappropriate business accounting for accounting appropriate to the tasks of government

22 Responses to Alexandria on the Daily Show: the Moral Economy and Modern Money

  1. James Cooley

    In my opinion, this is going to be a very hard sell, given the array of forces aligned against it and the conventional view of government as tax funded. I am more and more convinced that a dramatic and decisive demonstration of the power of government to create fiat currency will be the only likely way to bring about the changes needed for a Macroeconomic Budget. What would that demonstration be? Issuing hundreds of Trillion Dollar Platinum Coins, as proposed by Joe Firestone.

  2. She has met Pavlina and Kelton, and seams receptive to MMT but I don’t think she fully grasps the concept. at least not well enough to explain it.
    https://youtu.be/mRDiVHtlA3s?t=37m33s
    and
    https://www.facebook.com/Ocasio2018/videos/444732625967483/

  3. Nancy Galloway

    Even Kelton says it’s a very difficult concept to grasp. There’s so much ingrained that we must unlearn.

  4. Let’s hope not.

    “”MMT economists observe that Congress authorizes the US Treasury to create money out of thin air for public purposes in its budgeted and unbudgeted spending. “”

    Where does Congress do so – authorize Treasury to create (issue) money …. for public purposes ?
    I thought it was taxes and borrowings that , under the Government Budgeting Constraint, MUST balance the ‘spending’ side of the budget.

    And where do the MMT economists make such observations – that Congress authorizes Treasury to create money out of thin air ??
    And, BTW, where can we find Congress’ “unbudgeted spending” ?
    Thanks.

    • President Richard Nixon took us off the gold standard in 1971 most recently. At that point the Federal Reserve Bank had no backing constraint on the amount of money it could create. The Federal Reserve Bank is an independent entity within the Federal Government. The USA currency has been on and off the gold standard several times throughout history.

      From the WikiPedia

      The Federal Reserve Act (ch. 6, 38 Stat. 251, enacted December 23, 1913, 12 U.S.C. §§ 221 to 522) is an Act of Congress that created and established the Federal Reserve System (the central banking system of the United States), and which created the authority to issue Federal Reserve Notes (commonly known as the US Dollar) as legal tender. The Act was signed into law by President Woodrow Wilson.

    • James Cooley

      I believe the Iran and Afganistan Wars were off the budget. Well, just minor expenditures.

  5. There is so much more of value in this article than just the interview with Alexandria Ocasio-Cortez. It would be a shame if people just watched the interview and thought they had mined all the value that there is in this article.

    Here is but one example of what you would miss if you don;t read on beyond the interview.

    Macroeconomic accounting is required as a government and political discipline because the importation of business, i.e. “microeconomic”, accounting methods, leads to distortion and discontinuities in the execution of the mission of governments. The use of business accounting is based on a fallacy of composition: that the aggregate of all economic entities in an economy must behave like each of the individual parts. Keynes showed via the Paradox of Thrift that adhering consistently to such a microeconomic path by governments would inevitably lead to economic collapse, especially during a private credit crunch.

  6. “My most basic goal for fiscal policy is full employment and stable prices. That’s the path to building wealth and prosperity, as well as a fair and just society, for ourselves and for our children and grandchildren.” Done.

    • Michael Hoexter

      I think there’s more to it…that’s why I proposed a macroeconomic accounting process. Among other things, we need climate stability to have fully employment, prosperity into the future for us and future generations.

  7. Luis Perez Reyes

    If shes is successful in popping the bubble of the morality deficit the country is a slave to as she is doing the how will b much easier

  8. Unfettered Fire

    Thank you, Michael, for this cogent article on the necessity that our most progressive representatives (which she most likely will be) have a strong grasp of all that MMT can deliver. So much has transpired since 2016 that I doubt many politicians will be able to perpetuate the worn out libertarian platitudes of “fiscal responsibility” without sounding either clueless or sycophantic. Chris Hayes recently had Sam Seder on and he pointed out that the “faux concern about the deficit” is no longer a thing and that is a tremendous leap forward! (skip to 8:08) https://www.youtube.com/watch?v=8Ha3dvgtKBc&t=515s

    Michael Hudson always nails it:

    “The bank strategy continues: “If we can privatize the economy, we can turn the whole public sector into a monopoly. We can treat what used to be the government sector as a financial monopoly. Instead of providing free or subsidized schooling, we can make people pay $50,000 to get a college education, or $50,000 just to get a grade school education if families choose to go to New York private schools. We can turn the roads into toll roads. We can charge people for water, and we can charge for what used to be given for free under the old style of Roosevelt capitalism and social democracy.”

    This idea that governments should not create money implies that they shouldn’t act like governments. Instead, the de facto government should be Wall Street. Instead of governments allocating resources to help the economy grow, Wall Street should be the allocator of resources – and should starve the government to “save taxpayers” (or at least the wealthy). Tea Party promoters want to starve the government to a point where it can be “drowned in the bathtub.”

    But if you don’t have a government that can fund itself, then who is going to govern, and on whose terms? The obvious answer is, the class with the money: Wall Street and the corporate sector. They clamor for a balanced budget, saying, “We don’t want the government to fund public infrastructure. We want it to be privatized in a way that will generate profits for the new owners, along with interest for the bondholders and the banks that fund it; and also, management fees. Most of all, the privatized enterprises should generate capital gains for the stockholders as they jack up prices for hitherto public services.

    You can see how to demoralize a country if you can stop the government from spending money into the economy. That will cause austerity, lower living standards and really put the class war in business. So what Trump is suggesting is to put the class war in business, financially, with an exclamation point.”
    http://michael-hudson.com/2017/03/why-deficits-hurt-banking-profits/

    • Michael Hoexter

      Thank you…let’s hope you’re right that the platitudes will start to wear thin for all politicians, perhaps led by the most progressive, like AOC.

  9. I don’ t believe she grasps the full power of MMT. But she comes right up close to it. I liked, for example, when she said, at other times, that now that we have a tax cut the republicans can’t complain if we help grandma with her chemotherapy. And I have noted to her that we do, in fact, already pay every nickel of the over three trillion dollars which, by the way, is about twice that everyone else pays.

    So our task is to reallocate the spending. One scheme is to require businesses and households to pay a tax based on payroll — not terribly different from what they already do. That money and what governments pay should be directed to Medicare.

    Medicare may now pay all the bills and negotiate all the prices and take the overpriced insurance companies, drug prices, incredible administration costs and very high priced services out of the equation. I will bet a nickel that will save us ten trillion over the next ten years.

    She – and us- need to simplify the “accounting”for this and other programs like this so that people can see how it can work.

    Just a thought without too much economics involved. We need to send simple ideas to her.

    • Michael Hoexter

      Yes…I think AOC’s reprioritization idea is as close as she has come lately to an MMT perspective. It is still too modest, in my opinion, as she and others need to claim the power of fiat currency creation for the public good and away from socially harmful uses. It is a political fight and her/progressive priorities should be claimed to be “senior” to the usual suspects like an overblown military or financial bailouts for banks. That claim doesn’t come without a political fight.

      • The claims associated with a fiat currency you and others should make. She needs to keep it simple. As I said, we already pay for it, so we need to reallocate the payments. Savings of ten trillion are easily obtainable over the next ten years and here is why. She can argue other things after she has cemented this argument which she is a long way from getting done. But lately seems to be improving.

        Sure we don’t need an overblown military budget. But this fight is not about that. It is about people, and we can afford to handle the modest policies she proposes. I believe she has set out a progressive agenda for herself and she needs to stay in the lane. I am not even sure she should be involved in the supreme court fight. But I leave that to her. We need medicare for all, an increased min wage, free college and reductions in student debt, a job guarantee and abolition of ICE and the war on immigrants. That is what we must have – for the people this time around.

    • Alexandria Ocasio-Cortez has a degree from Boston University in Economics. She also talks to Stephanie Kelton.

      Here is a video of a Alexandria and Stephanie talking to each other.

      https://www.facebook.com/Ocasio2018/videos/444732625967483/

  10. Turkey’s Erdogan seems to subscribe to MMT as per his pronouncement on inflation and interest rates.
    If he doesn’t capitulate to conventional economic dogma and manages a recovery for Turkey, this might serve as a test case of a sovereign currency issuing nation demonstrating its power to mobilize the productive capacity of the economy and serve as an economic and political epiphany of the modern contemporary monetary system aka MMT.

    • except I am told he has considerable foreign debt in his economy both by business and the government. And the falling currency is not helping him. He is more likely to threaten and bully his way through it if he can’t make a deal with Trump

  11. Turkey Total Gross External Debt 1989-2018 | Data | Chart | Calendar

    External Debt in Turkey increased to 466657 USD Million in the first quarter of 2018 from 453207 USD Million in the fourth quarter of 2017. External Debt in Turkey averaged 194741.72 USD Million from 1989 until 2018, reaching an all time high of 466657 USD Million in the first quarter of 2018 and a record low of 43911 USD Million in the fourth quarter of 1989.

    This could put a giant kink in Turkey using MMT to bail itself out. On the other hand, China could do a lot of bailing for Turkey with its $3 trillion in US reserves.

  12. James Cooley

    Yes, we have to remember that a sovereign currency issuer has flexibility when it’s debt is in it’s own currency. When it is in another’s currency (or gold) it loses a lot of freedom and is subject to inflationary pressures.