In the first part of this series, we explained why MMT should be seen as a political problem rather than just an educational one. In this concluding part, we will discuss where MMT promotion is most likely to fail or have good chances of success. First, consider some poor prospects.
All readers of NEP know how Social Security works and it seems like a natural for MMT. But is it? Wall Street sees the program as a leak from what should be their profitable money flow. For years, the former investment banker and secretary of commerce under Ronald Reagan, Pete Peterson, kept forecasting its failure. George W. Bush tried to fix the leak by privatizing it. Arguing the virtues of MMT for Social Security is a sure way to stir up Wall Street bees that are quiet at the moment.
Wall Street sees more federal health care financing as expanding another big leak. Bernie Sanders and Elizabeth Warren campaigned on this, but the insurance industry sees the fight as one they can’t afford to lose. Applying MMT’s dollar creation logic to the fight would just compound the problem from both the pro and anti federalization standpoints.
Paying off student loans is not a good bet right now either. Private lenders made investments in what they expected to be cash cows for decades. The lenders think they have enough influence over congressional committees to keep the cows healthy until they come home of their own accord.
A jobs guarantee program makes sense from the standpoint of those who need it. But quite a few employers want a cushion of unemployed workers to use as a club over their employees. The Federal Reserve, which primarily serves the big banks, sees a minimum level of unemployed as a way to limit inflation. From a political standpoint, those who would benefit from the job guarantee program have few chips to play while those who will oppose it have many. If MMT promotion is a political problem, pushing a jobs guarantee now is more likely to backfire than be of much help.
So what’s an MM promoter to do? Here are some off-the-top-of-the-head ideas to trigger your imagination.
The GDP fails to measure many private sector losses as negative transactions. But if there was a national balance sheet, major losses would leave it in worse shape. One place to look for opportunities for promoting use of MMT is in absorbing losses that the private sector will try to avoid. Many of the losses would be deflationary so absorbing them would not be inflationary. Consider:
Automobiles, trucks, homes, and businesses that could not be insured but were destroyed by catastrophic fires and floods;
Victims of mass shootings or diseases like the coronavirus, their families, health care providers, employers, and schools;
Agricultural losses due to draughts, fires, and floods; and
Sunk costs of utility and energy companies in facilities that will become obsolete due to climate change before they can be recovered through normal depreciation.
Before World War II, Roosevelt made agreements with industry that let them earn large profits from war work in exchange for their political support to counter isolationists. That type of agreement might be possible with parts of the financial industry to allow MMT to be used where it would not compete with their interests. For example, health care insurers might accept help based on MMT if it would be used to absorb costs of preexisting conditions. Don’t fight ‘em—join ‘em.
There are other ways to bring MM on stream gradually without waiving red flags. For some types of expenditures, federal bonds could be sold that would equal half of the payments. This would reduce the claims that the debt and future interest payments can become a burden. It could be done in a way that would make the financial service industry decide where their strongest interests lie.
Richard Nixon started Federal Revenue Sharing in 1972 and it became one of the most popular government assistance programs because of its flexibility and minimal paperwork. Reagan terminated it in order to reduce the public’s reliance on government. There may be strong, bipartisan support for restarting it as an off-budget payment program that would not add to the deficit or debt. If federally insured banks can run off-balance sheet gambles with derivatives to boost their profits, how can they object to the Feds doing something similar for the benefit of lower levels of government?
Many large firms in industries that will need to shift from fossil fuels quickly are likely to have major problems raising capital at reasonable costs. A conversion assistance program could be enacted that makes federal payments which are not limited by deficit spending restraints and turn these firms into MMT supporters.
Once one starts down this line of thinking, the opportunities seem endless. I think this type of demand-pull can be the most effective way to promote MMT and gradually reduce the lock that Wall Street has on Main Street while tamping down the scarce money myth. Each of the preceding ideas could be put in place with minor legislative and regulatory patches that would not disrupt the entire present federal budget and payment system. Major overhaul can wait for a while.