MMT is a Political Problem: Part 2

Thornton Parker

      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.           

6 responses to “MMT is a Political Problem: Part 2

  1. Mike Riddell

    Better off hacking the system as you suggest, than trying to fight it.

    Complement, not compete.

    • Value, for the generations to come, looks a lot different than merely selling the car crash and tweaking the cocktail for the cancer.
      Moral considereration and
      accountability for an unjust and inequitable (if not all out corrupt) version of finance capitalism (un/non productive) should be addressed. More progressive tax policy (with teeth) could be another tool in the belt. Doing so provides additional local revenue sharing for things that society deems valuable.
      Taking a liquidity knee to a entrenched broken order is a recipe for more of the same.
      Time to coalesce around debt cancelation, writedowns and a bold “change” narrative that explains MM.
      With all due respect, a financial system, along with the political and judiciary “actors” within a democracy should not promote nor enable debt peonage, tax avoidance, nation bullying and environmental degradation.

    • That’s one attitude. Where has it gotten us? Things only change due to movements. The system is unhackable. Covid19 has lifted the rock and the maggots of our impotent greed-based system are crawling and writhing in the sunlight. Maybe the left will seize the moment.

  2. Its interesting that one of the few articles here on monetary history and the impact of the banking industry hop scotches around some of the most salient aspects of that industry’s impact on our society. That battle with the bankers prevented FDR from implementing, Full Reserve Banking (FRB), a predecessor of a system that would have made the clumsy pretensions of MMT irrelevant. FRB would have unravelled the bank’s hold on money creation and would have led to actual transparent governmnet money creation without the MMT gimmiks and awkward semantics that people on the left aren’t buying:
    A good history is presented by Kumhof and Benes:

  3. Mihaly Kummer

    Paul Lebove…….. You wrote to the PART1 as a comment….
    ” Please don’t look to MMT for an explanation of bank-credit money. Not that they can’t or won’t but because that is not their focus. There are so many great resources out there – just Google Richard Werner, an economist who demonstrated how the bank-money creation system works. Or the booklet put out by the Federal Reserve “Modern Money Mechanics” (no relation to MMT) where it is clearly states that it is the banks that create money when they lend. If you want a less neutral resource, though thoroughly accurate, Google the American Monetary Institute or the Alliance for Just Money – a treasure trove of resources, including critiques. The works of the economists Joseph Huber or Michael Kumhof are very accessible. ”
    WELL, You just have to look up Mosler Loan create deposit ….. and then you see how pointless is your argument……

  4. Mihaly – maybe you should reread my comment second sentence. To MMT this is just another ‘interesting’ feature of the current system. (One correction to Mosler, the bank, not the depositor, owns the deposit) Mosler fails to point out that this interesting feature of our money system is an overriding cause of its failure. Wray’s advisor, Minsky understood this. Banks initiate the creation of money, create the money, collect “rent” on that money as profit and determine what profitable enterprise receives that money. The Fed always provides the backstop of reserves demanded by a commercial bank – its a passive tool of the banking industry.

    Monetary reform ends that. It gives sole power of initiation and creation of money to the democratically elected government to be spent into the private economy for the needs of society. MMT is fine with private money creation and the banking industry is, at best, buried in the MMT public narrative. (You had to dig deep for that video) During the 1930’s this incredible power given to banks was hotly debated by progressive economists and legislators – the banks won out.