Modern Monetary Theory Grapples With People Actually Paying Attention to It

This stark contrast between Republicans and Democrats was front-and-center at the second annual Modern Monetary Theory conference.

Illustration: Blend Images/Getty Images

When Donald Trump signed a huge corporate and upper-income tax cut into law in December, it seemed like there was one small bright spot. With the GOP-backed bill projected to increase the national deficit by $1.9 trillion over the first decade, at the very least the Democrats could finally quit saying that an increase to the national debt — the vice that trapped so much progressive legislation — was per se political suicide.

In fact, as many Democrats reckoned at the time, if they reclaimed power, they could then repeal those Republican tax cuts and redirect the revenue to new social programs.

But this month, despite the sky decidedly not falling from the Trump tax cuts, Nancy Pelosi confirmed her intent to bringing back the “pay-go” rule, which requires all new spending to be offset with budget cuts or tax hikes. Pelosi first instituted the rule in 2007, effectively barring Congress from taking up progressive legislation that would increase the national debt.

This stark contrast between Republicans and Democrats was front-and-center at the second annual Modern Monetary Theory (MMT) conference, held last weekend at the New School in New York City. The MMT movement, started in the 1990s by a few heterodox economists, has since grown into a vocal and eclectic mix of academics and activists, trying to change the way we think about government spending.

In a nutshell: MMT proponents believe that the government can safely spend far more money than it currently does, and increasing the federal deficit is not a bad thing in and of itself — a public deficit is also a private-sector surplus, after all.

While typically we hear rhetoric that our political leaders must first “find” money through new taxes or budget cuts in order to pay for new programs, MMT proponents say that’s a fundamental misunderstanding of how money works. In so-called fiat currency systems (meaning societies in which money isn’t backed by physically valuable commodities like gold or silver) governments literally create the money and tax it later to control for inflation and keep it in demand.

Inflation is still a risk, MMT advocates say, but it’s a much more remote risk than mainstream economists let on, and it’s one that can be addressed down the line if it arises, without so much pre-emptive austerity.

The first MMT conference was held a year ago at the University of Missouri-Kansas City, where Stephanie Kelton, one of the movement’s top economists, then worked. Kelton most famously served as the chief economic adviser for Sen. Bernie Sanders’s presidential campaign, and before that as the chief economist on the U.S. Senate Budget Committee, which was Sanders’s domain. (She now teaches at Stony Brook University in New York.)

About 250 people registered for that first conference, compared to this year’s more than 430. The attendees, while hailing from diverse disciplines, were overwhelmingly white and male — something Lua Kamal Yuille, a law professor and one of the few African-American conference speakers, pointedly criticized during her panel remarks.

On Friday, Kelton gave a presentation titled “Mainstreaming MMT,” assessing how effective the movement has been in getting its ideas out to the public.

By many measures, they’re doing quite a good job. Just last week, NPR’s Planet Money featured a podcast episode on MMT, and Bloomberg ran a story titled: “Trillion-Dollar Deficit? Whatever, Says New Consensus.” Kelton recently appeared on Jon Favreau’s popular liberal podcast, The Wilderness, and in the past year-and-a half, there’s been other deep dives into MMT in The Nation, the Huffington Post, and VICE.

“First they don’t want to hear you,” said Kelton to her rapturous audience. “Then they ridicule you, then they attack you, and then you win.”

While Kelton acknowledged the growing attention she and her colleagues have been receiving from mainstream outlets, she spent much of her public remarks focused on how their ideas are still unfairly cast by policymakers and the media. Paul Krugman, the New York Times economist, was a top target of Kelton’s frustration. In 2011, he blogged several critical posts about MMT, including to say that its adherents believe “deficits never matter.”

“This became the way that many people, probably a million or more, were introduced to MMT for the first time,” said Kelton. She also pointed to VICE’s recent headline, “The Radical Theory That the Government Has Unlimited Money” as an example of being misrepresented as more extremist than they are.

Still, MMT advocates struggled to decide just how they would frame their own movement. Were they radical or mainstream? Fringe or conventional? Rohan Grey, the conference’s head convener and president of the student-driven Modern Money Network, told The Intercept that they worked hard to “make sure there were different disciplines represented at the conference, so this isn’t seen as just a bunch of heterodox economists.”  

The appeal of MMT is likely to grow, as the Democratic Party embraces new, ambitious, and expensive ideas like “Medicare for All” and free college. While some progressive leaders have called for paying for new social programs through cuts to the military or increased taxes on Wall Street, the so-called deficit owls in the MMT movement are encouraging leaders to worry less about how exactly they’ll finance their goals.

The GOP, for its part, certainly isn’t fretting much about offsets. On top of their trillion-dollar tax cut, Congress voted this summer for an $82 billion increase in military spending. House Republicans also introduced a bill calling for a $5 billion wall at the Mexico border, and last week they voted on a new round of tax cuts, to permanently extend the ones that would otherwise expire in a decade.

When Republicans vote for all this new debt-spending, conservative economists barely make a peep, said Eileen Applebaum, co-director at the Center for Economic and Policy Research. After the December tax bill, “there were some grumblings, but no real conservative outcry,” she said. “It’s amazing. But if the Supreme Court can be so politicized, why not the economics profession?”

Applebaum was among those who attended the MMT conference; she calls herself a “fellow traveler” rather than an explicit adherent. She credits MMT with communicating important ideas about deficits, inflation, and monetary policy more clearly than earlier generations of sympathetic economists have been able to.

Several panels at the MMT conference were devoted to the so-called job guarantee, a policy idea that would make the state an “employer of last resort” for anyone able and willing to work, but can’t find a job. The idea of a right-to-a-job has long historical roots, though MMT advocates say Democratic leaders abandoned these political commitments over time in favor of an economic paradigm that treats a permanently unemployed class of people as acceptable, if not desirable. This idea, referred to as the “non-accelerating rate of unemployment,” or NAIRU — essentially suggests that there’s a level of unemployment, often set around 5.5 percent, that is useful to society because it helps keep inflation — by which is meant wages — down.

“The NAIRU is a central component for most macroeconomic theories that have been used by central banks around the world, and it’s a political, technical, and moral excuse to not try and hire that last 5 percent,” said Grey. “What it actually does is keep a reserve army of unemployed people who effectively discipline the rest of the employed. If you piss off your boss, if you get too uppity, you could fall over into the abyss.”

The job guarantee has attracted some high-profile attention over the last year. In 2017, the Center for American Progress released a job guarantee proposal, something it calls a “Marshall Plan for America.” The Center for Budget and Policy Priorities followed up with its own report on designing a federal job guarantee this spring, and new polling from Data for Progress and Civis Analytics found that 52 percent of those surveyed backed the idea of guaranteeing “a job to every American adult, with the government providing jobs for people who can’t find employment in the private sector,” paid for “by a 5 percent income tax increase on those making over $200,000 per year.”

Potential Democratic presidential candidates have also elevated the idea. In March, Sen. Kirsten Gillibrand, D-N.Y., told The Nation she supports a federal job guarantee, followed by Sen. Cory Booker, D-N.J., putting out a bill in April to pilot a federal jobs guarantee over three years. Sen. Bernie Sanders, I-Vt., quickly followed suit with his own federal jobs guarantee proposal, as did Rep. Ro Khanna, D-Calif.

Not all left-leaning policy wonks are on board with the job guarantee. Matt Bruenig of the People’s Policy Project, a socialist think tank, argues that it amounts to little more than conservative work requirements by another name, and that the short-term, low-skilled jobs provided by the federal government will inevitably be stigmatized like TANF workfare programs were. (Job guarantee advocates strongly dispute this.)

Looking ahead, MMT advocates hope to grow their movement through grassroots organizing. One example they pointed to was Fed Up, a national campaign launched in 2015, whereby low-income workers and union members pressured the Federal Reserve to not hike interest rates, a rare instance of popular pressure being applied to monetary policy. Fed Up made the case that there was no inflation pressure forcing them to raise rates and that doing so would suppress their already low wages.

“What’s next is we have to plug the gaps, we have to answer the harder questions like designing legislation,” said Grey. “We need to make sure that our grassroots movement is on board with the message and framing, that we’re creating the right allies.”

A year ago, Grey said, MMT supporters were in a far different position. “No disrespect to anything before, but we have just been growing, the cavalry support is starting to arrive,” he said. “There was a period when there were five people who understood this stuff, then 10 and 15, and then there were thousands, but they were all across the world and online, and now suddenly you have other organizations and institutions willing to sign on board and talk about it, and it’s got its own center of gravity now.”

Grey knows assembling a mass of enthusiasm is not enough. “Now the trick is to turn that into something that spins like a planet, and put houses on it, and populate it with people,” he said. “The thing we’ve got to do next is go from having the right ideas and being recognized for that, to actually putting them in action.”

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