(C4) The Green Party Chose Mainstream Economics over MMT
The public has little appetite for economics. The Green Party, as laudably representative of the public, doesn't either, which has led to their reliance on a small group of economic advisers, including Jon Bongeovanni, Howard Switzer, Sue Peters, and Rita Jacobs. I will argue that these advisers have fundamentally misled the Green Party, imposing artificial financial constraints on its ability to implement policies, and injecting libertarian economic ideas via fear-mongering about the national debt. Accordingly, these advisers recommend the wholesale rejection of alternative economic theories, such as MMT (Modern Monetary Theory).
In this article, I will focus on Rita Jabobs' written request to "look beyond MMT" - a title that sounds innocuous enough, but which prefaces a plethora of lies and conspiracies about MMT that are an insult to the thousands of progressives who stand by it. In Rita's article, she begins by boasting about her success in keeping MMT at bay:
I have also had a couple of Green Party members tell me that they thought that MMT was part of the Green Party platform. It is not.
This makes it immediately clear that the party is generally opposed to MMT (currently), which was seen last year when MMT supporters proposed to amend a small section of the platform about the national debt. The proposal was shot down 63 - 15, providing a quantitative measure of how much the Green Party opposes MMT. Rita Jacobs was one of the 63 who voted to oppose. By rejecting this proposal, the Green Party (GP) voted to continue fear-mongering about the national debt, consistent with the libertarian streak now within the party. Rita next says:
we at least need to publicize the need for caution in adopting a minority economic model like MMT.
Surely what matters is whether MMT is true, not whether it's mainstream. The GP have a commendable habit of rejecting the status quo to support what is right rather than what is mainstream. So why do they prefer mainstream neoliberal/libertarian economics? In my view, it's due to bad advice from people like Rita, who next claims MMT supporters:
do not want to have attention drawn to the immediate need for monetary reform, and their own omission of dealing with it in their model of economic reform. It is common practice for most economists to ignore the monetary system. The elite in power do not want the knowledge about the system widely known.
This conspiracy - that MMT supporters are coordinating with elites - is baseless and insulting. MMT suggests that monetary reform, while nice and with some benefits, is unnecessary for achieving our immediate goals and should not be a priority. We can use the monetary system as is (and worry about changing it later) because fiscal policy is what will do the most good in the shortest space of time. After all, we only have 11 years left to stop climate change. Rita then voices her fundamental disagreement with MMT, saying:
the U.S. government would not be able to spend at all without taxing or borrowing.
This is incorrect at the most basic level. If the US government can only get US dollars by taxing us, or borrowing from us, then where does she think we get our US dollars from? We don't dig them out of the ground. China doesn't produce them. Yes, we get them from our employers, but where do they get them from? If you trace the sequence back, there is only one net producer of US dollars: the US government. Helpfully, the right of the government to produce the currency is written into the Constitution. It was also reiterated by Alan Greenspan under oath in front of Congress, and in the media, and by Ben Bernanke regarding the bank bailout. Next, Rita confuses this money creation process with bank loans:
the government does not directly create new money, but delegated that function to the commercial banks when it passed the Federal Reserve Act of 1913. An explanation of this process is beyond the scope of this article
It is beyond the scope of Rita too, unfortunately. Banks create loans that expand the money supply, but these loans must ultimately be paid back. In other words, banks do not net produce money. Only Congress does that. If you need proof, ask why Congress had to pass a bill to bail out the banks. Why couldn't the banks just create the money and bail themselves out? They couldn't. They needed Congress to order the money creation. Rita next fear-mongers about the national debt:
The government funds its spending by issuing and selling bonds when it does not have sufficient funds to make payments as they come due, thus creating debts along with the obligation of paying interest on the debts (interest that compounds in perpetuity, unless it is paid off).
And says MMT supporters:
minimize a present state of crisis caused by the ever-increasing US government debt.
This fear-mongering about the interest-accruing national debt is textbook libertarian propaganda that is designed to restrict government spending (because how can we afford anything with this terrible debt, right?). The propaganda exploits our colloquial understanding of the word "debt" and our intuitive belief that debt for a currency-issuing government is the same as debt for our households. They are not the same because a government can always afford to pay in the currency it creates. Rita is wrong. Rita is also dangerous. Why? Because, if enough people are on board, these beliefs about the terror of government debt hamstring a government's ability to spend on things like healthcare and the Green New Deal. That's why her beliefs are shared by Nancy "paygo" Pelosi and libertarian think tanks like the Pete Peterson Foundation. Rita then says MMT supporters:
[do] not want others to believe that the US handed over its authority for creation of nearly all new money to commercial banks.
Sounds like another conspiracy is afoot; one that suggests MMT supporters are complicit in a grand scheme to hide this knowledge from the people. But, I would suggest that most people already believe banks create credit money via loans. MMT supporters are telling people something they do not already believe: that the government is constantly creating (and destroying) currency. If anything, Rita is complicit in keeping people in the dark about the government's ability to create money. She is pretending the government is powerless to help us, which is convenient, isn't it? It's something a libertarian would say. If you don't want the government to help people, then pretend it's incapable of helping people. Well, it is not incapable. And, just to reinforce that point again: if banks create net money, why couldn't they bail themselves out after the financial crisis? They couldn't, which means Rita is lying to you and is misleading the Green Party at the highest level. Next, Rita says:
MMT omits any discussion of the negative effects of increasing government debt.
That's because there aren't any effects that matter (if the debt is in a currency the government produces). MMT economists show why the libertarian fear-mongering is false.R ita, on the other hand, accepts it as true and bases her economic advice on the constraints this fear-mongering imposes on policy choices. Not satisfied with simply portraying MMT as a careless actor, Rita then exaggerates and misrepresents MMT entirely:
The main thrust of MMT is an attempt to show that deficits don’t matter – that governments can spend as much as they want on whatever they want without adverse effects."
This is a flat out lie. MMT says governments can safely spend up until full employment is reached, after which they should curtail spending to reduce the risk of inflation. Rita next says interest paid on the debt is of:
little benefit to the general population, as it is held primarily by the financial sector. It adds to the extreme wealth inequality in the US, which in turn adds to the rise in poverty. Obviously, the 42 million Americans living in poverty do not benefit from any saving of Treasury securities.
First, Rita seems oblivious to the fact that interest earned by the Federal Reserve on government debt is paid back to the Treasury each year. However, for the rest of the debt, she is correct that it exacerbates wealth inequality. Earlier, however, she implied that debt issuance is necessary to fund the government. Presumably, then, she would continue selling Treasury securities until the huge reforms she proposes are implemented. Conversely, MMT supporters know that the sale of government debt is unnecessary for a currency-issuing government and would stop the process immediately. So this is another example of Rita accepting an artificial economic constraint that just so happens to harm the people. She next says:
In our present monetary system, 97% of new money is created by commercial banks when they make loans. Besides this power to create money, banks also decide to whom the loans should be made. This in effect also adds power to create wealth inequality.
Even with this knowledge about bank loans, Rita still seems unable to grasp that a loan is not net money creation. Nevertheless, she is correct that we would have a fairer society if banks were better regulated. Unfortunately, Rita's own beliefs help the banks. The demand for loans (private debt) is fueled precisely because of people like Rita, Nancy Pelosi, the Pete Peterson Foundation, and others fear-monger about public debt, which stops the government from spending what is necessary to prevent private debt happening in the first place. This is because a government deficit is a private surplus: simple accounting that seems to go over Rita's head. Think about it: if the government spent properly on healthcare, for example, the largest cause of bankruptcy in the US would be prevented. But, in that situation, I guess Rita would complain that the national debt had increased. She then says:
The Green Party platform presents a well-thought out plan
Unfortunately, as should be clear by now, Rita and her colleagues have advised the GP adopt a plan that is full of unnecessary hurdles to jump over before anything can be done. We have 11 years to stop climate change, but the GP plan says we have to wait because Rita wants monetary reform that will take 10 years to get through Congress and implement. Her attitude will kill us all. And, this suicidal ignorance is right there in the plan:
until legislation is passed to implement reforms it is not possible for the government to do this without creating deficits that add to the already out-of-control national debt."
Oh, it's possible. It's just Rita doesn't want it to be and she is willing to kill us all to argue her point. Impossible should be a word you're used to hearing from the establishment, and you're hearing it now because Rita and her fellow advisers want to waste time with their unnecessary reforms. The truth is, better fiscal policy can use the current monetary system to do everything we need, and we should leave monetary reform until after we've saved the planet. Unfortunately, when this considered view is put to Rita, she leaps into conspiracy land:
MMT is using misleading tactics in an effort to retain our present monetary system indefinitely as the status quo.
This is not surprising as MMT has the financial backing of those who would benefit from the status quo.
No, Rita. It is a matter of priorities based on a proper understanding of macroeconomics and a desire to live.
This suicidal stupidity goes right to the top of the Green Party. Sue Peters (a more prominent economic adviser to the GP) recently said that one "highlight" of a recent conference was a professor calling MMT a "false flag operation." He said it twice. I'm glad Sue was keeping count.
In summary, I'm not an economist, and I wouldn't presume to advise a political party, but I clearly know enough to point out glaring holes in Rita's arguments. And yet, Rita not only appears to advise the GP but has the audacity to criticize people who are substantially more qualified. This unprofessional, presumptuous, foolhardy, libertarian-biased, conspiracy-laden attitude to economics is exactly why I cannot take the GP seriously at this time. I would suggest GP members listen more closely to the 15 people who voted for the MMT amendment to the platform rather than to the parasitic, right-wing economics of Rita Jacobs, Sue Peters, Jon Bongeovanni, and Howard Switzer. Then, maybe, the Green Party can return to being a force for the advancement of progressive and socialist policies.