Policy & Economics
In the wake of our successful fight against the climate-killing Trans-Pacific Partnership trade agreement, this workgroup is now working with other organizations around the country to envision and promote a new trade policy in which the health of the climate is of central focus. Sierra Club’s policy paper expressing such a vision is a possible starting point. This policy promotes three main ideas: 1) that trade rules that conflict with existing climate policies should be eliminated; 2) trade rules should increase climate protections; and 3) trade agreements should discourage trade in climate-polluting fossil fuels, and address the climate emissions that result from shipping. Much more on our Trade Policy work here.
Because of its potential for creating a green economy — using a WWII-scale mobilization to shift away from fossil fuels to clean energy — this group is studying and promoting Modern Monetary Theory (MMT).
Conventional economic theory tells us that deficits are bad and that deficit spending will leave the next generation with dangerous levels of government debt. The MMT economic view, on the other hand, provides an explanation of our monetary system that points a way out of this austerity mindset — a mindset that most of us learned but which is no longer relevant since the U.S. went off the gold standard in 1971. The gold standard was completely replaced by fiat money, which means currency that is used because of a government’s order — or fiat — that the currency must be accepted as a means of payment for taxes and other financial obligations to the government. When a government’s currency is based on a fiat system, the old economic rules regarding balanced budgets no longer apply.
It is important to understand that the federal government does not “print” or borrow dollars in order to spend, nor does the government need or use tax dollars as revenue. Instead, when the Congress passes a bill that authorizes federal spending, the Treasury uses its account at the Federal Reserve (the U.S. central bank) to inject, or spend dollars into the economy by crediting the bank accounts of agencies, companies and individuals being paid.
Because the federal government is the monopoly issuer of U.S. dollars, and whose debt is also denominated in dollars, the government cannot go broke, cannot be forced to default, and can never be forced to miss a payment. This, of course, is not true of households, businesses, or state and local governments.
The main insight of MMT is that the federal government has no hard financial constraint on its spending, and therefore, it possesses extremely flexible policy options. MMT never says the federal government faces no limiting factors. Real resources and inflation are limiting factors. Finance is not!
Advocates point out that if enough people, including members of Congress, understand the political implications of MMT, the federal government could responsibly spend on environmental programs like renewable energy systems, Medicare for All, free or affordable college education, and a Federal jobs program. MMT economists explain that inflation is not a problem until true full employment is reached and real resources are strained or running out; or if Congress tried to implement all programs at once, faster than the economy’s ability to provide real resources.
A leading and increasingly prominent voice for the MMT movement is Dr. Stephanie Kelton. She is a professor of public policy and economics at the State University of NY at Stony Brook. She served as chief economist on the U.S. Senate Budget Committee in 2015 and was an economic advisor to the Bernie Sanders 2016 presidential campaign. She recently had an Op-ed published in the LA times, and another in the NYT.
Stephanie Kelton said in a recent interview that she was invited to take part in a brainstorming session on Capitol Hill with Senator Schumer and other Democratic leaders when the Better Deal agenda was still in development. We take this as a very encouraging sign
For more information:
How Modern Money Works by Alan Nasser
Seven Deadly Innocent Frauds of Economic Policy by Warren Mosler