Does Donald Trump "Get MMT"?
James Keenan
Or, more precisely: To what extent, if any, do Trump or his nominees for executive branch positions understand MMT (if only implicitly) and are capable of shaping government policy accordingly?
And, what difference would it make if they did "get MMT"?
With the beginning of the Trump 47 era imminent, these are questions we should be asking. However, with the exceptions of three blog posts by Stephanie Kelton (which I'll summarize below), the MMT world appears to be very quiet right now. Let's discuss.
Kelton on Trump
Let's start with a recap of three Kelton posts on The Lens from November and December.
"How to Cut $2 Trillion in Federal Spending Without Breaking a Sweat", Nov 21 2024. For the sake of argument, Kelton takes shadow president Elon Musk at face value in his desire to cut federal spending by $2 billion. She notes that the best payment to make that cut would be in interest payments on the federal debt. From the MMT perspective, issuing bonds is a policy choice, as is the interest rate paid on those bonds. Interest payments, per Warren Mosler, come down to "basic income for the very rich." Kelton wonders what would happen if Congress instructed the Federal Reserve to set the basic interest rate to zero and adopt other policy tools to influence the economy. The reduction in interest payments would, in principle, enable avoidance of cuts to federal programs.
"What Trump's Pick for Treasury Secretary Gets Right (and Wrong) about MMT", Dec 01 2024. Trump's nominee for Treasury Secretary, Scott Bessent, is not well known outside the hedge fund world. On the basis of a fall 2024 You Tube interview of Bessent, Kelton argues that while Bessent is aware of MMT, his understanding goes no deeper than the trivialized version dominant on Wall Street for the past twenty years: a combination of aggressive deficit spending, quantitative easing and low interest rates. Bessent's position on interest rates is internally contradictory. On the one hand, he argues that the Federal Reserve waited too long to hike interest rates in response to the inflation gaining momentum in the last half of 2021 and first half of 2022. On the other hand, he admits that "we cannot dismiss the idea that the economy actually accelerates as [the Fed raises] rates." Bessent acknowledges that the effect of those higher interest rates was to pump massive amounts of disposable income into the bank accounts of the rich, fueling inflationary spending but, in a "bifurcated equilibrium," leaving behind the bottom half of the income distribution.
"Can Donald Trump Revolve on Debt Before its Too Late?", Dec 02 2024. Kelton observes that in the past Donald Trump has indicated that the U.S.'s monetary sovereignty -- "we print the money" -- is a major national asset. She notes that Trump 45 never prioritized the U.S.'s so-called "fiscal imbalances and recognized that, when it came to combating COVID-19, the U.S. faced no financial obstacles. She suggests that Trump 47 is actually regressing in his understanding of the political economy. Does he really now believe that the federal debt is "unsustainable"? Subsequent events cast doubt on this.
The Debt Limit Law
During the Clinton, Obama and Biden administrations, Congressional Republicans repeatedly threatened to shut down the federal government by refusing to authorize increases in the federal debt limit. In contrast, when Republicans held the White House, the debt limit was often "suspended." In December 2024 Trump called upon House Republicans to join with the Democrats (who controlled the lame-duck Senate) to raise the debt limit to a high number or to eliminate it entirely. (The latter would, I think it is fair to say, be non inconsistent with MMT.) Why he wanted to do this before Republicans assumed control of both houses of Congress in January of this year and before his second inauguration is not clear (to me, at least).
What is surprising is that this outraged many House Republicans who resorted to their traditional worship of Sound Finance and refused to do Trump's bidding -- and Trump had to cave!
Conclusion
To be fair, whether or not Donald Trump and his appointees correctly understand Modern Monetary Theory is not of world-shaking concern. That Trump and his cohort are far more willing to mobilize popular opinion on the basis of racism and xenophobia is far more threatening to truth, justice and the American way. It is, however, important to recognize that the nature of the U.S. government did not fundamentally change with Trump's re-election. How the federal government mobilizes resources in pursuit of the public purpose has not changed, even if the definition of the public purpose has substantially shifted.
Let the discussion begin. (If you're in New York City, you can get into this discussion by attending the Deficit Owls meeting this coming Tuesday, January 21.