Panel Discussion on Randy Wray's "Making Money Work for Us": Part 3

[James Keenan]

On March 21, Ryan Benincasa, Adam Rice and myself were part of a panel discussion held at the Henry George School of Social Science in New York City entitled "Modern Money & Public Policy - Should We Worry about the Federal Deficit?". The first part of our presentation, by Ryan Benincasa, can be found here. The second part, by Adam Rice, can be found here. As with the first two parts, the discussion springs from L. Randall Wray's 2022 book, [Making Money Work for Us: How MMT Can Save America](https://www.wiley.com/en-us/Making+Money+Work+for+Us%3A+How+MMT+Can+Save+America-p-9781509554256)

Toward an MMT-Informed Politics in the United States

In the last two chapters of Making Money Work for Us, Randy Wray asks what MMT-informed macroeconomic policy in the United States would look like. But before he gets to that, he emphasizes the need for a paradigm shift in the way money, federal spending and debt are discussed in the U.S.

Wray follows linguist George Lakoff in arguing that we only see facts through a framing. Most economic policy discussions in the U.S., whether at the elite level or the everyday level, start from a conservative framing: a framing in which debt is viewed as fundamentally immoral. "Once evoked," Wray argues, "the conservative frames cannot be overcome." (120) When progressives start from a conservative framing, they lose. Hence, we need to reframe the discussion.

Wray argues that we need to capture the moral high ground. "Policy is always and everywhere a moral issue -- not merely an economic issue and certainly not merely a technical issue." (122) Wray offers as a meme the title of a song called "We Take Care of Our Own from Bruce Springsteen's 2012 album Wrecking Ball. Wray extends Springsteen's lyrics with points like these:

• We don't let old folks sleep on the street. We take care of our own.
• We don't let children go hungry. We take care of our own.
• We pay taxes to keep our currency strong.
• We need a good government to help us take care of our own.
• Our government can always afford to take care of its own.
• We've got the technology to take care of our own. We've got the resources to take care of our own.
• All that is missing is the political will. We need democracy to quicken the will of our policy makers. (126-127)

While we are resource constrained and politically constrained, we are not financially constrained. Once we understand that, we are in a position to have a more rational discussion of government spending and macro policy in general.

I'd now like to highlight some possibilities for an MMT-informed politics in the United States. Some of these possibilities are explicitly discussed by Wray in the final chapter in Making Money Work for Us. Some derive from the work of other MMT scholars including Stephanie Kelton, Warren Mosler, Bill Mitchell and Pavlina Tcherneva. And some are our own contributions.

Changes in Federal Laws, Policies and Procedures: Three Buckets

An MMT-informed politics in the U.S. would entail changes in federal laws, policies and procedures. We can place these changes into three buckets. The first bucket holds things that are relatively small and wonky and pertain to the Congressional budget process. The second bucket holds things that are much bigger and which clean up messes which Congress and various presidents have gotten themselves (and us) into during the past ninety years. The third bucket holds things that are really big and that deliver real progress for the people of the United States.

Bucket 1: The Congressional Budget Process

The Congressional budget process needs reform. If you've read Stephanie Kelton's book, The Deficit Myth, you'll be familiar with two of these reforms already.

First, we need to get rid of PAYGO. PAYGO is the law that says that, for the sake of bowing down to the deficit myths, any new increase in federal spending or reduction in taxes has to be balanced by reductions in spending on existing programs -- the so-called "pay-fors." In her book Kelton describes how everybody in Washington knows that the "pay-fors" are a big joke: They always get waived for anything deemed "emergency" spending, but in the meantime they're just a way for both Republicans and Democrats to avoid spending on the needs of working-class people.

Second, we need to change the way the Congressional Budget Office evaluates the economic impact of proposed legislation. Stephanie Kelton discusses this in her book as well. Currently that office, known as the CBO, is tasked with evaluating how much impact on the federal deficit a bill will have over a ten-year period. Congress then goes through all kinds of song-and-dance with "pay-fors" to try to get a good CBO "score" on the legislation (with the definition of "good" depending on which side of proposed legislation you're on). Kelton argues that the CBO should instead focus on whether the U.S. economy has the real resources needed to implement a particular spending proposal without putting upward pressure on prices.

Bucket 2: Get Us Out of Self-Imposed Messes

The second bucket holds changes in law which will get us out of messes which the executive and legislative branches of the federal government have gotten us into over the last ninety years. We've gotten into these messes because we are enthralled to the notion that debt is immoral by definition, leading our elected officials to feel the need to worship at the altar of so-called "sound finance."

• Abolish the federal debt limit

First item in this bucket: We have to abolish the federal debt limit. Every couple of years Congress plays this charade where one party threatens to stop paying the government's bills for programs for which Congress has already appropriated funding. Modern Money Theory shows us that, as a monetarily sovereign nation, the United States can never involuntarily default on its obligations. So why should we allow our politicians to threaten voluntary default on those obligations?

• Guarantee Social Security and Medicare payments

Second, we need to guarantee that Social Security and Medicare will have legal authority to pay benefits regardless of the financial status of the four trust funds which nominally “fund” those two benefit programs. Every couple of years some politicians and economists project that these funds will “run out of money” at some future time and that, to avoid that calamity, we need to cut benefits now. But, once again, if you’ve read Stephanie Kelton’s The Deficit Myth, you’ll understand that these trust funds are not some eternal, unchangeable construct. The two Social Security trust funds were created as part of Franklin D. Roosevelt’s strategy to build support for the program back in 1935. As he put it, he didn’t want “any damn politician” to be able to threaten Social Security’s funding. In the 1960s, Lyndon Johnson structured Medicare somewhat similarly. But now the legal language surrounding the trust funds invites politicians to try to undermine Social Security and Medicare. Let’s get rid of the fearmongering about the trust funds and start focusing on making sure we have the real resources needed to maintain retirement income and health care financing for the people of the United States.

• Fully fund the IRS

Third, while Modern Money Theory shows that a monetarily sovereign government, like the U.S. federal government, does not need to amass funds via taxation before it can spend in pursuit of the public purpose, MMT does stress the necessity of a well functioning tax system to serve taxation's other functions. Taxation drives demand for the currency. Taxation helps to guarantee that money spent into the economy by the government returns to the government and does not put upward pressure on prices. Taxation is one of the few things that puts a brake on the tendency in a capitalist economy for the rich to always get richer. We need a well functioning taxation system; therefore we need a well funded Internal Revenue Service.

Bucket 3: Positive Programs: One New, One Old

So far we've been talking about changes in law and policy whose main effect will be to reduce the ability of politicians to play games with the well-being of the people of the United States. Think of this as a political harm-reduction program. An MMT-informed politics, however, must also put forward a positive program of social change. Let's consider two such programs, one new, one old.

The new program is, of course, the federal Job Guarantee. As a currency-issuing level of government, the U.S. federal government is in a position to offer a job to any unemployed person at a fixed wage with benefits and to put that person to work in pursuit of the public purpose. The Job Guarantee program can thus eliminate involuntary unemployment, while the Job Guarantee wage helps anchor the value of the currency. Randy Wray discusses the Job Guarantee in Making Money Work for Us and his earlier books. Stephanie Kelton discusses the Job Guarantee in The Deficit Myth, as does Pavlina Tcherneva in her book The Case for the Job Guarantee, which like Wray's current book is published by Polity Press. So I'm not going to go into detail about it right now.

The old program is one devised fifty years ago by that notorious leftist, Richard M. Nixon: federal revenue sharing with the governments of the fifty states. MMT stresses that while the federal government, as a currency issuer, is not financially constrained (though it is resource-constrained and politically constrained), state governments are not currency issuers -- they are currency users, just as households and businesses are -- and they are financially constrained. They must amass funds before they can spend in pursuit of the public purpose. Sharing federal revenue with the states on a per capita basis will help mitigate these financial constraints on state governments and, because every state will benefit, will build support for the kind of politics which is MMT-informed.

Summary

Let's recap these aspects of an MMT-informed politics, this time in descending order of scope.

1. The federal Job Guarantee
2. Federal revenue sharing with the states
3. Guarantee Social Security and Medicare payments
4. Fully fund the IRS
5. Abolish the federal debt limit
6. Redirect the CBO to focus on real resource availability
7. Get rid of PAYGO

Thank you very much.