Interview conducted on May 9th, 2018, by Jeff Epstein, Editor-in-Chief of Citizens’ Media TV.
An expansive conversation with Kathleen T., a fellow progressive and student of Modern Monetary Theory (MMT). After discovering Kathleen on Twitter, what I found most interesting about her was her Twitter bio, which offers perfect strangers private lessons on MMT via private messages (texting). Our conversation began on the MMT, but then progressed into other topics, including the hypocrisy of the Democratic Party and the struggles of the progressive movement.
Kathleen earned a masters degree in history in 2006. During her studies of World War II, she became intrigued with the question of how, in 1940, the United States spent $9 billion on its entire budget. Then, during the war years, spending increased to $98 billion a year — an eleven-times increase. ($9 billion in 1940 is $160 billion today, $98 billion in 1940 is $1.4 trillion today.)
How could the U.S. increase its spending so dramatically back then, but it somehow cannot do so today? In other words, how could the United States “afford” the war eighty years ago, but cannot “afford” the relatively modest programs today that would benefit the powerless (such as Medicare for all, free college, a living wage, and a federal job guarantee)?
This question remained unanswered for eleven years after receiving her degree. In mid-2016, Kathleen saw a livestream video on a Facebook group called Real Progressives. The person on the video was Steve Grumbine, who we both now know to be the group’s founder. In the video, Steve was talking about something called Modern Monetary Theory (MMT). At first, Kathleen thought it was crazy and against everything she had been taught. But she slowly continued watching related videos over the next months. In early 2017, she realized that MMT was exactly the answer that she was looking for.
Modern Monetary Theory is the study of how the economy of fiat, non-gold-backed currencies like the United States (along with Canada, the United Kingdom, Japan, and Australia, among others) actually work. MMT says that, in these types of currencies, money is no object – by definition, it is infinite. The only thing that matters to these “sovereign” nations (the only thing that “constrains” them) is real resources: minerals and other natural resources, human capital (labor) and time. In this context, suddenly spending eleven times more is nothing, as long as that economy has at least eleven times the real resources to spare.
During the war years, most of the real resources in the United States that were normally dedicated to cars (such as steel, rubber, and labor) were instead dedicated entirely to the war effort. Not a single car was produced in the United States during this time. So, while supply for the average American consumer dramatically decreased (no new cars to purchase) there was little change in the amount of demand (the money and income Americans had in their pockets and their desire to purchase cars). This is the cause of inflation: more demand than supply, resulting in higher prices. That is, more money than our productive capacity can handle.
There are only three possible solutions to preventing inlation: lowering demand, increasing supply, or some combination of the two. Because of the war, increasing supply was not an option. One of the major tools used to decrease demand during this time was to sell war bonds. Sold in the name of “supporting the troops,“ Americans were given the option of purchasing treasury bonds which would return that money in (for example) 10 years with a 5% interest as a bonus. Bonds actually did not directly “support“ the troops; they did not actually pay for anything. What war bonds did do, was to remove money from the economy which, as stated, lower demand and therefore reduce the possibility of inflation (“inflationary pressure”).
War bonds are similar to taxes in that they remove money from the economy. Taxes, however, are compulsory and the money is permanently removed from the economy. Bonds, on the other hand, are voluntary and the money is only temporarily removed from the economy. (Another name for bonds is treasury security.)
“Removing money from the economy” is one of the mind-bending concepts of MMT and fiat economies. Doesn’t our money fund federal programs? No. Federal taxes do not fund federal spending. Federal taxes are very important, but they do not pay for anything.
There are two stages to learning Modern Monetary Theory: the first is to understand these mindbending concepts; that for the federal government and fiat currencies, money is infinite. Fiat currencies are not constrained by money, but they are constrained by real resources. As in the previous war bonds/cars example, as long as there is not more money than our productive capacity can handle, then inflation is not be a concern.
Since money is infinite to the federal government, it logically follows that it needs no income. It further follows that taxes (and borrowing) are not needed to pay for anything. Because money is infinite, the United States can never default on its debt. The national debt is therefore nothing to fear. It can be paid for in a matter of a few keystrokes on a computer – it is certainly not something that “burdens our future generations.”
The second stage of learning MMT is the plethora of deeper concepts and mechanics of how it all actually works, which is something that simply takes a matter of time.
Here are Kathleen’s five major bullet points on summarizing MMT:
- The United States Congress is the “currency issue or,” everyone else is a “currency user.” Specifically, the Congress has the monopoly on creating the currency. All other entities, such as states, cities, businesses, and households, are all currency users.
- A dollar is a tax credit.
- The federal government funds us, we do not fund the government.
- The federal government‘s deficit is a currency users‘ surplus and the national debt is a savings account.
- It’s about balancing the economy, not balancing a budget at the federal level.
Other topics and resources from our discussion:
- Angry Birds and deficits is a video by Stephanie Kelton that Kathleen recommends as a good first step in learning MMT.
- Jeff’s article on avoiding the pay-for trap was inspired by Kelton. Here is another article by Jeff on the Federal Job Guarantee versus universal basic income, and a radio interview he did on the subject.
- Kathleen’s sources of truth are Jimmy Dore, Lee Camp, The Young Turks, Chapo Traphouse, and Jordan Chariton. In particular, she was impressed with an interview with Katie Halper and Thomas Frank, which inspired her to read Farnk’s book, Listen Liberal. Her source of truth before the Internet age was radio air America.
- Bernie Sanders seems to be evolving with MMT. He seems to understand it. In addition, one of his primary economic consultants is Stephanie Kelton, who is one of the MMT’s primary voices. In 2016, Bernie put out a comprehensive document of how all of his programs would be paid for. Bernie now seems to be putting less emphasis on the pay-for question (thank goodness!), but there remains a tension on how to address the constant yeah-but-how-you-gonna-pay-for-it? questions.
- Here are the two Stephanie Kelton videos I watched after my initial MMT conversation with Geoffrey Ginter of Real Progressives [one, two]. Here are my first two MMT Livestreams with Jeff: [one, two].
- Bill Clinton and Barack Obama were charismatic and inspiring speakers who promised progressive change, but once in office, fought against the powerless. Kathleen noted how the media give Clinton and Obama candidacies plenty of coverage, but gave Bernie Sanders candidacy none, or negative coverage. This demonstrates who the Masters of the Universe knew would and would not serve their interests.
- My (Jeff‘s) problem with Bernie Sanders is not that he won’t teach the masses MMT (that is a big ask). My problem is that, by continuing to perpetuate the pay for myth, he is sabotaging the efforts of people like myself and Kathleen, who wants to teach MMT. Bernie seems to at least be considering this.