Modern Monetary Theory vs. Deficit Trolls

By Derrick Crowe
July 20, 2018

Modern monetary theory blows away the excuses that politicians use to ignore human needs in the United States. That’s coming up on Rise Like Lions.

Elon Musk: Overconfidence Plus Money

Earlier this week, The Guardian ran a piece detailing some truly outrageous behavior from Elon Musk. Before you start blowing up my mentions with defenses of Musk as someone working to get us off fossil fuels, yes, he is the CEO of Tesla and SpaceX and yes we wish him the absolute best in those endeavors, but I think folks lack the full context when it comes to Musk.

Elon Musk was just revealed as a major donor to GOP reelection efforts, and he’s had a fraught labor and workplace safety record at his factories. When you ask him to describe his politics, he typically responds with self-contradictory nonsense. On one day he’ll describe himself as “fiscally conservative, socially liberal.” On another day he’ll describe himself as “somewhat libertarian.” Most recently he’s said he’s a “socialist,” but only under the nonsensical definition that it’s “not the kind that shifts resources from most productive to least productive, pretending to do good, while actually causing harm.”

So let’s say that, at best, his legacy will be a mixed bag, especially given that he’s chosen this particular crisis moment on the planet to give big donations to the only major political party in the developed world that denies climate change, and what happened regarding this cave rescue in Thailand was definitely in the “gross entitled rich man” column. Quoting from The Guardian piece:

“Elon Musk came under fire on Sunday after launching an extraordinary attack on a British diver who helped rescue the boys trapped in a flooded cave in Thailand, baselessly calling him a “pedo” on Twitter and then doubling down.

Twelve boys and their football coach were rescued from the Tham Luang cave complex by an international team and after a week of intense drama.

The chief executive of the tech giant Tesla offered to assist the rescue mission by providing a submarine. The request was turned down. Musk lashed out on Sunday, saying he would make a video proving that his “mini-sub” would have been successful and adding: “Sorry pedo guy, you really did ask for it.”

The accusation, presented without evidence or context, was directed at Vern Unsworth, a British cave explorer who recently said Musk’s attempt to help the rescue effort was a “PR stunt”. No evidence has emerged to substantiate Musk’s claim of pedophilia.

“It just had absolutely no chance of working,” Unsworth said in a widely shared interview. “He had no conception of what the cave passage was like. The submarine, I believe, was about 5ft 6in long, rigid, so it wouldn’t have gone round corners or round any obstacles.”

The billionaire attracted controversy for his approach to the Thai rescue after Narongsak Osatanakorn, head of the joint command center, said the mini-submarine would not have been practical.

Musk responded by saying Osatanakorn was “not the subject matter expert” and that he had been “inaccurately described as rescue chief” and should have been labeled the “former Thai provincial governor”. Osatanakorn stepped down as Chiang Rai governor during the rescue, but was still acting as commander.

Writing about this ridiculous outburst from Elon Musk and what it says about his fragile ego and pattern of interacting with the world, The New York Times ran an op-ed by Zeynep Tufekci that said in part:

“The Silicon Valley model for doing things is a mix of can-do optimism, a faith that expertise in one domain can be transferred seamlessly to another and a preference for rapid, flashy, high-profile action.”

Rich People Lack Self-Awareness

I think Tufekci is wrong to narrow the phenomenon to Silicon Valley. In general, the idea that “expertise in one domain can be transferred seamlessly to another” seems less to me a feature of the tech world and more a general feature of how our culture deals with very rich business people.

In fact this Musk episode with the trapped kids reminds me how super rich corporate people wander into federal spending debates and say, “Oh crap, you guys are talking about dollars? I know about dollars, I use them all the time!”

A great example of this phenomenon is Starbucks CEO Howard Schultz. On a CNBC Squawk Box interview, Schultz said:

“It concerns me that so many voices within the Democratic Party are going so far to the left. I say to myself, ‘How are we going to pay for these things,’ in terms of things like single payer [and] people espousing the fact that the government is going to give everyone a job. I don’t think that’s realistic. I think we got to get away from these falsehoods and start talking about the truth and not false promises”

He went on to say:

“I think the greatest threat domestically to the country is this $21 trillion debt hanging over the cloud of America and future generations … The only way we’re going to get out of that is we’ve got to grow the economy, in my view, 4 percent or greater. And then we have to go after entitlements.”

Now as far as I know, Howard Schultz has never spent a day in his life involved in the actual federal budgeting process and has probably never studied it in any detail at all, but because he knows dollar stuff, we are expected to just pull up a chair for him at the table and nod while he solves our problems. From comments like these, one would assume he supports the Koch Brothers’ push to pass a balanced budget amendment, which the Right would then use to destroy the public safety net.

And when you question the grasp of these one-percenters on the subject at hand or their motivations for wanting to convince all of us that there’s just not enough public money to go around, you get a lot of the same kinds of reactions that you saw from Musk on Twitter or from his defenders.

For example, Bernie Marcus, the founder of Home Depot, got bent out of shape when Democrats opposed the GOP tax plan, telling Democrats to “use their stupid brains.” This is the same guy who concern-trolls deficit spending in the pages of The Hill but notes fondly how he got a line of credit to start his company.

Which brings me to Glenn Beck.

Earlier this week, Alexandria Ocasio-Cortez tweeted:

Glenn Beck, who is dying to get Ocasio-Cortez on his show, responded:

Alexandria wisely ignored him, but I don’t make wise decisions on Twitter, so I responded with an image of his website praising the Trump tax scam, and I said:

Glenn then responds, surprisingly, with the following:

From there I bite the bullet and actually answer him. And I want to give you my general answer to this, because Beck’s frame here is the dominant frame in which we talk about economics in this country. Even Bernie Sanders got sucked into the “how do you pay for it” game during the presidential campaign in 2016. And it’s a totally incorrect, conservative, pro-oligarch frame, and progressives and democratic socialists are making a huge mistake when we debate inside of it.

The most important thing to understand about the federal budget in America is that it functions *nothing* like a family budget. We have a central bank, control our own currency, and our debt is held in a currency that only we can print.

So here’s the gist of my response to Beck. In what follows, I’m borrowing heavily from @StephanieKelton, @ptcherneva, @SandyDarity, @DarrickHamilton and others. This is a quick rundown of Modern Monetary theory in as simple of language as I can provide.

Modern Monetary Theory

The federal government does not have to raise funds first before spending. Functionally, it spends and taxes on two totally separate tracks, and one is not dependent on the other.

Taxes do *not* fund spending. What “funds” spending is the act of crediting an account in response to a funding bill becoming law. That’s it. The political will of elected officials to credit that account and the self-imposed debt limit are the two functional constraints on spending.

Taxes *do* serve as a policy tool, for things such as:

  • reducing inflation by removing money from the economy
  • shaping wealth distribution to create or mitigate the effects of a particular wealth concentration topography, etc.

Folks like myself who argue for these democratic socialist programs assert that the damage to the economy caused by unemployment/junk employment, lack of health care, etc., are MUCH deeper & more real than the specter of inflation/debt.

Chasing the “balanced family budget” for the economy has led to a junk economy of underemployment and stagnant wages, and a junk politics with the trappings of democracy but massive power concentrated in the hands of a very few wealthy people.

No one is arguing that you can deficit spend with no constraints–rather, the real argument is that we are not near those constraints. The limit on your ability to issue currency without reducing its value is total amount of goods/services available for sale in your currency.

Bluntly, you pay for it by convincing the political system that your spending leads to the correct outcomes. And you get political support for doing that first and foremost by showing that the analogy you’re using is totally wrongheaded.

For example, let’s pretend we’re playing Monopoly. The first thing that happens is, the “bank” issues the money into the game. There are four players, so standard Monopoly rules, the “bank” puts $6000 into the game. Now on turn 1, someone gets the “Pay $150 School Fees” card.

We issue our own currency. The “bank” is actually the government. And on that turn, the government ran a deficit of $5850 dollars. The government could have run a balanced budget by taxing everyone $1,500 at the end of turn one, but then the game would be over.

People who talk like they understand the rules of government spending because they know how to balance a checkbook or have business experience are akin to people who say they know how a computer works because they know the rules of the solitaire game as played on a PC…

…That’s not to say they can’t or aren’t capable of learning how the computer works, just that they mostly haven’t bothered and they are inflating the relevance of their knowledge as applied to the bigger question.

Finally, Beck’s stated anxiety about “enslaving future generations” via debt service payments discounts the suffering of the present — *right now* people suffer immensely solely because we refuse to, say, pay for a federal jobs guarantee at a dignified wage and guarantee health care, and I would bet him a pile of fiat currency that, if these caustic effects related to payments on the debt, he’d jab a finger in their direction and yell that this proved him right. We can end some real suffering now, and we should.

Now of course, in the explanation I gave him, I proceeded from the assumption that Beck and other deficit-concern-trolls are acting in good faith and that they really care about what they are thinking about. And maybe the fact that the Koch brothers have been funneling dark money to Beck to get him to read their talking points on air isn’t the motivating factor behind his concern here–maybe he just agrees with them and is therefore happy to take money to read them. I doubt it, but maybe.

But the people writing those kinds of talking points, the Koch Brothers and the Schultzes and others, have a very specific class interest in concern trolling the rest of us out of fully utilizing the power we’ve given ourselves by getting off the gold standard.

And that class interest is in preserving the unequal distribution of wealth from which they benefit, as well as the incredible political power that that wealth and our broken campaign finance system provide them.

People are hurting, and our democracy is in shambles. Let’s start telling the truth about how federal spending works and the full range of the good it can do for people in poverty and people in the working class, instead of wasting more human potential and choosing more suffering because we prefer bad analogies and aw-shucks campaign ads.