New Economic Thinking Means Fuel For the Left

Nobel-winning economist Joseph Stiglitz

Beneath the waves of the Western world’s agonies — Trumpism, the Brexit, European austerity, immigration crises, and the failure to deal with climate change — lies an ocean of uncertainty in the dismal science. Economists are forever flailing their arms at each other in the disagreeable style of academe, but something of a deeper nature, perhaps of a revolutionary nature, is taking place, and it is beginning to find its expression in politics.

MMT threatens tradition

The Democratic primary contest between Hillary Clinton and Bernie Sanders, followed by the fluke of Donald Trump’s ridiculous victory, may have been the opening salvos of a fight within the US over economic theory, and thus, of policy at a level more than usually fundamental. Here’s why:

There was a great gulf of difference between Clinton and Trump, but arguably a wider one between Clinton and Sanders. That is because Sanders was fully invested in modern monetary theory, or MMT, a movement that has grown beyond its nascent stages into a real threat to the foundations of traditional economic thinking.

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MMT is seductive to the political left for two reasons, only one of which is legitimate. The illegitimate but more tempting one is that it offers relatively simple solutions to the burden and increasing peril of inequality that plagues most Western nations. The more sound reason is that MMT passes a key test of any scientific proposition: it explains certain phenomena, including inequality, better than its predecessors.

Unfortunately, MMT, while not difficult to grasp, is too complicated and nuanced to explain in an article of column length. A couple of its principal tenets, however, go a long way toward explaining its political appeal.

mmtFirst, MMT holds that government debt is essentially unlike private debt in that a sovereign state can issue currency and, therefore, cannot run out of money. While patently true, this does not mean, in MMT, that a government can spend endlessly, in a real economy with insufficient output, without consequences. It does mean that “as much spending as necessary” to keep an economy out of depression has more than Keynesian justification.

Second, MMT features full employment, all the time, as not only achievable, but desirable and, indeed, necessary — without thoroughgoing socialism. This is another hedge against the extremes of the business cycle, but also a tremendous force toward equalizing wealth. For one thing, workers who are not terrified of unemployment should feel more free to unionize. This aspect of the thinking would help to satisfy many progressive thinkers (Joseph Stiglitz, for example), who find the decline of the labor movement a major cause of increasing inequality, and thus a major problem.

This is not to endorse MMT; its value is for economists and history to decide. Rather, this is to say that the movement behind MMT is gaining traction, both academic and political. Many mainstream economists will call it crazy or worse. They may be right, but they would be premature.

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Meanwhile, MMT is breathing a lot of life into the long-moribund left wing of American politics. Just a few years ago, I wrote that there is no Left left, here in America, just a few old leftovers. That is no longer true. A new movement, well left of center, was spawned by the absurd and cruel overreach of the right. That overreach just gained a lot of steam, and the pushback will be explosive.

Which brings us to Trump. His team of economic advisors, a bunch of rich white guys, includes con men, offshoring advocates, foreclosure artists and deregulators. Much has been made of Trump’s racism, much less of his economic royalism. The racism is usually through surrogates and code, albeit a simplistic code. The economic policy, which is the other side of the Republican coin, is right out front.

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Attacks on Social Security and Medicare (more about that in an upcoming column) have already commenced. Attacks on overtime pay, break time, pensions and the entire healthcare system are imminent. Privacy protections are already gone. Hopes for lowering the numbers of the incarcerated give way to building more private prisons. New retail businesses will be of two kinds: dollar stores and pawn shops, Tiffany’s and Saks Fifth Avenue.

No one will be so disappointed as working-class people who voted for Trump.

Absolutely everything is lining up for a sharp left turn in American politics, and modern monetary theory is due for a tryout. It’s a matter of finding candidates. Republicans will call them socialists, and it won’t matter. Few people will believe it and fewer will care. They called the Clintons and Obamas socialists, after all.

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  • Full employment as a critical component of MMT (or anything else for that matter) is a vestige of days gone by. The macro economy will always tend toward efficient employment of labor to satisfy the demands of production of goods and services but we are exiting the time when that always means human labor. Moore’s Law, machine labor, AI, etc. are the game changers here.

    The Left is somewhat better positioned to shift into policy that can help mitigate the crushing effect this is/will have on society. However, it’s still largely stuck in pushing levers that have been disconnected from the machine for quite a while. Raising the minimum wage for example. Great intent. But in today’s emerging machine economy it simply makes matters worse. We need to stop thinking in terms of economic theory that was created by people 100 years ago.