MMT Is An Answer, But It's Not The Whole Answer...The MMT Trap

Spencer Platt/Getty Images

Duane Townsend

Dissent - February 3, 2021

The circumspect promise of MMT serves to distract a resurgent left from critical fights around budget justice. By contrast, increasing taxes on the superrich—as well as other battles like raising the minimum wage, promoting worker ownership of enterprise, and taking banks, hospitals, and housing out of the hands of capitalists and into the commons—require power struggles over resource allocation. 

"... while it is vital for the left to continue debunking deficit hawkery and fighting against austerity imposed on working people at the expense of transformative models of economic development, relying on MMT to make this case for us is a Faustian bargain.

As much as we may want a shortcut, we cannot simply spend our way to socialism. Rather than bypassing the problem of power by putting our faith in MMT’s printing press, we need a strategy to rebuild the tax state and move toward economic democracy.

For nearly a century, Keynesian economists have argued that governments can incur budget deficits to stimulate aggregate demand, while warning of the political and macroeconomic implications of sustained national debt. MMT largely dismisses these consequences. It claims sovereign governments that issue their own currency can print as much money as they need to service their debt.

If budgets do not matter, then there are precious few societal tradeoffs over resource allocation. Such rosy assumptions risk leaving existing power relations between capital and labor intact, repackaging the idea that a rising tide lifts all boats. It is no coincidence that MMT was cultivated, financed, and popularized by a hedge fund manager living in the U.S. Virgin Islands “for tax reasons.” MMT enables elites, who have historically embraced neoliberal ideology to shield their wealth, to concede the government’s role in footing the social welfare bill while continuing massive tax avoidance.

The circumspect promise of MMT serves to distract a resurgent left from critical fights around budget justice. By contrast, increasing taxes on the superrich—as well as other battles like raising the minimum wage, promoting worker ownership of enterprise, and taking banks, hospitals, and housing out of the hands of capitalists and into the commons—require power struggles over resource allocation.

Taxation also plays a critical macroeconomic role under MMT. Once full employment is theoretically reached, taxes would serve to drain excess money supply out of the system to quell inflation. MMT assumes the government has the full ability to tackle inflation when it comes, not acknowledging the fiscal and political limitations on increasing taxes in a high-inflationary environment. As the economist Thomas Palley pointed out in a working paper on MMT, taxes could be a “poorly timed” instrument that “could amplify the business cycle rather than dampen it.” Power struggles over taxation are also inescapable, whether the purpose of taxes is to finance spending or stabilize money supply. Further, the threat of inflation should not be dismissed simply because of recent history. Already in the first month of 2021, on the back of a soaring deficit, supply-chain bottlenecks, and anticipation of additional stimulus, inflation is starting to rear its head.

Beyond these macroeconomic problems, endless money printing and zero-interest rate policies lead to price inflation of many asset classes, which exacerbates rampant wealth accumulation at the top (and incidentally make political fights over taxation even more extreme). We have seen this in practice in the years since the global financial crisis, when the United States has become more unequal than any time in the last half century. ...
Read full report at Dissent

Comments

Politics

FEATURED
COMMUNITY