An issue that sounds extremely technical, but may determine the fate of the progressive agenda, has revealed important divisions between factions of the professional left—and absent the emergence of some consensus about how to forge ahead, it’s easy to imagine a future Democratic governing majority dissolving into recriminations about whether and how to enact big new health, welfare, and energy programs, and coming up empty.
The issue is called Modern Monetary Theory (MMT), and it’s more accurate to say that it has created a pincer movement of mainstream liberals and committed leftists who, for different reasons, seek to discredit a line of strategic thinking that has gained popularity among progressive activists.
MMT posits that policymakers have arranged the public financing system based on conceptual confusion about how a country that prints its own currency pays for public spending. In the U.S. we agonize in our public debates about making sure this or that legislation is “paid for,” through tax increases, spending cuts, or a combination of the two. In this way of thinking, we have budget deficits because we haven’t “paid for” our outlays. We are warned nebulously that this kind of indiscipline will land us in a crisis of spiraling debt and economic stagnation or collapse. MMT counsels that this a foolish way to think about basic economics. In countries like the U.S., we pay for things with money, which we print ourselves. The constraint on that spending is inflation—if we push too much money out into the private sector, demand and prices will rise—and deficits simply reflect political choices about the amount of inflation we’re willing to tolerate. Taxes are a tool to control inflation, but in a low inflation environment, we should think of taxes as a means of instituting good policy—to reduce inequality or to limit greenhouse gas emissions—rather than as the means of “paying for” our national policy priorities.
The theoretical mechanics of MMT are uncontroversial, and the value of its perspective framework is that it frees supportive lawmakers from the orthodox view that deficits are inherently bad and spending legislation should not become law unless it is simultaneously paid for. But through a combination of exuberance and disdain, MMT supporters and detractors alike have come to view the theory as a fantasy ticket to a free lunch.
Matt Bruenig, the socialist founder of People’s Policy Project, writes that MMT discourse is “about using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation.” Bruenig has an unlikely ally in TPM’s Josh Marshall who speaks for other liberals when he adds that the kind of agenda progressives envision—Medicare for All, a Green New Deal—will entail “not only much higher rates on the uber wealthy but generally higher rates on a much broader range of the population.”
MMT skepticism has ironically unified the moderate and radical wings of the left around what would otherwise be a basic disagreement between them over priorities. Leftists regard MMT as a danger because they understand that the transition to social democracy, to say nothing of a farther-reaching socialism, will require building political support for broadly higher taxes, and MMT entices political leaders to put off the thorny question of higher middle-class taxes for another time. Liberals on the other hand are wary of the political consequences of raising taxes on the middle class, and thus worry that MMT will lure progressives into the trap of creating exorbitant expectations—only to disappoint supporters when either Medicare for All and the Green New Deal fail to materialize, or do materialize, and quickly necessitate broadly higher taxes.
I’m not stepping in here as an MMT advocate or opponent, but as an observer who thinks it’s important to note that this debate—like so many on the left—has unfolded in a conceptual vacuum where Republicans and the conservative movement don’t exist, and where MMT only gained traction on the left because some progressives lack the courage of their convictions.
To the contrary, basic political dynamics in the United States made the emergence of MMT or some other strategic theory inevitable. There is an umbilical connection between the mainstream “bills should be paid for” consensus, and the policy seesaw we’ve been stuck on for over 30 years, which has left progressives at an inherent and unsustainable disadvantage.
It’s more than mere coincidence that all the handwringing about raising taxes and cutting spending to pay for new laws goes out the window when the laws increase defense spending or cut corporate taxes. This happens, by and large, because Republicans reject the fiscal-responsibility premise, in favor of something more like MMT, when it’s convenient for them (i.e. when they are in power) and then pretend to embrace it at as a matter of principle when power changes hands.
For decades now, Republican administrations have created enormous deficits with regressive, inequality-widening tax cuts, then turned around and cited those very deficits as a pretext to demand that their Democratic successors adopt austerity budgets without raising taxes at all.
This is the essence of the “starve the beast” theory. It’s why Grover Norquist browbeats every Republican elected official in the country to pledge never to vote for legislation that would raise net tax revenue. When President George W. Bush and his allies in Congress insisted that his tax cuts wouldn’t balloon the deficit, then-Sen. Lincoln Chafee (R-RI) proposed that the legislation include an enforcement mechanism, that would dial back the tax cuts if deficits did indeed swell. Republicans rejected the idea because, as then-Senate Majority Leader Trent Lott told Chafee, “We’re going to strangle the spending.”
Sure enough, President Obama inherited trillion dollar deficits from Bush-era Republicans, and Republicans spent most of his presidency trying to force him to erase those deficits with cuts to domestic spending—that’s health care dollars, food stamps, housing assistance, and so on. Movement conservatives set us on this course, and in doing so created a baseless and lazy assumption within the political establishment and the donor class that only Democratic priorities must be paid for. Their ultimate goal is to repeat this process until either the welfare state as we know it withers on the vine, or deficits trigger the very inflation MMT advocates identify as the ultimate political constraint. At that point, they imagine Republicans will link arms, refuse to raise taxes, and confront America with a choice between enduring economic misery and the bipartisan abolition of Medicare, Social Security, and other lasting progressive achievements.
It was against that backdrop that MMT began making headway on the left. Only later, in response to stagnant wages, the Republican assault on the Affordable Care Act, ecological crisis, and Donald Trump, did the progressive agenda shift leftward. And only since then has MMT become an answer to the answer to inevitable, one-sided questions about how progressives intend to pay for it.
The skirmish on the left over this answer is almost entirely about the politics of taxation, rather than the underlying merits of progressive goals. Both MMT adherents and leftists generally support a Green New Deal, but they find themselves mired in endless disagreement over emphasis in what are otherwise identical positions. A leftist might say, “Of course we must offset the costs of a Green New Deal, whether or not we do it in the Green New Deal legislation itself,” only for an MMT proponent to counter, “We do NOT have to offset the costs of a Green New Deal in the legislation itself, but eventually we will.”
When we draw back the lens, though, the debate over the merits of MMT starts to look like a distraction from the more pressing question of how to beat conservatives at their own rancid game before they chase us into another real or manufactured crisis and, once again say, “gut the safety net or the economy gets it.” Building support for higher taxes is a part of that, but the more pressing one is to address existing crises in ways that improve people’s lives, so that when inflation strikes and Republicans demand them as ransom, people revolt and force them to bend. Only under those circumstances will Republicans accept that starve the beast is a dead end for them, and only then will the guardrails of politics make the kind of debate underway on the left about MMT productive.
Everyone on the left who supports the emerging Democratic presidential primary policy consensus should stop and remind themselves that any effort Democrats put into making sure their priorities are “paid for” in the orthodox sense will be wasted the moment Republicans take back over and pass their next tax cut.
I don’t know whether MMT per se is the most effective possible strategic approach to creating and cementing Nordic-style social democracy in the U.S. But I do know that Democrats need to break the political cycle that took hold in the Reagan era where Republicans govern under expansionary fiscal policies that transfer tons of money up the income scale, and Democrats govern under pay-as-you-go constraints. MMT is useful because it’s a specific, articulable way of describing national finance that provides Democrats an answer to starve the beast.
And one way or another Democrats need an answer to it.
Republicans exist, like it or not, and they are committed to an unprincipled political strategy that, under current operating assumptions, forces Democrats to trim their sails when they’re in power, and may ultimately force Democrats to gore their own oxen under duress. Perhaps that will change on its own and we can have a wide-ranging debate over what the national priorities are, which institution should finance them, and when. Until then, Democrats must either come to grips with the nature of their opposition, and prepare themselves—whether it’s through embracing MMT or just pure political grit—to use power on a level playing field with Republicans, or leave us stuck on the seesaw until, eventually, Republicans win. The left is either going to beat conservatives at the game of chicken they have forced us into, or it is not. In either case, squabbling over the merits of MMT is just more whistling past the graveyard.