Yves here. This post introduces the touchy topic that a Green New Deal level mobilization of resources looks like it will create more spending power than a resource-constrained planet can support. J.D. Alt leaves readers cliffhanging but promises that he’s got an answer for this “money” or more accurately, fiscal spending problem in his next post. One assumes it’s taxes but perhaps he has other wrinkles, like an emphasis on services rather than goods.
By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at New Economic Perspectives
Let’s quickly recap: I outlined, in PART 3, an argument that modern society has evolved in ways that necessitates a dramatic increase in public enterprise—yet, at the same time, we’ve doubled down on an old-world narrative about “money” that makes it mathematically impossible to meet that need. In PARTS 1 & 2 we reconfirmed a “modern money” perspective by simply observing the actual operations of the Federal Reserve—and reconfirmed, as well, how this new perspective holds out the opportunity to actually confront, through the efforts of public enterprise, the new challenges modern society faces.
It was my intention, at this point, to focus on the unfolding reality that climate change will soon prove to be the most dramatic challenge modern society is facing—and will be the challenge that necessitates, by far, the greatest need for goods and services produced by public enterprise. More to the point, climate change will generate the greatest need—by far—for implementing and managing a “modern money” perspective in America’s economy. While I still intend to pursue this argument, comments addressed to PART 3 have led me to change sequence: I realize now it will be ineffective (and perhaps futile) to discuss the extraordinary level of public spending that climate-change will necessitate without, first, attempting to address two related issues: (1) the stridently insistent warnings about “inflation,” and (2) the conundrum of the necessity for increased “consumption.”
I’ll begin this effort with a simple premise: It is willfully self-harming to confront a collective need—for which the labor and materiel are available to provide a remedy—but refuse to employ that labor and materiel by arguing that doing so will create an imbalance in the monetary system. This, for all practical purposes, is precisely what is being argued when direct sovereign spending is withheld from public enterprise out of fear of inflation. At that precise point, it seems to me, the tail begins wagging the dog—and there is very little concern for the dog itself.
Looking Back From the Year 2030
To visualize the issue, let’s imagine ourselves a decade hence, and all the money-intensive challenges we’ve earlier outlined (supported by our “modern money” perspective) have largely been met by the efforts of public enterprise. It’s the year 2030, and millions of Americans who previously struggled to get available health care can now walk into any doctor’s office, neighborhood clinic, or hospital emergency room with their universal coverage card. Millions of recent college graduates have seen their old tuition debts cancelled—and every high-school grad can now pursue higher education or technical training debt-free. Millions of children are now entering grade-school having been fully nurtured and prepared, during their pre-school years, to engage in becoming educated—and millions more, just coming out of maternity wards, are guaranteed high-quality pre-school care, if their family needs it. Millions of families, who previously struggled to find adequate housing at a price they could afford, are now part of a national housing co-op that builds and owns dwelling units and co-housing villages in every American community. Finally, we’ve succeeded in implementing the “Green New Deal,” transitioned primarily to zero carbon energy systems, and brought carbon emissions close to the stated parameters of the IPCC. In accomplishing all this, we’ve also established (just in time for the massive lay-offs of the AIbot revolution) a public enterprise economy that has put millions of Americans back to work nurturing, restoring, and rebuilding the health and diversity of our natural habitats and ecosystems, as well as designing and building climate-adaptive human habitats, systems and communities. We have, in short, made great strides toward our collective well-being.
There is, however, a “problem.” The problem is not that the $110 trillion price tag we’d initially placed on these accomplishments came in closer to $200 trillion. (It turns out that the Federal Reserve system was able to produce, for the purposes of public enterprise, $200 trillion in Reserves just as easily as it could have produced $110 trillion.) The problem we now confront, in 2030, is that the $200 trillion has been paid to American citizens and businesses for producing the goods and services just outlined! American families and businesses, in other words, now possess $200 trillion more to spend on food, clothing, housing, automobiles, electronic appliances, labor and materiel, etc. than they otherwise would have. From many perspectives this could be viewed as a genuinely good thing: a middle-class lifestyle has been extended, presumably, to a larger percentage of society, and private enterprise is positioned to thrive on that expanded market. From another perspective, however, there is a big problem—and an even larger conundrum. First: the “big problem.”
Inflation and Hyper-inflation
The simple logic of our old-world “money” narrative warns us that, because of that additional $200 trillion in spending power, prices for consumer purchases in 2030 must have dramatically risen to accommodate the extra money. Or, viewed from another perspective, the value of the U.S. dollars in everyone’s bank accounts must have dramatically fallen. This, in a nutshell, is the predicted “problem” of price inflation we received dire warnings about a decade ago (back in 2019) when this talk about a new need for public enterprise began.
The only previous experience America has had with this dynamic, however, indicates that, if properly understood and managed, it is not a threat, but an opportunity. That previous experience was the U.S. mobilization for World War 2. During the war, public enterprise expanded dramatically, employing, in one way or another, virtually every American citizen. Prices did go up—but were held in check in two ways: (a) strict wartime rationing of most consumer goods, and (b) payrolls that were partially made with war-bonds (i.e. futuredollars). When the war was over, and the future dollars were made real, the sudden increase in consumer purchasing power was absorbed by the dramatic increase in the new production capabilities of private enterprise—capabilities that were built by the public enterprise of the war effort itself.
It would be reasonable to imagine this same dynamic has now unfolded in 2030. All those public enterprise efforts we’ve just described have resulted in expanded opportunities for private enterprise to offer goods and services for profit—with the expanded middle-class market standing ready (with all that money they’ve earned through public enterprise) to be the consumers.
But maybe not. Maybe—as we were just warned by two economists at the St. Louis branch of Federal Reserve itself—now, in 2030, we’d be experiencing hyper-inflation, just like “Germany in 1921-23, Zimbabwe in 2007-09, and Venezuela currently.” It’s disappointing that in their zeal to discredit the newly emerging “modern money” perspective, these economists found it prudent not to explain—or even point out—that in each of those instances of genuine hyper-inflation, the root cause was not “printing money” (as they infer “modern money theory” is all about) but something else instead. To say that “printing money” is the cause of hyper-inflation, it turns out, is like saying that flames are the cause of fire.
“Germany in 1921-23, Zimbabwe in 2007-09, and Venezuela currently,” all shared the same set of matches and kindling for starting the flames of hyper-inflation: a virtual total collapseof the production activities of their society. They stopped producing (or, in the case of Venezuela, importing) the things that people buy with money—and so, naturally, the money that existed (and continued to be issued to meet government obligations) drove up prices of the few things remaining on the store-shelves.
Quick message to the St. Louis FED from the year 2030: America hasn’t stopped producing things for consumers to buy. There are many more things to buy than in 2019 when the push for public enterprise began. So why should we imagine that we’ve turned out to be suffering from hyper-inflation? In fact, as we now enter the fourth decade of this century, we have a MUCH BIGGER problem to confront—a conundrum we should have been actively strategizing about much earlier than a decade ago.
The Earth’s “Carrying Capacity”
The conundrum faced by today’s modern society is a catch-22 of existential proportions:
- To confront the modern challenges society faces, public enterprise must step in and pay citizens and businesses massive quantities of currency to undertake strategic efforts that private enterprise cannot.
- To avoid serious disruptions from inflation, goods and services for private consumption must expand, commensurately, with the public enterprise spending.
- However, we have reached a tipping point where the typical goods and services of private consumption cannot be expanded without exceeding—and then collapsing—the “carrying capacity” of the Earth’s natural resources and regenerative systems.
The ramifications of this conundrum—this Catch-22 of the 21st century—define the ultimate challenge, it seems to me, of modern human society. It appears that something truly magical must occur if we are to go forward with a viable, livable future: We must, somehow, dramatically expand the goods and services of private consumption—making them available to greater and greater numbers of people—while simultaneously (a) reducing the consumption of finite resources, and (b) restoring and rebuilding the regenerative capacities of the Earth’s natural systems and habitats. To imagine there is any other path defies the physics of reality.
Looking down this path, it is certainly not clear how it can be done. What is clear, however, is that the old-world narrative of “money” offers us nothing but the prospect of chaos and conflict. As we’ll discuss in PART 5 to come, the perspective of “modern money theory,” however scary or controversial it may seem to mainstream thinkers, offers the very real possibility of hope.
When hunter-gatherers became farmers and foresters they did not suddenly lose their instinct for being harmonious with nature. They went so far as to enshrine the bounty of the earth in religious ceremonies and offerings to “the gods”. Symbolic of their reverence for nature. Funny how language evolves. Because we continued to evolve at an accelerated pace that left reverence in the dust. But the language is still there (confusing us) – it is the crap you can now listen to on NPR. The planet really cannot be estimated at a certain value in “money”. But I’d just submit that we can pour every bit of loose change into the maintenance of the planet and never ever suffer from financial inflation. There are rain forests, oceans, lakes, rivers, grasslands, spectacular wild animals, mysterious micro-biomes; untamed weather systems; and there will always be one “resource” which will accumulate: waste. Human waste and garbage and plastic and toxic chemicals. We have a much, much bigger project than anything we can yet fully imagine. Thank god we invented fiat. It’s much purer than gold. One word: Maintenance.
Funny thing that the folks most concentrated on ‘making money’, have come to avoid spending on maintenance no matter the eventual cost.
I keep hearing about the folks sitting on tremendous sums of money, supposedly searching for things to invest in, but clearly ignoring the many things that should be, and in a saner world, would be done, except for the fact that the folks in charge won’t spend money on anything that doesn’t promise an immediate return of double figures.
We’ve got power companies who won’t maintain their infrastructure, billionaires chasing unicorns, and a MIC that is satisfied with planes that can’t fly in the rain, and new fangled elevators on aircraft carriers that don’t work.
Neo-liberalism took a wrong turn when it discovered ‘creative destruction’ was profitable, and ever since has focused on nothing else.
Everything that needs be done is neglected, and everything that is done is senseless.
creative destruction for everyone but themselves
As far as I can tell, there’s never been a hyperinflationary episode without a prop, always coins & paper money.
The beauty of cybermoolah is nobody knows what’s out there, a veritable Marianas Tranche. Hard to panic when you have no good reason to, the unknown being unfathomable.
I’d posit that we don’t really know how cyberinflation comes calling-and the delivery mechanism, although i’ve been told it looks like a cross between a unicorn & a fire-breathing dragon.
If you’re talking about “carrying capacity” are there any real and hypothetical population numbers in this assessment? Anywhere?
“Millions of…” far too general….
it has been estimated that if everyone “lived a U.S. lifestyle” (whatever that is, however unevenly distributed), we would need five earths. of course, this estimate was current about 10 years ago, and who knows how it was calculated.
it is all a rough guess, in other words. but i would personally start from there.
And in other news, the World Meteorological Organization, a supranational organization based in Geneva said last Friday that if emissions keep rising, global average temperatures are on course to increase 5.4 to 9 degrees Fahrenheit this century, far overshooting a global target of limiting the increase to 3.6 degrees Fahrenheit.
But never mind the kids, for a brief moment in time we created spectacular returns for shareholders. /sarc
George Monbiot had a helpful take on this: “public luxury, private sufficiency”. The challenge will be to prevent wealth from being diverted into separate households, separated by two foot token strips of prairie, each trying to re-create convenience and abundance only within themselves, through the endlessly repeated act of consumption. Sustainable consumption will belong more on the outside, in the public sphere. This will require new sensibilities and ways of distinguishing oneself. I think anyone who lived on a kibbutz in the 60s and saw the gradual retreat to a more suburban model will know how difficult achieving such a sensibility can be. https://www.theguardian.com/commentisfree/2017/may/31/private-wealth-labour-common-space
Well, it strikes me as odd that a discussion on approaches to slowing (is there any real use talking about stopping or reversing while humanity is around in strength) climate change is focused on the question would any such attempts cause inflation or not – and maybe it will offer us hope by saying, no, it will not cause inflation, because MMT has a way to do it without inflation, whew, we can dodge that bullet!…
I understand that assuaging fears about inflation will allow more politicians to walk through the MMT door and allow themselves to talk about spending money in neglected areas.
So as a priming exercise to move the Overton window on specific legislature, fine.
But from a larger perspective, it constrains a giant planetary systemic problem into an academic exercise about inflation. But of course, there is going to be some inflation – in some areas, and probably deflation in others. Who cares?? If you are trying to put out fires in the Amazon, or California, there may be inflation in helicopter prices and fireman wages. Water prices will go up for sure (will you drill more aquifer so the water price can drop so we avoid water inflation? – because MMT surely says we can pay for it). Duh. But if you are thinking that this problem can be solved by economic incentives centered on PROFIT and protecting FINANCIAL and FINANCIALIZED assets by being very very gingerly careful about inflation – well I think that is a waste of everyone’s time. It’s more of the same.
It’s a giant planetary systemic problem and only a giant planetary systemic economic change can help it for real. How that’s done – I don’t know, and I know no one knows. But it’s better to start thinking about how greed is driving the world economy and how to replace it in the legal frameworks that govern all economic activity with something more prudent. If there are any scholars who are thinking about that, I’d like to hear about their work.
It would really be something to see democracy for once. Planning is what it’ll take. As detailed as ancient Egyptians planning where water should go. Norquist and stubborn Libertarians will have to find a colony where they can howl together all day. With this kind of drawn out extensive planning if people can’t liven things up by citing whatever political philosopher (in their defense of whatever), the boredom will finish off everyone before the heat. So to go forward go into the past…education. For instance, guys I don’t know at all are Locke and Rawls. I know Plato, Hudson (10% of Hudson), Chomsky 10%, a little Emerson, Thomas Frank, LeCarre, Piglia, Vivekananda, Robert Aldridge, Helen Caldicott, Naomi Klein, Vandana Shiva, Scahill, Greenwald, Patrick Cockburn, C Johnson, C Johnstone, and Ellul. But, yes, there are gaps. Everyone probably wishes they’d read at least some politicians’ biographies or memoirs. Turn such wishes into gifts to the youth facing the great adaptation.
to memorizing politics of ancient history (now that’s ancient) Don’t memorize it; just read it.
Alt mentions care of the ecosystem, but let’s not forget caring for humans. It’s not the wages with this work that need so much changing (though they do) as the status they’re assigned on neoliberalism’s dumb ass meritocratic scale. One thing for sure, good way to conquer listlessness.
if the problem is that more people will be financially secure, and thus start to consume at levels they were previously unable to, well a bit of that is going to happen inevitably. the only way they aren’t right now is going without on things that they need.
if the problem is aspiration to a “middle class lifestyle”, then perhaps we need to analyze why that appeals and do a careful redesign of what that entails.
on this board, it is always harped on about the space of suburban housing (both its square footage per building and its layout en masse requiring more space due to mostly single-level building occupancy). we need to analyze why people prefer to live this way if and when they are given the resources that enable them to do so. my guess high on the list would be that apartments are really too small, poorly laid out, lack adequate lighting and inefficiently heated/cooled. they also are shoddily made so that you can hear (and disturb) your neighbors, you have to lug things up and down and there is often little or no private outdoor space, not to mention that they are often soul-deadening to look at and to be inside. i bet there are a million other things like these issues that could be solved with thoughtful design.
do we just *think* we prefer to live this way, because we are very bad at building densely occupied spaces that have high quality of life? my answer to most of the problems of “additional” consumption would be to focus on High Quality consumption. to actually make it a point of pride that something was built to last a very long time. our culture builds disposable buildings (seriously–retail space built in my young adulthood is now outdated and empty, and falling apart, in my middle age. mobile homes are built to last -maybe- 20 years) that are ugly. it builds shoddily made clothes that fall apart in the wash. it builds appliances that may talk to you through your phone app, but don’t last past a few years and never worked properly to begin with.
part of the redesign of our system needs to include the very things that we require for living. if they not only are made in an ecologically sound manner, but made to last and are beautiful, we will want to keep them and repair them over time because they only need minor maintenance and are still useful and attractive. but doing so requires a lot of extra effort, thought, design, and better material and workmanship up front. there must be some kind of “payoff calculator” for how much extra lifespan you will reap from doing it this way, but in the end we can’t keep doing everything the -disposable- way lest we fill up the world with useless garbage.
if you don’t have to replace the built environment and the everyday necessities all of the time due to shoddy workmanship and “outdatedness”, it may reorient the consumerist mindset that drives some of this behavior.
the rest of this could largely be solved with social activities, “creative” activities, and even continuous schooling. so the people who use the items can learn about how to make them, aesthetic values of design and so forth. or just learn for the heck of it, not intending to put it to immediate use (this is more useful than we realize, i think). people do this now, but are limited by personal resources and the constant push to make their crafts for “the market” or to work in the market for money. although it is nice when that happens, there are sometimes reasons a superior object is not produced en masse for the market—it would not sell for enough to recoup its costs from a financial perspective, and no one wants a customer that only buys one and likely never needs another.
perhaps we just need to go backwards. of course, marketing backwards as forwards could possibly be done if we truly wanted to. it is after all how we got to this wretched place to begin with.
in just about every application i run across, the phillips head screwdriver is perfectly adequate, while also being far superior to the old slotted screw head(which are always frustrating when re-using ancient windows and doors and such)
a decade or more ago, i bought a box of wood screws and didn’t pay close enough attention…and they were that star head type, for which one needs a new screwdriver.
these and other “innovations” in screw head design(ended up with a whole set for the drill, just in case, with no less than 20 variations) might have some meaningful role to play in some esoteric application, somewhere…but for general use, it appears to be a way to force people to purchase additional screwdrivers(and drill attachments.)
i take care of my tools…so i have screwdriver sets that my grandparents bought that are still in use.
I sympathise with Stanley, or whomever, having diminishing returns when everyone has an adequate set of screwdrivers…but to engineer a need in this manner points directly to what you’re referencing. manufacturing needs, rather than manufacturing things that fill needs.
and washing machines! lol.
my kingdom for a dumb, well made and reparable washing machine with an on/off switch and that cannot talk to me!
when our last handmedown free one finally died(12 years after we obtained it), and i couldn’t repair it(or even get it apart without destroying it), i got the stupidest replacement possible. But even this one is smarter than the dog.
“The People’s Money” when citizens can’t even use fiat except for mere coins and paper Central Bank notes?
Its sovereign money.
I like JD Alt’s stuff, but I can’t help noticing how he gets a little murky when referencing debt in the neoliberal definition way. Pulling forward spending via the choice of using debt? Really. Is that a necessary concept when for a monetary sovereign debt is not intrinsic to funding anything? Congress spends money into existence, and taxes it out of existence. It cannot get any simpler than that. Private banks create debt. They make their money that way. Public Central Banks don’t, or at least don’t need to. Same thing with taxes. They are primarily for reducing the wealth of whoever is being taxed. So tax the oligarchs until they can no longer afford to bribe Congress. There is no big Fed account where your tax payment is deposited for future use. Two things simultaneously disappear when you pay your tax bill: The money you used, and the bill itself. Poof! Gone!. What is the problem here in understanding the simplicity of it all? We don’t need the rich people’s money. Like debt, it doesn’t pay for federal government spending. We do need taxes to suppress income inequality from the top down. Don’t tax anyone who makes less than $100,000 per year. Expand on Lizzie’s wealth tax concept. And slap on capital controls so the corruptors cannot flee with their ill gotten gains.
Did I miss Part3?
Here’s the MMT”s (and J.D. Alt’s?) approach as I understand it:
1) Spend first and tax the non-rich later if necessary to curb consumption and thus control price inflation. Conceptually, this is better than “tax and spend” since it should close the output gap but notice that it doesn’t require any taxation of the rich since they don’t consume enough to matter. But to make things look fair, I suppose the rich shall be taxed too, but by no means enough to curb their consumption since that would destroy their ability to invest in job destroying (but dis-inflationary) automation (see 2) ).
2) Increase* privileges for depository institutions (and by extension for the rich, the most so-called “credit worthy”) but limit by regulation their “lending” to such things as automation to eliminate or reduce the skill level of private sector jobs. This they call “asset-side regulation.” Note that productivity increases shall continue to accrue largely to the banks and the rich only but prices should fall from the productivity increases.
3) Sop up the unethically dis-employed victims of 2) (and perhaps 1)) with a government Job Guarantee to keep them too busy, demoralized** and tired to ponder and protest injustice.
Note then that MMT “solutions” are more welfare for the banks and the rich with wage slavery to government to supplement wage slavery to the private sector.
*e.g. unlimited deposit guarantees FOR FREE
e.g. unlimited unsecured loans from the Central Bank at ZERO percent.
**Since a focus on jobs and not accomplishing work should demoralize just about anyone.