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.
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.