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On Paying for a Green New Deal with Modern Monetary Theory

#1

On Paying for a Green New Deal with Modern Monetary Theory

Dean Baker

Much of the Democratic Party, including almost the entire pack of contenders for the Democratic presidential nomination, has embraced the concept of a Green New Deal (GND). This is an ambitious plan for slashing greenhouse gas emissions, while at the same time creating good-paying jobs, improving education, and reducing inequality.

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#2

No comments yet. Yeah, Dean is correct. It will take increased taxes to pay for this. However, we can pay now or we can pay MUCH more later. Most folks would rather not think about it. Anyway, the grandkids might have more money than we do…

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#3

No MMTer says what Mr. Baker is saying. MMT critiques always misrepresent it a something other than just a description of how money functions in a monetarily sovereign economy. No one, and I do mean no one of the MMT persuasion says that money can be printed ad infinitum. I actually hoped for better from Dean Baker than Henwood, Summers, Rogoff style straw men.

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#4

I should add that we do not have to cover every dollar of green new deal spending with increased taxes as long as the economy is doing well. Of course, if the republicans keep adding to the deficit with lower taxes and increased military spending, then it increasingly limits green new deal spending to new taxes.

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#5

If you go to their web site [ http://neweconomicperspectives.org/ ] and read about MMT, you’ll quickly see that its critics invariably fail to take into account one aspect or another in their objections. Here, Mr. Baker has chosen to remain oblivious to the KEY element in MMT that requires guaranteed employment for all.

MMT is not rocket science or voodoo economics,it’s perfectly balanced and eminently doable here and now.

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#6

While I like the idea of guaranteed employment for anyone who wants a job, it will not happen anytime soon. So, we need to remember to do our best in the real world of now and the near future.

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#7

It matters little how the Green New Deal is financed as it relates to its effectiveness in improving peoples lives and reversing the catastrophic damage to our planet. The real analysis that needs to be addressed is…

Will the economic system of Capitalism that created the need for a Green New Deal change its ways to actually concentrate on improving the lives of the working class and reverse its practices and inherent components that are destroying the environment and accelerating the devastation (current and imminent) of climate change?

I don’t think so.

Capitalism is based on private property, of a small class of people “owning” the Earth for the purpose of exploiting it for profit. This system cannot be reformed. It is based on the destruction of the earth and the exploitation of the people. There is no such thing as green capitalism, and marketing recycled products and banning plastic bags will not bring back the ecosystems that capitalism has destroyed to make its profits. This is why serious ecologists must be socialists. Socialism is not about redistributing the spoils of a raped planet more evenly and ending gluttonous consumerism but is all about a more efficient and egalitarian way to produce and distribute the natural and man-made wealth. One of the basic principles of socialism is production for use, not for profit, that would not destroy the earth. Socialism means organising human societies in a benign manner that is compatible with the way that nature is organised. Modern society robs us of community with one another and distances us from nature. We are taught to emulate our masters and fill our homes with consumer goods beyond what’s needed for comfort or even what we crave.

A serious critique of capitalism is essential to adequately address the current world environmental crisis. Such concepts such as “degrowth” and “carrying capacity” are clearly conceived in their capitalist economic context. Too often blame for environmental destruction is placed on the backs of individuals and their personal consumption habit and we are exalted to "reduce, reuse, recycle, repair.” Eco-warriors demand that we change our lifestyles and that we decrease our consumption as if capitalist austerity policies have not done just that. The Socialist Party, instead, puts forth a credible vision of abundance. It advocates a society consistent with ecology that is sustainable, controlled from the bottom up, without a profit-oriented economy that necessitates exploitation of nature and people, that produces what people need. Without profit-seeking corporations or bureaucracies ruling in their own interest and with democratic control of economic activity we could realise the potential to recognise and stay within the limits of the ecological carrying capacity of the earth.

Source: Ducking the Issue

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#8

Dream on. Getting real… we need capitalists to pay for externalities.

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#9

Strange. Your comment contains the same words used by most Republicans and Democrats about the Green New Deal.

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#10

Yeah, Dean, I too am a “card-carrying economist” (stole that line from you, as you may not remember), and nobody I know is suggesting that anything can increase without limit, certainly not if increasing at an increasing rate.

But you’re still stuck in the Classical Claptrap, ESPECIALLY the NEO-classical claptrap of Newtonian equations to three-digit accuracy. As Krugman, Geoff Hodgson, and others acknowledged at the time, the belief in that fallacy played a part–though not the largest part–in creating the conditions that led directly to the Crash of 2008, and the “Little Depression” that followed.

The underlying fallacy is that “the quantity of money” in circulation is a meaningful idea. Even the ultraconservative Fed (not specifying what it is they propose to conserve) has backed away from that notion from the overrated–especially in economics–Enlightenment. Besides, the GND is not dependent on MMT alone.

You might want to bone up on what the various heterodox schools of economic thought have to say about all this.

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#11

Debt can be written off, mass extinction cannot, There are ways to pay for the GND via taxing Wall Street transactions and the wealthiest. In the longer run, it will pay for itself by creating jobs and boosting the economy. It is certainly less costly than doing nothing.

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#12

The “underlying fallacy” is that the government needs to be financed by debt. More than that, “money” does not need to be created with a corresponding issuance of debt to “balance” the books, which is the near-universal religion of double-entry book-keeping. The Vatican and the Caliphate could only dream of such a complete conversion of the populace to their doctrines as the Capitalists have done! But I digress. The GND could easily be financed by cutting our so-called “defense” budget to be in line with that of saner nations (China and Russia, for example). That would also create a good bit of surplus labor and unused capacity. At any rate, it would be a lot easier to do it that way, than to change how the populace at large conceives of money.

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#13

Well, there are a lot of reasons for taxation, and it has never been solely for the purpose of raising revenue. Many, if not most taxes (and the only legitimate use of taxation according to most U.S. legitimate conservative economic considerations is as Pigovian behavior limitations (more commonly labelled “sin taxes”) which are imposed to diminish the economic activities associated with them (such as gasoline taxes, cigarette taxes, alcohol taxes, etc.), these wouldn’t necessarily disappear under a system which seeks to more fully take advantage of and better utilize the understandings that come from Modern Monetary Theory (though, taxes like Payroll taxes might well disappear to the benefit of both workers and employers). The most important issue of MMT isn’t that this is some brand new plan to address the need for more revenue, it is simply a more clear understanding and reflection of the way that U.S. money functions and has functioned since the U.S. abandoned the Gold standard back in 1971 and fully embraced fiat currency systems.

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#14

Really? I’m not sure that you are understanding the principles and purpose of guaranteed employment or how variations of it have been used successfully and to great benefit in US history and around the world at various times past and present. It isn’t a panacea for all of our ills, but it is a very useful tool to help address a lot of our nation’s problems .

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#15

Unaddressed externalities primarily exist in market activities which would be without, or at best, yield only extremely marginal, profits, when all potential externalities are adequately priced into those activities. In those situations capitalist organizations would simply not engage in those market activities. The only options then for an economy which wants to use the resources/services of these unprofitable market activities is to find and incentivise the creation of profitable alternative industries or publically provide those resources/services which then do not require a profit incentive to exist as a viable industry.

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#16

I have many problems with Baker’s assertions. Here are two:

There is indeed inflation in three very important sectors, namely healthcare, higher ed, and real estate.

The fed is barely in charge of QE anymore. For example, when the recent stock market downturn hit, Wall St threw a tantrum over raising interest rates and the fed stopped those increases in their tracks.

US wages have been controlled by outsourcing, increased automation, and crushing unions for several decades now. That it took just about forever to see the modest gains now occurring is proof.

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#17

NOTICE: This comment is copywrited (not copyrighted) because I’ve been repeating this for years, and one day some Nobel prize winning economist in the Milton Friedman priesthood will become famous for discovering it. This is my attempt to avoid being left sucking hide tent. :slight_smile:

We don’t have to buy MMT to slap down the claim that government expenditures must be paid for with income from taxes and fees and with borrowed money. This is a lie. All government spending is accomplished by creating fiat money from nothing (an IOU) and disbursing it by computer keystrokes.

All government income is paid in the government’s own fiat money. What does the government do with this fiat money income? It credits the payer with the payment and promptly extinguishes the payer’s debt. It and its previous value disappear from existence. Poof! This recorded accounting transaction conveys no asset into the government’s possession. It is simply a record proving that the government has honored its IOU to the bearer thereof. To repeat, when a government IOU is redeemed by the government it is of no further value and is not then a government spendable asset.

So…The government spends by issuing IOUs backed by the full faith and credit of the US government, and it redeems them by accepting them in payment of debt. And, because it is backed by the government it is legal tender for all debts public and private in the US.

I said it was a lie that government expenses must be paid for with government income. I meant to put it that way because it is a very useful falsehood to those who own the Wall Street casino. Using it as a shillelagh, the barons of Wall Street set the agenda for controlling the federal budget every year. (Austerity for the peons; prime rib for us!) Get it?

Get it? That’s how we got the budget in 2019. Wake up! We don’t have to live that way! Repeat after me: “There is never a need for austerity among the people.”

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#18

Ellen Brown points out that Roosevelt used the Reconstruction Finance Corporation (RFC) to implement his New Deal and that the RFC could be used again for a GND or Green QE:

Monetary enthusiasts would benefit from reading Ellen Brown’s “Web of Debt” to learn more about US monetary history.

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#19

Web of Debt is a ”Who shot John” style history that does not explain the critical difference between the currency issuer and currency users in a fiat currency monetary system. In fact, it treats the problem of debt as if the currency issuer is financially no different than the currency user (as is the case with a hard money monetary system).

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