Bernie Sanders Opens A New Front In The Battle For The Future Of The Democratic Party (Demo)

Bernie Sanders in action.

On January 10, 2015, Dylan Matthews writes on VOX:

President Obama’s biggest problem in the Senate is obviously its new Republican majority, but opposition from the left wing of the Democratic caucus appears to be growing too. Most prominently, Sen. Elizabeth Warren (D-MA) has clashed with the White House on a key Treasury Department position and the CRomnibus spending package. But new budget committee ranking member Sen. Bernie Sanders (I-VT) is poised to break dramatically from traditional Democratic views on budgeting, from Obama to Clinton to Walter Mondale and beyond.

His big move: naming University of Missouri – Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.

For years, the main disagreement between Democratic and Republican budget negotiators was about how to balance the budget — what to cut, what to tax, how fast to implement it — but not whether to balance it. Even most liberal economists agree that, in the medium-run, it’s better to have less government debt rather than more. Kelton denies that premise. She thinks that, in many cases, government surpluses are actively destructive and balancing the budget is very dangerous. For example, Kelton thinks the Clinton surpluses are nothing to brag about and they actually inflicted economic damage lasting over a decade.

A drastic theoretical break

Did Bill Clinton’s surpluses really hurt the economy? (Sean Gallup/Getty Images)

Usually, when Democrats hire economists, they hire nice, respectable Keynesians, who use mainstream economic models and often agree with conservative economists on a lot of theoretical matters while drawing different policy conclusions from them. For example, Greg Mankiw, who served as George W. Bush’s top economic advisor, and Christina Romer, who served as Obama’s, were both influential in developing New Keynesianism, a macroeconomic theory that emerged in the 1980s and arguably dominates the field today. What really set Romer and Mankiw apart was policy, not economic theory.

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I.

The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy. That’s what Kelton argues happened after the Clinton surpluses of the late 1990s / early 2000s. Any dollar of government surplus must show up as private debt, she reasons. And the private sectors just can’t run up debt like that indefinitely. “Eventually, something will give,” Kelton once wrote to Business Insider. “And when it does, the private sector will retrench, the economy will contract, and the government’s budget will move back into deficit.”

A minority view

This has changed since the recession hit, but for years both Australia and Canada (whose prime ministers Tony Abbott and Stephen Harper, respectively, are pictured) ran budget surpluses without incident. (Chris Hyde/Getty Images)

Plenty of people criticize Obama’s economic policies (or Clinton’s) from the left, but this is very much a minority view in economics — even among liberals. Paul Krugman, for example, has argued that MMT gets this all wrong. You still need people to buy government bonds, and if the interest rates on those get too high, then paying for it all might be hard to do without triggering runaway inflation. “Once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation,” Krugman writes. Joe Gagnon, an economist at the Peterson Institute, also notes that Australia and Canada ran surpluses for years without suffering economically as a consequence. (You can see MMT responses to these points here and here.)

Before recently, mainstream economists and policymakers could comfortably ignore MMT. Galbraith told me that when, on a panel for an April 2000 event at the White House, he argued that the US’s new budget surplus would harm the economy, the hundreds of economists in attendance laughed in his face. That’s all changed. The financial crisis created a huge appetite for new economic thinking, and MMT helped meet it. Now, people like Krugman are expected to at least grapple with its claims. Kelton’s elevation to the budget committee is another important step in mainstreaming the theory, and making it safe for left-wing Democrats to embrace.

If you want to learn more about MMT, I wrote a long profile of the movement back in 2012 that explains the basics. But theory aside, in concrete political terms this is a sign that Sanders is likely to reject the consensus-oriented approach of his predecessor, Patty Murray, and produce big spending budget frameworks that many members of his own caucus — as well as the White House economic team — would reject. That’s going to be a headache for an administration that would like to count on a unified group of Democrats as it heads into inevitable battles with the Republicans.

http://www.vox.com/2015/1/10/7521819/sanders-mmt-kelton

According to WikipediA, Modern monetary theory (MMT or modern money theory), also known as neochartalism, is an economic theory that details the procedures and consequences of using government-issued tokens as the unit of money, i.e., fiat money. According to modern monetary theory, “governments with the power to issue their own currency are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints.”

MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created exclusively by the government. In MMT, money enters circulation through government spending. Taxation and its legal tender power to discharge debt establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that must be met using the government’s currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.

Modern Monetary Theory (MMT) is a terrible approach to providing a solution to income and wealth (OWNERSHIP) inequality.  Based on the idea that the government simply prints new money to give to citizens to spend, without corresponding the new money to new wealth-creating, income-producing capital assets, is inherently inflationary and will result in the destruction of private property, while the government seizes far more power and the citizenry becomes more and more dependent on the State for their livelihood.

It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.

As my colleague and others at the Center for Economic and Social Justice (www.cesj.org) have stated previously, whatever powers banks have in controlling the U.S. currency would disappear if the Fed (and especially the New York Fed) was not handed these powers under the Federal Reserve Act of 1913, as it has been amended. Yes, as a matter of form, it is true that the Federal Government set up the Fed so that it would be “owned” by U.S. banks, and the larger banks are owned or controlled by powerful global bankers. However, the President and the Congress select the Chair of the Fed’s Board of Governors. And the Congress could amend the Federal Reserve Act so that each of the 12 regional Feds would be owned by the citizens of each region, treating the Fed as a sort of “fourth branch of the Federal Government” charged with monetizing private sector growth in industry, commerce and agriculture in each of the 12 regions, as expressed in Section 13(2) of the Federal Reserve Act of 1913, which states:

“Any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act.”

This Section 13(2) power still exists. It has not been used since the U.S. went into the First World War and switched from what would have been asset-backed money to debt-backed money––a switch to government debt to cover government deficits. The power to create asset-backed money could be revived and used to democratize equal opportunity for every child, woman and man to have access to whatever capital credit is extended to finance growth of the private sector with interest-free money that would repay the loan with pretax dollars, as proposed by Louis Kelso as early as 1958. Then the poorest person in the region would get the same amount of interest-free capital credit each year as someone as rich as Bill Gates or Warren Buffett. In other words, as with leveraged Employee Stock Ownership Plans (ESOPs) invented and applied by Kelso under present laws for private sector workers, propertyless citizens would no longer depend on the enormous accumulated savings of the rich to get loans to become owners and growing new jobs in the productive private sector in any region of the country. Then, the logic of corporate finance–to invest in productive capital only when those assets are expected to pay for themselves out of expected future profits–would be available to enable every worker to become a capital owner. As with ESOP, the loans for buying shares pay off the principal and other costs of the loan with untaxed future profits of the company issuing those shares. Then those without “past savings” can and have become owners out of “future savings.” When both the leadership of both political parties or third parties wake up, then the Fed would become a “social tool” owned by the people and the rich plutocrats could not stop this reform of the system. Nothing would be taken from them but the current monopoly over the creation of money, supported by politicians who promote this unjust monopoly over money. (See the Summary of the proposed Capital Homestead Act designed by our Center for Economic and Social Justice for the comprehensive set of reforms for restoring full economic power for every citizen. See the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm. See the full Act at http://cesj.org/homestead/strategies/national/cha-full.pdf

The main reason the economic system, especially control over money and finance, produces unjust concentration of economic power and corruption of a market system is that most people have been mis-educated by academia on the nature of money and how it could serve to achieve truly full equality of opportunity to enable all citizens to become fully empowered productive capital owners with ever-growing capital incomes over the course of their lives. Educators teach people how to work (assuming jobs are not displaced by robots), but never teach them how to gain equal ownership opportunity over labor-displacing technology. When the American people wake up, the left and the right will come together to demand a Just Third Way beyond both monopoly capitalism and all forms of socialism and communism. Then Americans will have launched and achieved an economically classless society, a worthy result of a truly peaceful and just Second American Revolution. And no one will have lost anything except the power to dominate and enslave others, or the frustration of going through life feeling that change is impossible.

Those willing to work together to bring about a more just future for themselves and the rest of society should join the Coalition for Capital Homesteading at www.capitalhomestead.org. For those with time to read books and articles of the ideas behind Capital Homestead, the cesj.org Web site is as good as any.