Where Do We Go From Here: Dollah dollah bills, y'all

"How are you going to pay for that?"

If American, and indeed, global politics have a mantra, at least where there are competitive elections, that's it right there.

"Medicare 4 All? $30 trillion? How are you going to pay for that?"

"Universal basic income? How are you going to pay for that?"

"Green New Deal? Free college? Debt cancellation? [Insert most fevered liberal wish list item here.] HOW ARE YOU GOING TO PAY FOR THAT?"

Of course, as you see, the examples I gave are on the far-left edge of liberal discourse. "How are you going to pay for that" never crops up when Republicans give away $1.5 trillion to their cronies, or when a new war needs to be funded. Only when Democrats, or other liberals around the world, decide to spend largesse on their constituents.

And it has ever been thus. We've been ensnared in the bony fingers of zombie Milton Friedman for the past fifty years.

As I was having my coffee yesterday, I opened up the Financial Times website and engaged in some Sunday reading. Every Friday the paper has a feature called "Lunch with FT". This past Friday, it was an interview with Stephanie Kelton. Who is Stephanie Kelton? Just an economist who may have had the answer to our problems all along.

Kelton, late of Bernie Sanders' campaign, is the most visible proponent of what's known as "modern monetary theory." The tl;dr version of the theory is this: If a government is in charge of its own currency, no inherent budget rule prevents it from spending more than it taxes.

Now, you will say, this is how governments operate now, and have done so for a couple of centuries, via borrowing money to fund deficits. But the idea is that, if you borrow money, you eventually have to pay it back. Thus you have rolling deficits, where a chunk of your national budget goes to service previously-accrued debt. This spending money on previous debt detracts from money spent on the productive economy. It's why everything goes back to that question: How are you going to pay for that.

MMT, as it's known, has a different theory:

In traditional economics, the notion of printing money to solve a country's problems is almost universally regarded as a bad idea. Yet MMT proposes that money creation ought to be a useful economic tool, and that it does not automatically devalue the currency, lead to inflation, or economic chaos.

MMT argues that by insisting the government rein in its spending to "balance its books" we're hobbling ourselves with a lack of investment, an underperforming economy, and all the unemployment and lost opportunities that go along with that. Instead, MMT says, the government ought to be able to create all the new money it needs as long as that does not generate inflation.

Inflation occurs when a currency is devalued. And a currency is devalued relative to other currencies. All currencies float against each other; there's no gold standard. The long and short of it is: As long as economic actors still have confidence in your currency, printing money and pouring it into the economy shouldn't lead to inflation, because, again, your currency still enjoys confidence. In other words: Money has value because people assign it value. That value isn't inherent in the money, but in how people perceive that currency. Also, if by doing so you increase value in the real economy, that should also act as a brake on inflation and devaluation.

Now, I'm not new to MMT. I will credit our own DJChefRon for introducing me to it. I've also been arguing for quite a while that some form of universal basic income will be a necessity as technology makes jobs redundant and doesn't replace them with new jobs. However, neither am I arguing that MMT will be what saves us. Economics isn't a hard science, but a social science, full of competing ideas, all reliant on the skittish emotions and irrational reactions of human beings. And there are many arguments, pro and con, which will have your heads spinning for a good long while. I'm just making a note of this: Governments around the world, to meet the coronavirus plague, are spending trillions of dollars they don't have, and will never make up in tax revenue. They've accepted that this is a war-time situation, and you can't triumph over a plague on the cheap. American politicians are relying on that term "the full faith and credit of the United States" to maintain the US dollar's value, even if, on the face of it, an inflationary amount of money is being printed.

In the FT feature, Kelton takes what Mitch McConnell said—that this is a "wartime level of investment"—and then says:

...What matters, she says, is not how Americans spend at war, but how they think about spending while at peace. That Congress can spend now on a pandemic should tell politicians that they could have been spending the whole time.

“It’s like Dorothy with the red slippers in The Wizard of Oz,” she says. “You’ve always had the power, you know?” If you want to change minds, you also have to be willing to fight metaphor with metaphor. “I keep saying we don’t have a debt problem, we don’t have a deficit problem,” she continues. “We have a language problem.”

If we can accept this level of spending during an emergency, the question which then must be asked is this: Why can't we consider a similar amount of investment before everything goes pear-shaped?

The history of human economies has been one of allocating scarce resources. Those who controlled the resources controlled the fates of those dependent on them. But what if scarcity and abundance are artificial constructs? Or, at least, they are now, in a world economy which creates wealth on a level which would have been unimaginable before this century? A middle-class American has a quality of life that even Louis XIV couldn't have conceived, for all his palaces and fawning courtiers. What if "scarcity" as a tangible reality no longer exists, but exists solely as the detritus of thousands of years of conditioning? As we contemplate digging out of the hole caused by this plague, these are questions we should be asking ourselves as citizens.

Things are unthinkable and beyond the pale until the unthinkable and that which is beyond the pale happen. Our global economy creates an amount of wealth which is hard to comprehend. Perhaps it's time to contemplate a new economics which reflects this reality.