The Political Economy of Artificial Constraints on Government Money

By William K. Black

I’ll begin by addressing today the dominant concern critics have expressed here — the government might act badly with the funds. This is, of course, a real concern. But it is some ways a very odd concern and not a logical objection to MMT. The extreme variant of this critique argues that MMT is "fascist."

The good news from the standpoint of MMT is that this critique agrees that MMT is accurate and makes available policy choices that are effective in increasing income and employment — and claims that MMT’s effectiveness is the problem because the government leaders might use the increased income and wealth for evil purposes.

If that is a valid criticism of an economic theory (it works — it increases income, wealth, and employment) then virtually any accurate economic theory that improves the economy is "fascist" because the government might be ruled by a fascist and the ruler might use the increased wealth and income to do evil. No one (economist or otherwise) can ever guarantee that a government ruler will not be evil and use the increased national wealth to do evil. Under this logic all effective economic theories are fascist and we should try to make the world as poor as possible so that fascistic governmental leaders have fewer resources with which to do evil.

It is also an odd criticism because it suggests that we should try to hide knowledge about MMT from governments because they might use the knowledge to improve their economies. Trying to hide knowledge about how a monetary system works is a fruitless task. There are tens of thousands of people who understand much of the mechanics of fiat currency systems. Even if we could wipe out the knowledge people would relearn it because their jobs required them to understand monetary operations.

Consider the statements by the UK leadership that the UK has "run out of money." Does anyone think that the UK financial leaders believe that statement? If Germany declared war on the UK tomorrow would the UK surrender because it had "run out of money" and could not "afford" to increase expenditures to defend the nation? The point is that nations, when faced with the need to make enormous, emergency expenditures, rediscover through necessity the knowledge of how monetary operations actually work even if they previously were captured by economic dogmas that asserted the opposite. That means that a national leader who is determined to be a fascist, imperialist will discover in the course of creating a dramatic growth in its military that it can fund the growth if it has a sovereign, floating currency and if the nation’s debt is denominated in its own currency. (MMT explains that real resources can be scarce, and that can limit the military build up.) So, even if every academic conversant with MMT traveled on the same plane and died in a crash fascist government leaders engaged in an arms race in preparation of invading their neighbors would discover that resources, not funds, were the real restraint on the military growth if they had fully sovereign currencies.

The "fascism" critique expressed on this page does not address two other important points. There are staggering costs to refusing to use MMT to respond to a severe recession. Unemployment, poverty, and inequality all rise sharply. Very few democratic governments warrant the term "fascist." We cannot stop fascist governments from increasing their national wealth by using MMT principles. We should encourage powerful, democratic governments to use MMT principles to recover from severe recessions, which will help them avoid the social disintegration most likely to lead to the rise of fascist leaders. It is theoclassical dogma that is producing the economic crises throughout the periphery that have led to the rise of anti-democratic leaders and policies in much of Europe. Fundamentally, the commenters who raise the "fascist" criticism of MMT do not trust democracy. We would urge against hopelessness. Governments typically use budget expenditures in severe recessions for generally desirable purposes. Instead of embracing over 20% unemployment (roughly 50% for young adults — this is what austerity is doing to the European periphery) as a means to starve potential fascist leaders of the funds to do evil we urge that people work to defeat fascist candidates.

The Italians who joined us for the MMT Summit in Rimini were strong opponents of the fascists. They were regular Italians and their response was overwhelming. Paolo Barnard, the Italian journalist who organized the Summit and we, the non-Italian panelists, are all strong opponents of fascism.

The same was true in Ireland, Iceland, and France when we discussed MMT in those nations. The response is so positive because we show that "TINA" is a lie — there are alternatives. We hope Naked Capitalism readers will work with us to implement programs that provide jobs and fund the investments in people, technology, government, and infrastructure that will make possible growth and reduced harm to the environment.

As citizens in a (yes, flawed) democracy, we are not helpless. Our job as citizens is to make our government more democratic and effective and a bulwark against fascism.

A version of this post first appeared at New Economic Perspectives.