The influence of Modern Monetary Theory in Congress is growing faster than most people realize. M.M.T., as it’s known, is an economic theory that says government budget deficits don’t matter unless they overwhelm the economy’s productive capacity and cause high inflation. That message appeals to Democrats in Congress who want to raise spending without having to worry about the resulting red ink. It could even appeal to Republicans who want to cut taxes.
If you happened to be watching C-SPAN’s “Washington Journal” on June 17, you saw a remarkable display of Modern Monetary Theory’s political influence. Representative John Yarmuth, Democrat of Kentucky, who is the chair of the House Budget Committee, gave a full-throated defense of the deficit-friendly theory to Washington’s sometimes skeptical viewership.
“Historically, what we have done is said, ‘What can we afford to do?’ The right question is, ‘What do the American people need us to do?’” he said. He added, “If we relied on taxation, purely on taxation, to fund the government, then a lot of people would suffer very seriously, because we could not provide nearly the services that the American people want us to provide.”
I am surprised that Yarmuth’s appearance hasn’t gotten more attention. He is not some anonymous backbencher. He runs the House committee that, in collaboration with its counterpart in the Senate, prepares an annual framework for the federal government’s revenue and spending levels. He is a big fiscal deal and he is on board with Stephanie Kelton, a Stony Brook University economics and public policy professor who has become a leading voice for Modern Monetary Theory. She told me that Yarmuth’s C-SPAN appearance was “pretty remarkable.”
“Unquestionably he is the most important member of Congress when it comes to just having a very good command of what it is that I and others in the M.M.T. community are arguing,” Kelton said. “He’s not getting anything wrong. He’s done the hard work.”
I interviewed Yarmuth this week. He said it was the first interview he’d given about Modern Monetary Theory since he went full M.M.T. on C-SPAN. “It’s not a sexy topic,” he said. “If it doesn’t have an electoral angle, Hill reporters don’t want to cover it.”
Yarmuth said his conversion began in 2010 when Representative Paul Ryan, Republican of Wisconsin, was the ranking member of the Budget Committee. (Ryan later became chairman and eventually House speaker and a candidate for vice president.) “He would come up with all these same things” that deficit hawks are talking about now, Yarmuth says, such as that federal budget deficits would consume national savings and crowd out investment by the private sector. “And yadda yadda yadda. I realized as time went by that none of the things he predicted were happening.”
Congress has tried to tie its hands on deficits by requiring that new legislation not increase the federal budget. The rule is honored more in the breach than the observance, and Yarmuth is not a big fan of it. “Paygo,” as it’s called, “is a scam anyway,” he told me. He called it “kind of fraudulent.”
Yarmuth said he’s been telling his colleagues to read Kelton’s book, “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy,” which came out last year. Kelton confirmed that with a laugh: “Other members of Congress have cold-called me at home and said, ‘I read your book because Congressman Yarmuth told me I had to.’”
Representative Alexandria Ocasio-Cortez, Democrat of New York, has spoken positively about M.M.T., as have several of her fellow House progressives. Senator Brian Schatz, Democrat of Hawaii, has also expressed sympathy with Modern Monetary Theory and its cousin, the Green New Deal. The Times has reported that Kelton has been a regular participant in conference calls on pandemic relief organized by Senate majority leader Charles Schumer, Democrat of New York.
Yarmuth says M.M.T.’s visibility in Congress is less than its influence. “There aren’t many people who are willing to be out front about it because it doesn’t resonate with what the average person thinks,” he said. He told The Louisville Courier-Journal in August that many members of Congress are more open to deficit spending than you would guess from their anti-deficit public statements: “Ultimately I think that’s for home base consumption and not necessarily for the vote at the end of the day.”
The former head of Afghanistan’s central bank has tweeted that $7 billion of its roughly $9 billion in reserves is being held at the U.S. Federal Reserve. The conquering Taliban forces have not been given access to those funds. For now, that makes sense, says Warren Coats, who advised the central bank, called Da Afghanistan Bank, as an official of the International Monetary Fund. “Until there’s an agreement on who has the authority to operate those accounts, they rightly should remain frozen,” Coats, who retired from the I.M.F. in 2003 and has stayed in touch with Afghan central bankers since, told me this week.
But Coats says that once that verification process is complete, the funds should be released because dollars are the lifeblood of the Afghan economy. The central bank acknowledged in 2019 that an “overwhelmingly large” share of the population saves and borrows in dollars, and that “almost all” big transactions are done in dollars. The U.S. hasn’t made its intentions for the reserves known.
Quote of the Day
“They are casting their problems on society, and who is society? There’s no such thing! There are individual men and women, and there are families.”
— British Prime Minister Margaret Thatcher, interview in Women’s Own magazine, Sept. 23, 1987
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