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One way to pay for the Green New Deal: NPR



Rep. Alexandria Ocasio-Cortez talks about Green New Deal in Washington, D.C., May 13. She has shone a spotlight on a once unclear economy known as "Modern Monetary Theory."

Cliff Owen / AP


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Cliff Owen / AP

Rep. Alexandria Ocasio-Cortez talks about Green New Deal in Washington, D.C., May 13. She has shone a spotlight on a once unclear economy known as "Modern Monetary Theory."

Cliff Owen / AP

Then rep. Alexandria Ocasio-Cortez rolled out her "Green New Deal", demanding clean energy and guaranteed jobs, was one of the first questions she got: How do you plan to pay for it?

The new York Democrat argued that ambitious programs can easily be funded through deficit expenditure.

"I think the first thing we have to do is break the wrong idea that taxes pay 100% of public spending," Ocasio-Cortez told NPR's morning release in February.

In this way she shone a spotlight on a once unclear economy known as "Modern Monetary Theory" or MMT.

"It was something of an Oprah effect when she did," said economist Stephanie Kelton of Stony Brook University. "People immediately started Googling & # 39; Modern Monetary Theory & # 39; to find out what she was referring to."

Run that Google search and you will quickly find Kelton yourself. The economist, who recommended Bernie Sanders' 2016 campaign, is one of the most well-known evangelists of the theory. Kelton says to pay for major government programs is the simple part. If Congress is willing, the Federal Reserve can effectively print the money.

"If Congress allows a few billion dollars of extra expenses, or a few hundred billion dollars, then Fed's job is to make sure the checks don't bounce," Kelton told the NPR.

A key element of MMT is that governments that govern their own currency – like the United States – don't have to worry about spending more than they collect tax. They can always make more money. But despite the caricature, sometimes offered by both the critics of the theory and the audience, Kelton insists that there is no empty check for unlimited state expenditure.

"Too often people get a whiff of MMT, they don't read the literature, and somehow they come to takeaway as MMT is about writing prosperity," Kelton said. "And of course when people are hearing printers, they go straight to Zimbabwe or Weimar Germany."

They are notorious cases of hyperinflation. But Kelton claims that runaway prices are just a danger when demand exceeds the real resources of an economy – the people, the machinery, and the commodities. If there is idle capacity, MMT maintains that additional public spending does not trigger inflation.

Last week, under the question from Ocasio-Cortez, Federal Reserve Chairman Jerome Powell recognized the US labor market has shown more capacity to grow without triggering inflation than he and his colleagues had expected. Still, Powell is no fan of MMT.

"The idea that deficits do not affect countries that can borrow in their own currency, I think, is just wrong," he told a Senate hearing in February. "We either need to spend less or increase more revenue."

Tax historian Bruce Bartlett also bursts MMT as little as a fig leaf, and gives a license for large expenses in the same way. Art Laffer provided the Republicans with cover to cut taxes with questionable claims they would pay for themselves.

"MMT is a kind of Laffer basket on the left," Bartlett said. .

However, some of MMT's greatest followers are not liberal politicians, but merchants on companies such as Pimco and Goldman Sachs. James Montier, who is with the investment company GMO, says he turned to the theory after more conventional economics led him to the wild.

In the 1990s, Montier and many others were convinced that Japan's increasing government debt would increase borrowing costs. It didn't.

"It cost both me and my clients or someone who was stupid enough to follow my money," Montier believed. "It was one of the worst trades I've ever suggested in my entire life."

He says MMT offers better financial forecasts and helped him understand why US interest rates have remained low, despite rising public deficits.

Persistent low interest rates have also prompted some common economists like Larry Summers and Jason Furman to rethink their attitudes and be less concerned with deficits. But they have not accepted MMT.

Furman, who advised former President Obama, says there are always many ambitious ideas floating around Washington. He argues for those who are really worth doing, are also worth paying for.


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