WHAT IS EMINENT DOMAIN?
The power of the government to take private property and convert it into public use. The Fifth Amendment provides that the government may only exercise this power if they provide just compensation to the property owners. see, e.g. Loretto v. Teleprompter Manhattan CATV Corp. 458 US 419 (1982).
- The Annotated Constitution of the US entry on eminent domain
- The LIIBULLETIN preview in San Remo Hotel v. San Francisco
- The LIIBULLETIN preview in Kelo v. City of New London
- The Harvard Bridge Project explanation of takings from the point of view of law and economics
- The Harvard Bridge Project explanation of takings from the point of view of moral philosophy
– Reproduced from: https://www.law.cornell.edu/wex/eminent_domain
WHY THE URGENCY OF NOW?
Published on Sep 28, 2018
Mia Amor Mottley, Prime Minister of Barbados, addresses the general debate of the 73rd Session of the General Assembly of the UN (New York, 25 September – 01 October 2018).
THE SYSTEMIC ROADBLOCKS TO CLIMATE ACTION
September 5, 2018
The challenge of mounting an adequate response to climate change has to be understood within the context of the larger systemic crisis facing the United States. The 1972 Limits to Growth, published when environmental movements were forming in this country, emphatically explained that our economic system was incompatible in the long term with the health and productivity of our finite planet. As the ecological rift widens, we must recognize the incompatibility of three interconnected imperatives of the current system that both push us toward climate catastrophe and prevent meaningful action—the unrelenting pressure for economic growth, the outsized power of corporations, and the United States’ extractive approach to resource use.
The Growth Imperative
Constant growth, fundamental to the capitalist economy, drives climate change and environmental degradation. All capitalist businesses embrace a “grow or die” imperative, constantly pursuing rising sales to accumulate wealth (or profit maximization). Capitalism’s embedded growth imperative exploded when banks started creating money by expanding credit, and, therefore, increasing interest rates.1 That move forced companies to impress financial markets by showing a growing profit. Companies that couldn’t sustain internal growth started merging with or acquiring other companies to grow, in turn creating a small number of mega-corporations. No longer just optional, as neoclassical monetary theory held, growth in a 21st century financialized and globalized economy has become the norm.
Just as companies look to their balance sheets to ensure that profits are maximized, the United States uses the gross domestic product (GDP) to evaluate performance and to guide national policies—neither of which the GDP was originally designed to do.2 Gradually, the capitalist firm has become our economy’s core institution, and the country has doubled down on the growth imperative by making GDP the end-all indicator of our society’s “well-being.”
This obsession with growth as the ultimate solution to all of our societal problems—full employment, an end to poverty, better education, health nationwide, more muscle to solve environmental degradation, and so on—has led our economic and political leaders astray. Yes, the average yearly growth of 3 percent over the past 70 years has made us the world’s richest country,3 but economic growth at any cost has also made climate change spiral upward and American communities and civil liberties decay. In Pope Francis’ words: “[t]he exploitation of the planet has already exceeded acceptable limits and we still have not solved the problem of poverty.”4Notwithstanding the voluminous evidence of growth’s shortcomings in promoting equitable prosperity society-wide, our government continues to undermine effective action to limit fossil fuel production, pursuing short-term economic “health” instead.
The environmental perils of unrestrained profit maximization by corporations are exacerbated by “shareholder primacy.” A prime example: Fossil fuel companies keep adding new reserves to their portfolios to “prove to their shareholders that they have fresh carbon reserves to exploit after they exhaust those currently in production.” 5 To keep the extractive machinery going, companies take on more new loans and investments, and any promises of future extraction that materialize amount to guarantees that more greenhouse gases will be released into the atmosphere.
For energy companies, this preoccupation with growth creates a dangerous bubble in the financial markets. Continuous expansion and the overestimation of fossil fuel reserves and infrastructure will backfire if their capacity and assets can’t be used—whether for environmental reasons, such as stronger regulations, or economic reasons, such as changed market conditions—and eventually become stranded, showing up as losses on ledger sheets.6 Imposing huge risks on the US economy and the companies themselves in the long run, the hyper-focus on short-term growth blinds our government and companies to the ripening possibility of the fossil fuel industry’s own demise.
The Corporate Power Imperative
Capitalist markets further racism, classism, and sexism by privileging those who have inherited access to capital and wealth.7 In a constant-growth society where bigger is always better, a self-selected elite of winners has been able to amass ever more power and wealth—a feedback loop that further magnifies inequality in the country. Remarkably, three individuals heading major American corporations now own more wealth than the bottom half of the country (160 million people) combined.8 The energy sector fits the trend. As Oxfam pointed out few years back, 88 billionaires with interests in fossil fuel activities made the Forbes 400 list in 2015 (against 54 in 2010) with the size of their combined fortunes expanding to over $300 billion (roughly a 50 percent increase since 2010).”9
By leveraging their economic status, corporations, executives, and shareholders—the ultimate wealth holders—have gained unchecked power over politics in our increasingly winner-take-all system. Our government’s reliance on companies to promote growth to raise the GDP has left them beholden to shareholder interests. With government’s blessing, then, corporations push for profit-maximization, often sacrificing workers’ wages, communities’ well-being, and environmental protections.
As documented in such exposés as Naomi Klein’s This Changes Everything, some large corporations and their beneficiaries leverage their political power in diverse ways and have built a rewarding political machine of campaign contributions, post-retirement jobs for politicians, and other perks to politicians willing to champion their interests.10 Energy companies have used this machine particularly adeptly. The sheer magnitude of lobbying for oil and gas—$126 million in 2017 alone11—and the continuous revolving door for fossil fuel executives and government officials have shaped the American climate debate to corporations’ advantage across the political aisles.
In 2010, the Supreme Court further opened the influence floodgates by allowing an unlimited influx of money from corporations to support political campaigns.12 Early in the 2016 presidential election campaign, corporate and individual donations from the finance and energy sectors comprised more than half of candidates’ funding.13 For the 2018 election cycle, oil and gas corporations, electric utilities, natural gas pipelines and coal mining companies had already shelled out close to $33 million in the first seven months of the year.14
Even such government-regulated monopolies as energy utilities, in charge of energy generation and distribution, have mustered their consolidated power to “regulate [their] regulators” and rigged the market to favor fossil fuels. In Virginia, the privately owned utility Dominion Energy notoriously limits meaningful action on climate change or environmental protection statewide, mainly through strategic philanthropic donations and political contributions.15 Now the state’s biggest corporate donor to political campaigns,16 Dominion Energy has been allowed to dump coal ash into Black neighborhoods,17 strip residents’ backyards for unnecessary natural gas pipelines,18 and stint on help for those in energy poverty.19
This powerful apparatus of permissive activities, combined with well-organized, capital-intensive, and highly-valuable assets, enable energy companies to protect their business model at all costs to the public and to thrive in an era where eliminating fossil fuel use is paramount. Our political oligarchy has no interest in going after climate culprits. Instead, the USgovernment protects energy corporations by focusing, at most, on demand-side reduction, putting the onus on consumers. This piecemeal strategy can never undo the systemic problems of the energy sector and our political economy that are costing people and the planet so much.
The Extractivism Imperative
The imperative of extractivism is deeply rooted in US colonial history. For centuries, rich white settlers extracted vital resources from indigenous land and free labor from African slaves, decimating communities in the process. Today, true to capitalist form, corporations continue to extract as much of a resource as they can get away with at the lowest cost and greatest profit, particularly in places without the political or economic capital to object. The many consequences of the extraction ethos include below-living wages, unpaid care and housework, overexploited environments, and even the manipulation of democracy for corporate gain.
Extractivism is strikingly evident within the energy sector: Companies simply don’t pay the true costs of fossil fuel extraction, including ill health and climate change. Typically, dirty power plants, fracking waste sites, and gas pipelines are located in underprivileged communities. Slightly more than one in three people in the US live near a coal plant; of those, 39 percent are people of color.20 Especially egregious are discriminatory energy projects that seek to profit from indigenous peoples’ land resources and well-being, thus furthering tribes’ economic alienation. Think here of Line 3 in Minnesota and the Dakota Access pipeline fights. The Couchiching First Nation’s Tara Houska, the national campaign director for Honor the Earth, describes the impetus for the Standing Rock movement:
“It’s always this extractive project contaminated our drinking water; this industry is preventing us from exercising our rights to hunt and fish; our traditional foods are dying; our children are sick; our elders are sick; we have cancer clusters. Standing Rock has become for Indigenous people this moment where they’re all standing together because they all know what happens when something like this is allowed to happen to them and to their communities.”21
All forms of extractivism reduce resources to simple commodities—there to be conquered and having no value apart from their potential to be transformed in wealth. People and places without the potential to transform their resources into valuable commodities are not able to participate in society, and are reduced to throwaway objects. Deeply immoral, treating people and communities as worthless objects is also profoundly impractical in today’s carbon-constrained society since we need all people and places to stop greenhouse gas emissions and build the 21st century political economy we so desperately need.
Our last and best opportunity for climate action: a new political economy
Growth mania, unchecked corporate license, and extractivism together ensure that our current energy economy works for the elite but not for the well-being of all people, all places, and the planet. Within the system we have, we will never be able to push the needle far or fast enough toward a renewable energy system. Experience now shows that without system change entrenched extractive energy corporations can’t be coaxed into public-minded and pro-environment behavior except as public relations gimmicks. Experience also counsels that imperatives running this deep can’t be wished or reformed away. Instead, headway against the root causes of our climate-change and societal problems requires transforming the system before temperature rises breach critical thresholds.
1.Frances Coppola, “How Bank Lending Really Creates Money, and Why the Money Magic Tree,” Forbes, October 21, 2017, accessed August 16, 2018, https://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/#3a3ff9563073; David Schawel, “Why Loan Growth is Important and What it Says about Inflation and Interest Rates,” CFA Institute, July 23, 2013, accessed August 16, 2018, https://blogs.cfainstitute.org/investor/2013/07/23/why-loan-growth-is-important-and-what-it-says-about-inflation-and-interest-rates/.
2.Dirk Philipsen, The Little Big Number: How GDP Came to Rule the World and What to Do About It (Princeton: Princeton University Press, 2015).
3.“United States GDP Annual Growth Rate,” Trading Economics, accessed July 25, 2018, https://tradingeconomics.com/united-states/gdp-growth-annual.
4.Pope Francis, Laudato Si (2015).
5.Naomi Klein, This Changes Everything: Capitalism vs. The Climate (New York, NY: Simon & Schuster, 2014).
6.For more on stranded assets and the carbon bubble see “Unburnable Carbon—Are the world’s financial markets carrying a carbon bubble?”, Carbon Tracker Initiative, 2011.
7.Thomas Piketty, Capitalism in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014); William Darity, Jr., et al., “What We Get Wrong about Closing the Racial Wealth Gap,” Insight Center for Community Economic Development, 2018, https://socialequity.duke.edu/sites/socialequity.duke.edu/files/site-images/FINAL%20COMPLETE%20REPORT_.pdf
8.Chuck Collins and Josh Hoxie, ”Billionaire Bonanza: The Forbes 400 and the Rest of Us,” Institute for Policy Studies, 2017.
9.“Extreme Carbon Inequality: Why the Paris climate deal must put the poorest, lowest emitting and most vulnerable people first,” Oxfam, December 2, 2015, http://policy-practice.oxfamamerica.org/static/media/files/extreme-carbon-inequality-021215-en_UPDATED.pdf.
10.Naomi Klein, This Changes Everything: Capitalism vs. The Climate (New York, NY: Simon & Schuster, 2014).
11.“Influence & Lobbying / Lobbying / Sector / Energy & Natural Resources,” Center for Responsive Politics, accessed July 25, 2018, https://www.opensecrets.org/lobby/indus.php?id=E&year=2017.
12.Citizens United v. FEC, 558 US (2010), https://www.supremecourt.gov/opinions/09pdf/08-205.pdf.
13.Nicholas Confessore, Sarah Cohen, and Karen Yourish, “The Families Funding the 2016 Presidential Election,” New York Times, October 10, 2015, accessed July 25, 2018, http://www.nytimes.com/interactive/2015/10/11/us/politics/2016-presidential-election-super-pac-donors.html?_r=0.
14.“Influence & Lobbying / Interest Groups / Energy, Natural Resources / Oil & Gas / Money to Congress,” Center for Responsive Politics, accessed July 25, 2018, https://www.opensecrets.org/industries/summary.php?cycle=2018&ind=E01.
15.“Dominion Rules: How the Richmond-based utility company became one of the most influential political forces in Virginia,” Richmond Times-Dispatch, October 13, 2017, accessed July 25, 2018, http://www.richmond.com/news/special-report/dominion/.
16.Patrick Wilson and Graham Moomaw, “Dominion executives bundle donations to Virginia lawmakers’ campaign accounts,” Richmond Times-Dispatch, October 13, 2017, accessed July 25, 2018, https://www.richmond.com/news/special-report/dominion/dominion-executives-bundle-donations-to-virginia-lawmakers-campaign-accounts/article_2dc5e500-ae9e-11e7-825f-cf7d0872e492.html.
17.“Virginia’s Toxic Coal Ash Problem: The Need to Protect the Health, Safety and Water of Virginia,” Virginia Conservation Network, 2015, https://earthjustice.org/sites/default/files/files/VA%20Coal%20Ash%20Report.pdf.
18.Lorne Stockman and Kelly Trout, “Art of the Self-Deal: How Regulatory Failure Lets Gas Pipeline Companies Fabricate Need and Fleece Ratepayers,” Oil Change International, 2017, http://priceofoil.org/2017/09/19/how-gas-pipelines-fleece-ratepayers/.
19.“The Myth of Virginia’s Rate Utopia: A comparison of Rates, Riders, and Bills,” Virginia Poverty Law Center, 2017, http://www.vplc.org/wp-content/uploads/2017/05/VPLC_EnergyReport.05032017.pdf.
20.Statistics referenced from 2012, Adrian Wilson, “Coal Blooded: Putting Profits Before People,” National Association for the Advancement of Colored People, 2012, https://www.naacp.org/wp-content/uploads/2016/04/CoalBlooded.pdf.
21.Alexis Celeste Bunter, “Indigenous Resistance: the big picture behind pipeline protest,” Cultural Survival Quarterly Magazine, March, 2017, accessed July 25, 2018, https://www.culturalsurvival.org/publications/cultural-survival-quarterly/indigenous-resistance-big-picture-behind-pipeline-protests.
Reproduced from: https://thenextsystem.org/learn/stories/quantitative-easing-planet
QUANTITATIVE EASING FOR THE PLANET
August 30, 2018
Keeping Carbon in the Ground & Dissolving Climate Opposition
Across the political spectrum, conventional wisdom holds that technology and finance remain the greatest obstacles to moving society beyond fossil fuel dependency. Yet, neither is the real reason why progress on climate action has stalled for decades. Solar applications alone have the technical potential to provide 100 times more electricity than the United States currently consumes, as concluded by the Department of Energy’s National Renewable Energy Laboratory in 2012.1 In the world’s richest nation, the same one that created trillions of dollars to save banks between 2008 and 2014, financing is not the problem either.2 The United States can wield its sovereign monetary power to finance and encourage investment in non-extractive energy projects. Why, then, do oil and gas companies still seek new reserves, governments still license dangerous infrastructure, banks still finance carbon-intensive projects, and investors still embrace fossil fuel companies?
The short answer is that our government has no interest in going after the fossil fuel industry, the source of the climate mess. Call it dependency on corporations to sustain a “healthy” economy or call it pure political oligarchy, the reality is that governments bend over backwards to help this industry. At best, politicians and officials find ways to deflect attention from root causes, focusing on only one side of the climate equation: demand. Demand-side initiatives aim to decrease our use of fossil fuel products by, for example, giving tax breaks to companies that make more efficient light bulbs or by supporting renewables. By free market logic, decreased demand for fossil fuel equals a decrease in supply so focusing on demand-side initiatives is the “logical” way to advance climate action while not directly confronting the fossil fuel industry.
But is it really? First and foremost, ours is not a free market. Beyond that, we lack the time to use only indirect measures to keep carbon in the ground, and we lack the “carbon budget” needed to allow fossil fuel companies to continue to lock-in assets and infrastructure. Real solutions to the unfolding climate crisis must include the supply-side of the climate equation. As time runs out for mitigating the worst that is yet to come, pace will have to equal scale. Without undermining all-important complementary state and local initiatives, we need to reclaim political will at the highest level: the federal government.
Untangling Government Through the Federal Reserve (and Quantitative Easing)
Fossil fuel companies’ domineering political influence is the real problem here. Oil and gas industry lead the energy and natural resources sector in both campaign contributions and lobbying expenses.3 Add these activities to the mingling of personnel between the energy industry and government agencies4—which both amplify the potential for regulatory capture and back-room negotiations, it makes crystal clear how entangled public officials and fossil fuel interests are. “Something must be done as a matter of urgency to keep unburnable carbon in the ground—in spite of and indeed because of the political power of the fossil fuel companies.”5 To get the government to serve all the people once again, we need to dismantle this powerful roadblock to an environmentally viable energy system and have a plan for managing this industry’s decline. Strong regulations just won’t do it. If reserves stay largely under private control, the regulatory approach would be too complicated and time-consuming. Unchecked, fossil fuel companies’ opposition machinery could hold back progress indefinitely.
The complexity of the energy transition makes stalling all too easy. Since 85 percent of the known fossil fuel reserves need to remain unburned, we must figure out how best to use the other 15 percent to support a clean equitable energy transition.6 With reserves placed in many different hands, and with diverse private interests at play, this already tough question becomes harder to answer. Even if we could surmount the corporate roadblock, government would still have trouble effectively and independently choosing the industry’s winners and losers.
The most effective, and timely, way to untangle the paralyzing relationship between government and industry is through a federal buyout of the fossil fuel companies that control these noxious assets. And how would that work? In brief, the federal government would acquire 51 percent or more of the shares of such major US-based, publicly-traded fossil fuel companies as ExxonMobil, Chevron, and ConocoPhillips. By securing the control over these companies’ decisions, the federal government would shift majority control of fossil fuel reserves away from profit-driven, short-minded shareholders to the public interest, winding down production and locking up the vast majority of fossil fuel reserves in the ground—all while deflating fossil fuel companies undue political influence.
The most effective, and timely, way to untangle the paralyzing relationship between government and industry is through a federal buyout of the fossil fuel companies that control these noxious assets.
Skeptics may question the need for such a drastic initiative. But practitioners and scholars are once again showing that the belief that private ownership is inherently superior to public ownership “remains hotly contested.”7 Relying mainly on private interests to meet people’s basic needs and find solutions to social and environmental illnesses has proven especially wrongheaded in our approach to energy and the environment. By any reckoning, 20th Century society saw material quality-of-life improve greatly thanks to the services and products provided by fossil fuel companies. But such gains didn’t come without sacrifices. On top of inevitable accidents, many dangerous spills were allowed to happen on grounds that it’s more profitable to pay for damages later than to prevent them now, and owners were allowed to walk away from numerous wells and sites leaving remediation and decommissioning procedures and costs to the next generation.8 Other deceptive tactics deployed to seed and fan doubt about climate change, including Exxon’s efforts to spread misinformation by emphasizing climate uncertainty along with other industry-wide coordinated deception campaigns, disqualify these extraction companies for the task ahead.9
This sorry record shows that we cannot transform fossil fuel producers quickly enough; instead our best chance is for the government to intervene in the form of nationalization. If government controls fossil fuel reserves, extraction decisions will not be made in lobbying wars and in closed-door negotiations. Instead, decisions will center on what really matters: emissions, resource intensity, and how to mitigate social impacts on low-income people, workers, and communities. If we don’t have the luxury of time and carbon budgets to give fossil fuel producers another chance to serve their customers’ best interests, the remaining option is to become their bosses. With the fossil fuel industry out of the way, the government would be able to start the real work of rationally planning and implementing an orderly transition plan that marries the wind down of fossil fuel production with the ramp up of renewable energy, without leaving anyone behind.
Unusual Suspect: The Federal Reserve Bank’s Role in Mitigating Climate Change
Without the political spine to implement even simpler market-based mechanisms, how will government ever be energized to take over fossil fuel companies? Quite simply, it might have no other option. Many fear that the fossil fuel sector could be instigating the next financial crisis. In 2008, the USeconomy neared collapse when the mortgage market was overestimated. The same peril is mounting again, but this time in the shape of fossil fuel reserves and infrastructure that will no longer be needed—and so won’t provide the expected financial returns. Fear of stranding assets in this way has grown among financial regulators and investors.10 As nations committed to limiting temperature increases to “well-below 2°C above pre-industrial levels and pursu[ing] efforts to limit the temperature increase to 1.5°C above pre-industrial levels,”11 environmental regulations across the world have since tightened and civil society has started to revoke some of these organizations’ social license through growing lawsuits, divestment movements, and protests. If these actions succeed even partially, reserves and supply infrastructures will be retired “prematurely,” stranding vast fossil fuel assets and inviting market chaos.
Estimates around the size of the fossil fuel threat in the global financial market vary widely. The highest number so far, presented by CitiGroup in 2015, is US$100 trillion12—significantly more than the total losses from the 2008 financial crisis.13 Mirroring the previous crisis, both the responsible sector and millions of workers and companies outside the fossil fuel market would feel the pain. Bank of England’s (BoE) Governor Mark Carney contends that up to one-third of global wealth may be at risk due to fossil fuel stranded assets,14 including that of pension funds that hold the retirement of teachers, veterans, and nurses.
Companies have brushed off these concerns because they don’t believe that countries will adopt policies to prevent climate change. This rationale has hardened into doctrine in the United States, where fossil fuel-friendly policies and market conditions remain the norm. As a result, day-in and day-out the number of at-risk assets in the financial markets only grows, with companies further exploring and adding new reserves to their portfolio so they can cash out as much money as possible. By 2025, fossil fuel companies betting against climate action are expected to waste another US$1.6 trillion globally in fossil fuel infrastructure.15 Clearly, market trauma is in store “irrespective of whether or not new climate policies are adopted.”16 The United States, a fossil fuel exporter and late adopter of climate policy, stands to be a clear loser in this dangerous game of betting against the planet’s future.
As it did in 2008, the Federal Reserve Bank (Fed) could play a crucial role in diffusing this impending catastrophe, this time in a preventive and positive way. The century-old agency has under its current functions to ensure the stability of the financial system and minimize systemic risks through active monitoring and engagement.17 The systemic threat imposed by irresponsible fossil fuel companies should be enough to trigger the Fed to intervene now. Other central banks around the world have already started to act on their responsibility to better understand and try to avoid a financial crisis caused by the fossil fuel industry’s stranded assets. The most vocal among central banks is the Bank of England. Since 2015, when BoE Governor Carney alarmed investors in the famous speech “Breaking the Tragedy of the Horizon,” the bank has started a research agenda, a working group, and a coalition with seven other central banks to clarify their role in addressing systemic environmental risks.18
Besides anticipating and managing threats to the financial system, the Fed wields the monetary tool needed to pull off a federal buyout of top fossil fuel majors without burdening taxpayers or fueling inflation. Its monetary sovereignty over the creation of money enables this agency to literally create money out of thin air (aka computer keystrokes). The fancy term for this process, “quantitative easing” (QE), has two parts: “quantitative” in relation to the large amount of money that can be created and “easing” in reference to the ultimate goal of the process—help the economy through money injection. This tool was used during the latest financial crisis by the Fed, the European Central Bank, the Bank of Japan, and other central banks. In the USalone, the Fed created over US$3.5 trillion between 2008 and 2014 to bail out bankers and financial institutions—without materializing the traditional concern of runaway inflation.19 Now it’s time for the Fed to act on behalf of people and planet.
Strategic Breakthroughs and Outcomes of a Federal Buyout
The potential benefits of a QE-financed federal buyout are manifold. Besides neutralizing fossil fuel opposition to climate action, which few other meaningful supply-side proposals could do, a federal buyout has two other selling points. It would leapfrog critical shortcomings of standard supply-side initiatives—namely, lock-in infrastructure and green paradox—and clear the path for a just energy transition for fossil fuel workers and communities.
Leapfrogging Lock-in Infrastructure and the Green Paradox
Once certain infrastructure is in place, decrease in demand and other changes in market conditions alone won’t stop production. This so-called infrastructure lock-in particularly dogs the fossil fuel industry, where the bulk of investment capital is sunk in the project’s first years to build needed structures and facilities. Once infrastructure is in place, “producers will ignore sunk costs and continue to produce as long as the market price is sufficient to cover the marginal cost (but not the average cost) of production.”20 Both well-established infrastructure and new projects are subject to infrastructure lock-ins. Investors might, for instance, invest in a new coal mine if convinced that “the short-term value of the profits that can be earned under current policy settings …[exceed] the long-term (risk-adjusted) cost of detrimental policy change.”21 Policy uncertainty thus reinforces this climate-hostile rationale.
The green paradox occurs when companies accelerate fossil fuel production in anticipation of future policy and market trends.22 Fearing asset devaluation, producers speed up extraction and production to cash out profit as quickly as possible. Like infrastructure lock-in, the green paradox also invites greenhouse gas emissions and severely diminishes our chances to plan and implement an orderly transition to renewables in two ways. First, it shortens the already scarce time we have left to decrease fossil fuel production and ramp up renewable infrastructure. Second, it deepens fossil fuel dependency as people continue to buy carbon–intensive assets, such as cars and far-away homes, without taking climate change impacts—physical and financial—into consideration.23
Unlike either regulatory demand or such supply-side proposals as carbon pricing, ending fossil fuels’ subsidies, production quotas, etc., a federal buyout of fossil fuel companies would skirt both infrastructure lock-ins and the green paradox. That’s because producers would no longer financially benefit from short, medium, or long-term fossil-fuel production. Shortening the renewable-energy investment gap, a federal takeover would also send a clear signal that the future is renewable, channeling investors’ decisions away from fossil fuels and toward projects aligned with the goals of a 1.5° Celsius society.
The proposal’s true game-changer, however, is making climate action attractive to fossil fuel companies facing endless negotiation and litigation. As an alternative to “produce all now or lose most later” (catchwords often used to tar climate policies), a federal buyout affords a reasonable exit option to fossil fuel companies by giving investors a return without having to keep up production. Given the future prospects of fossil fuel companies’ stocks, investors might even take legal action on the basis of a breach of fiduciary duty if managers refuse to sell their companies for a fair enterprise value. This open door is a key way out of our current roadblock and a way to bring investors and companies on board sooner rather than later.
Clearing the Path for a Just Transition for Fossil Fuel Workers and Communities
A buyout proposal also potentially allows government to devise and activate a comprehensive, orderly transition plan that marries fossil fuel production with renewable capacity rise, all while leaving no dependent worker or community behind.
As it is now, the private companies that lead present and future energy generation treat workers and communities as the inevitable collateral damage of misguided judgments and maximization of private interests. General Electric, for example, in late 2017 announced 12,000 job cuts in its fossil-fuel-heavy power department, a decision made to right-size the business amid a decline in fossil fuel use. Just two years earlier, the company had decided to double its inventory of large coal turbines.24
Treating those who helped build the 20th century American society as collateral damages isn’t only immoral, but also economically damaging. This callous approach could also undermine a successful transition to clean energy. The recent US Presidential election made it clear how easy and crowd-pleasing it is to make promises to revive dying industries even when the facts and larger context don’t augur well. Often, when company towns vie to remain standing, last-minute decisions set off a wave of job losses and revenue decline that can damage or ruin the community’s structure. From a climate perspective, throwing away communities translates into “empty houses, half-empty schools, roads, hospitals, public buildings, etc., [that we must] rebuild in a different location, with all the associated carbon costs.”25
Federal government can help keep “right-sizing” decisions from decimating communities and local jobs while it also speeds the transition away from fossil fuel use. Its role should be securing fossil fuel reserves through a federal buyout of major companies and implementing a cohesive, orderly, and just transition plan that supports, builds on, and lifts workers and communities along the way. And that plan must leave room for those directly affected to participate in and guide a future away from the extractive economy.
Workers’ New Roles and Meaning
An undeniable consequence of de-carbonization will be job losses in the fossil fuel sector. With 1.1 million workers employed in carbon-intensive electric power generation and fuels in 2017,26 government must figure out a way to keep these people employed. The good news is that the energy transition requires a lot of workers. An investment of US$ 200 billion annually in renewable energy and energy efficiency, as estimated by economist Robert Pollin and others, could create 4.2 million jobs in the US, a net gain of 2.7 million when jobs lost from the fossil fuel sector are counted.27 The bad news is that matching new jobs and displaced workers will not be simple. Many jobs will appear in new locations and require new expertise.
That said, creating a comprehensive, coordinated federal transition plan from the get-go can prevent unnecessary and permanent disruption of fossil fuel workers and their families. Looking at lessons learned from coal communities in six countries, researchers concluded that failure to anticipate, accept, and prepare for the transition is a key difference between securing workers a continuous path in workforce and falling into long-term unemployment.28
The transition plan’s first goal must be to avoid large-scale, last-minute layoffs. Quite simply, workers leaving current carbon-intensive work need a safe passage into jobs with a future. The way could be paved with a clear climate policy so young adults could compare the odds of specializing in various fossil fuel sectors and workers already employed by the industry could get trained for new roles.
But the government must also adopt “emergency measures” in anticipation of the disruptive impacts the transition will inevitably have on some workers and their families. A standard income for workers and families, for instance, would enable them to weather surprises or changes without compromising their health and the assets built by their hard work. Other forward-looking policies, such as relocation assistance and counselling, could also be considered.29
The government can also guarantee full-employment to workers, stabilizing their income during the transition and preserving the meaning that employment provides to life for many. Meaningful labor is particularly important for fossil fuel workers, whose jobs provide a living and also an inheritance maintained over generations. In that vein, government should also find ways to keep at least some workers in the “same” industry, albeit with an evolved purpose and vision. Instead of coal mining, for instance, why couldn’t at least some former miners continue reporting to the same locations, with the same company, to revitalize the compromised land and waters for the benefit of their communities and neighbors? After all, workers who helped build and maintain fossil fuel projects are often best qualified to decommission facilities, clean up, and otherwise revitalize old sites.
Communities’ Diversification and Economic Renewal
In many cases, communities across the country will need to diversify and renew their economy. No one knows better than each community how to determine and evaluate what comes next. Local people are the experts at identifying their historical, cultural, and available potential and capacity. As explored in “An Anchor Strategy for the Energy Transition,” such anchor institutions as hospitals, universities, and public departments have a unique opportunity and powerful capacity to lift their communities and people both sooner and later.
But what happens in the many small rural communities that have depended heavily on the fossil fuel industry but lack anchor institutions or alternative industries to support their transition? Here, government must intervene to help communities feeling cut off at the knees with a robust plan to stabilize their economic base. One of many options is to identify and recognize affected communities as Opportunity Zones, an economic development tool created in 2017 to spur economic development and job creation in distressed communities.30 Investors, including former fossil fuel backers looking for new opportunities, would be encouraged through tax preferences to put their money in these areas to support economic diversification and equitable opportunities for displaced workers.
Another suggestion builds on the idea that fossil fuel companies, now under public control, could be transformed into “environmental revitalization” enterprises. Some examples show how. With a lignite (brown coal) economy in full force in 1985, East Germany saw both production and workforce in the sector decline by almost two-thirds within a decade.31 The City of Leipzig, the region industrial center, alone lost 100,000 people in a ten-year timeframe. Looking to provide a brighter future to the region, the government, through the federally-owned Lausitz and Middle Germany Mining Administrative Company (LMBV), started the revitalization process of former open mines (employing 20,000 people along the way).32 The result: the region, the “largest artificial lakeland” in Europe, is today a tourist destination with 26 lakes providing a variety of recreational activities, including canoeing, kayaking scuba diving, triathlon competitions, restaurants and party spaces.33 Although the region’s redevelopment is more complex than exposed here, the revitalization of “once one of the dirtiest areas in East Germany” into a pristine landscape of “soaring pine forests, glistening lakes and immaculate asphalt cycle paths,” shows that providing old fossil fuel communities a new, better meaning is possible.34
Conclusion: 51 Percent Solution for the Climate Crisis
There is no easy fix that would free us from the climate mess we are in, but a federal takeover of major fossil fuel companies in the first links of the supply chain could turn the tide. If fossil fuel reserves were under popular control, their future could be decided for and by the people, instead of by profit-driven, short-sighted shareholders. Only democratic government can ensure the planned wind-down of fossil fuel production in accordance with climate safety goals. With room for private profit cut out of fossil fuel extraction and production, the powerful entrenched opposition of the energy sector would crumble. And with government and fossil fuel industry interests untangled, complementary climate initiatives could be adopted and implemented. So could a cohesive, orderly, and just transition plan that leaves no one behind. The transition to a sustainable, renewable, non-extractive economy requires nothing less.
1.Although from 2012, the study’s conclusions remain true today. Anthony Lopez et al., “US Renewable Energy Technical Potentials: A GIS-Based Analysis,” National Renewable Energy Laboratory, 2012.
2.“Home / Monetary Policy / Credit and Liquidity Programs and the Balance Sheet,” Federal Reserve, accessed August 3, 2018, https://www.federalreserve.gov/monetarypolicy/bst_openmarketops.htm.
3.“Influence & Lobbying / Interest Groups / Energy, Natural Resources / Summary,” Center for Responsive Politics, accessed July 20, 2018, https://www.opensecrets.org/industries/indus.php?ind=E.
4.Trump’s cabinet appointees are few of the many examples throughout the political sphere. David Roberts, “Meet the fossil fuel all-stars Trump has appointed to his administration,” Vox, June 14, 2017, accessed July 20, 2018, https://www.vox.com/policy-and-politics/2017/6/13/15789772/trumps-fossil-fuel-all-stars.
5.Gar Alperovitz et al., “Systemic Crisis and Systemic Change in the United States in the 21st Century,” The Democracy Collaborative, September 2016.
6.Greg Muttitt, “The Sky’s Limit: Why the Paris Climate goals require a managed decline of fossil fuel production,” Oil Change International, 2016.
7.Thomas M. Hanna, Our Common Wealth: The Return of Public Ownership in the United States (Manchester, U.K.: Manchester University Press, 2018).
8.Colorado alone has 260 “orphan” sites in the shape of inactive oil and gas wells. Dan Elliott, “Colorado to accelerate cleanup of ‘orphaned’ oil, gas wells,” Associated Press, July 19, 2018, accessed July 20, 2018, https://apnews.com/b10ea1ccbca9425abac258aff389b0f4/Colorado-to-accelerate-cleanup-of-’orphaned’-oil,-gas-wells.
9.David Hasemyer and John Cushman Jr., “Exxon Sowed Doubt About Climate Science for Decades by Stressing Uncertainty,” InsideClimate News, October 22, 2015, accessed July 23, 2018, https://insideclimatenews.org/news/22102015/Exxon-Sowed-Doubt-about-Climate-Science-for-Decades-by-Stressing-Uncertainty; Kathy Mulvey and Seth Shuman, “The Climate Deception Dossiers: Internal Fossil Fuel Industry Memos Reveal Decades of Corporate Disinformation,” Union of Concerned Scientists, July 2015.
10.Mark Carney, “Breaking the Tragedy of the Horizon,” speech given at Lloyd’s of London, London, UK, September 29, 2015; “The Price of Climate Change: Global Warming’s Impact on Portfolios,” BlackRock, October 2015, accessed July 8, 2018, https://www.blackrock.com/corporate/literature/whitepaper/bii-pricing-climate-risk-international.pdf.
11.UNFCCC Paris Agreement (2015), article 2(1)(a).
12.Jason Channel et al., “Energy Darwinism II: Why a Low Carbon Future Doesn’t Have to Cost the Earth,” CitiGroup, 2015.
13.Al Yoon, “Total Global Losses From Financial Crisis: $15 Trillion,” The Wall Street Journal, October 1, 2012, accessed July 23, 2018, https://blogs.wsj.com/economics/2012/10/01/total-global-losses-from-financial-crisis-15-trillion/.
14.Of equity and fixed assets. Mark Carney, “Breaking the Tragedy of the Horizon,” speech given at Lloyd’s of London, London, UK, September 29, 2015.
15.When considering a 50 percent change to stay below 2 Celsius temperature increase. Andrew Grant, “Mind the Gap: The $1.6 trillion energy transition risk,” Carbon Tracker Initiative, 2018, https://www.carbontracker.org/reports/mind-the-gap/.
18.“Quarterly Bulletin 2017 Q2,” Bank of England, accessed July 20, 2018, https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2017/the-banks-response-to-climate-change.pdf?la=en&hash=7DF676C781E5FAEE994C2A210A6B9EEE44879387; Network for Greening the Financial System, Banque de France, accessed July 20, 2018, https://www.banque-france.fr/node/50628.
19.Neil Irwin, “Quantitative Easing Is Ending. Here’s What It Did, in charts,” New York Times, October 29, 2014, accessed August 3, 2018, https://www.nytimes.com/2014/10/30/upshot/quantitative-easing-is-about-to-end-heres-what-it-did-in-seven-charts.html.
20.Fergus Green and Richard Denniss, “Cutting with both arms of the scissors: the economic and political case for restrictive supply-side climate policies,” Climatic Change, 2018, https://doi.org/10.1007/s10584-018-2162-x.
22.Hans-Werner Sinn, The Green Paradox: A Supply-Side Approach to Global Warming (Cambridge: The MIT Press, 2012).
23.Karen C. Seto et al., “Carbon Lock-in: Types, Causes, and Policy Implications,” Annual Review of Environment and Resources, Vol. 41, November 2016.
24.Carla Santos Skandier, “When Companies Deny Climate Science Their Workers Pay,” Truthout, December 28, 2017, accessed July 23, 2018 https://truthout.org/articles/when-companies-deny-climate-science-their-workers-pay/.
25.Gar Alperovitz et al., “Systemic Crisis and Systemic Change in the United States in the 21st Century,” The Democracy Collaborative, September 2016.
26.“US Energy and Employment Report,” National Association of State Energy Officials and Energy Futures Initiative, 2018, accessed July 23, 2018, https://www.energy.gov/downloads/2017-us-energy-and-employment-report.
27.Robert Pollin et al., “Green Growth: A US Program for Controlling Climate Change and Expanding Job Opportunities,” Political Economy Research Institute and Center for American Progress, 2014.
28.Bent Caldecott, Oliver Sartor, Thomas Spencer, “Lessons from previous ‘Coal Transitions’ High-level Summary for Decision-makers,” IDDRI and Climate Strategies, 2017, https://www.iddri.org/sites/default/files/import/publications/coal_synthesisreport_v04.pdf.
29.For more information see Fergus Green, “Transition Policy for Climate Change Mitigation: Who, What, Why and How,” The Crawford School of Public Policy Australian National University, CCEP Working Paper 1805, May 2018.
30.Opportunity zones were added to the Tax Code by the Tax Cuts and Jobs Act of 2017. For more information see “Opportunity Zones,” Economic Innovation Group, accessed August 3, 2018, https://eig.org/opportunityzones.
31.Philipp Herpich, Hanna Brawers, Pao-Yu Oei, “A historical case study of previous coal transitions in Germany,” IDDRIand Climate Strategies, 2018.
32.Matt Finch, “Urban life after coal: Leipzig,” Coal Transitions, March 23, 2017, accessed July 27, 2018, https://coaltransitions.org/2017/03/23/urban-life-after-coal-leipzig/.
33.Ibid.; Paul Sullivan, “East Germany’s old mines transformed into new lake district,” The Guardian, September 17, 2016, accessed July 27, 2018, https://www.theguardian.com/travel/2016/sep/17/lusatian-lake-district-project-east-germany.
MONEY MATTERS! WHY MONETARY THEORY AND POLICY IS A CRITICAL TERRAIN FOR THE LEFT
As our demands grow bolder—true full employment, the rebuilding of the social safety net starting with Medicare for All, an overdue green and just transition—so will the naysayers’ inevitable refrain: “How will you pay for it?” This Left Forum panel on June 5, 2018 moderated by Gar Alperovitz brought together a combination of innovative thinkers and practitioners who together present a different understanding of monetary policy and the money system. They show a way out of the austerity trap and reveal that the obstacles to bold action at a national scale on jobs, healthcare, and climate are political, not economic. This is a partial, edited transcript.
Co-Chair of The Next System Project more
Gar Alperovitz: One of the things that’s happening around the country, as you probably know, is there’s an upsurge of interest in the idea that the banks ought to be under public control. There are public banking initiatives in something like 30 or 40 cities and a couple of states around the country. There was a forum on this only six years ago promoting the idea. We’re seeing all over the country a very, very fast pick-up on this, including in Los Angeles, Washington D.C. and several other cities. State legislation pending in Michigan and Washington state.
The subject we’re going after today is probably the other piece of the puzzle, monetary policy and money, because there’s a revolution going on in that area as well. It’s not simply the establishment of public banks, but actually getting down to how money works, a subject that has been obfuscated for many, many decades.
We’re going to go into how the revolution is emerging very, very fast on the ground as well as in theory.
Our first speaker, Stephanie Kelton, is currently a professor of public policy and economics at Stony Brook University. She was also chief economist on the minority staff of the Senate Budget Committee. More important, she was the key economist behind Bernie Sanders’ presidential campaign, so we’re delighted to have her. She is also one of the leading experts in this field and getting a lot of attention, deservedly so, for not only for opening a way to rethink monetary theory or monetary practice, but for explaining it to the public in serious terms.
The ‘pay-for-it’ trap
Professor of Public Policy & Economics at Stony Brook University more
Stephanie Kelton: I’m going to try to focus my remarks on three broad topics. I’m aiming at a progressive audience obviously, but honestly I give a version of this exact same talk most of the time to conservative audiences. The response that I get in those audiences, it would surprise you probably, is extremely positive.
What is it about what I’m going to say that can resonate both with audiences like this and with a very fiscally conservative audience? Let me jump in and we’ll see where this takes us.
This is just to tell you the kinds of things progressives are up against when they propose a big, ambitious agenda.
Bernie Sanders runs for president on the most ambitious agenda I have seen in my lifetime. Hillary Clinton publishes in her book a bit of an exchange she had with someone who said, “Man, it’s awful. Every time we propose something, he goes bigger. We say we want debt-free college. We want to help make college more affordable. He says, ‘Let’s make it free.’ If we say we want to make health care more affordable and increase access, he says, ‘Let’s just make it free.’ Every time we propose something, he goes bigger.” In this exchange that is included in her book somebody said, “This is like Bernie saying, ‘I think America should get a pony.’” Hillary, the fiscally responsible voice in the room says, “How will you pay for the pony?”
It’s the idea that all of this stuff is so grandiose that it’s beyond reality. This is what we’re up against as progressives, putting forward a bold agenda.
I think progressives should ask themselves, “What is the purpose of tax?” If your instinct, if your impulse is to say to pay for the stuff we want, my suggestion is you’re doing it wrong.
This again is Hillary Clinton, from years before the 2016 campaign, when she’s a senator. She’s talking about the reality of being in Washington D.C.She says, “The reality is you cannot cut taxes or increase spending unless you can pay for it.”
What she’s saying is, and I worked on the budget committee, if you propose to do something, you’ve got to show people how you’re going to pay for it. If you want to cut taxes or you want to put more money in education or infrastructure or defense or anything else, you’ve got to show where the money is going to come from. A congressional budget office has to take a look at it. Things are supposed to be done in a deficit-neutral way so that you’re not adding to future deficits so that you’re not increasing the size of the national debt.
Okay, so Senator Sanders gets accused of putting forward a big proposal and not paying for any of it, right? Everybody “knows” that. That was the accusation, but that wasn’t the reality. He actually attempted to play by Washington rules, which are you’ve got to pay for the stuff you want to do. If you go down his agenda, every item on the agenda, you could really draw a line from what it was he was proposing to the source of revenue that was supposed to pay for it all, whether it was Medicare, infrastructure, making public colleges and universities tuition-free. If you actually looked at what he proposed, it was paid for in the conventional sense of the word.
Now, obviously if you have to find the money, as Hillary Clinton says, then where do you look when you need money? Who’s going to pay for stuff? Who’s got the money? Obviously the rich people have the money. It’s a natural place to look when you’re trying to find the money to pay for a big ambitious agenda. You go for the billionaire class or you go for Wall Street, and you say Wall Street will pay.
If it’s making public colleges and universities tuition-free, which was one of the things he proposed, the pay-for on the other side of that was a tax on Wall Street speculation. You’ve all heard this probably 100 times.
How do you pay for a progressive agenda if these are the constraints because this is the current narrative? This means that you have to fight two battles. You have to fight for the agenda that you’re fighting for, and you have to sell policies on their own merits, and you simultaneously have to wage war on another front, which is you have to fight to raise the revenue. You have to get people to vote for the tax increase, for the closing of the loopholes of whatever it is that’s giving you the additional revenue. You’re waging two battles when you do this. My spending proposal is this, and here’s where I propose we get the money. This one can’t happen unless and until this one happens and you have success on the revenue front. It actually means that you are in a very real sense dependent upon the rich because you can’t feed a hungry kid, you can’t fix crumbling infrastructure, you can’t provide health care for all, unless and until you can claw some cash away from the people who have it. You need their money. It makes you dependent upon the wealthy.
I think progressives should ask themselves, “What is the purpose of tax?” If your instinct, if your impulse is to say to pay for the stuff we want, my suggestion is you’re doing it wrong.
In the 1940s, the New York Federal Reserve Bank was headed by a guy named Beardsley Ruml. He wrote this really important piece in 1946 called “Taxes for Revenue are Obsolete’” What’s he saying? I don’t know that I need to read the whole thing, but he says basically the need for the government to raise taxes in order to remain solvent and run its affairs is completely yesterday. We don’t do that anymore. Why? Because we have a central bank and because we went off the gold standard. The fact that we changed the monetary system in this fundamental way opens up space for us to do stuff we couldn’t do before when we had to find the money.
You’re trapped in a gold standard framework when you’re operating in this frame of mind that money is this finite thing that exists somewhere, it’s physical and you’ve got to find it, and you’ve got to go get it in order to spend it. Ruml says, no, no, no, that’s not how it works in the modern era – by the way, modern in the 1940s, and we still haven’t caught up with this reality.
Ruml goes on to say the purpose of the tax is not to fund the federal government. The purpose of the tax is multifold. One important thing it does is it allows the government to remove some money from the economy so that you don’t overheat the economy through government spending. In other words, taxes help you keep a lid on inflation. If you just spent money into the economy but you didn’t tax anything back, you’d run the risk of overheating the economy, causing an inflation problem.
Another thing taxes do is affect the distribution of income. You lower taxes on some folks, they end up with more take-home pay. You raise taxes on others, it takes the money away. You impact the distribution of income. You use taxes to incentivize or disincentivize behavior. A carbon tax is a good example. You don’t want as much pollution. You don’t want certain activities taking place, put a tax on it. You want to encourage certain other things like people driving electric cars, give a tax incentive or some form of a subsidy to encourage that.
The last one is he says you might want for some reason or another to have a line item where you can keep track of a certain program, like for example Social Security or the Highway Trust Fund or something like that. Taxes do a lot of stuff that’s important. What they don’t do is provide the government with revenue that it needs in order to operate.
Go back to this picture. You don’t tax the rich because you need their money in order to feed a hungry kid or fix a crumbling bridge. You tax the rich because they are too damn rich and extreme concentrations of wealth especially, but also income, are bad for the functioning of the economy, are bad for democracy. That’s the rationale for taxing the rich. Not because we can’t do other things unless we get money from them to pay for it.
You tax Wall Street speculation because you want to discourage certain behaviors, not because you need their money that you raise from a financial transaction task in order to pay for free college. Think it through. Suppose you said, “We’re going to make public colleges and universities tuition-free in the US. It’s going to cost about $70 billion a year to do that.” Now, to pay for it, we’re going to put a tax on Wall Street. Every time somebody buys stocks or engages in derivatives trading or bond trading, they’re going to pay a small transactions tax. That’s our tax.
Now, you simultaneously have said you want to break up the banks, you want to make banking boring, you want to shrink the size of the financial sector, and you have made yourself completely dependent upon what in order to fund your education proposal? Wall Street speculation. Not only do you need Wall Street to continue to speculate, but you’re going to need them to do more of it over time and grow because of the amount of money need to pay for college and university. You don’t want to hitch your wagon to the very thing that you loathe and are trying to shrink as part of your overall economy. There is a rationale for doing it, right? That would be to discourage certain behaviors, not to fund programs.
The household fallacy
My argument is that when we think about the government’s financial operations we tend to do so with reference to our own. We think of the government as a household. I say, “Well, I can’t go on spending more than I take in year after year and borrowing. I’d go broke.” This is a huge mistake, and if progressives do it, they need to stop it right now. The federal government is nothing like the household. The federal government plays by a completely different set of rules compared to all the rest of us.
If we want to go out and buy a car tomorrow, we have to have the money in the bank or be able to prearrange the financing. The dealership is not going to let us drive off the lot with a car until we have security financing to pay for the car, right? What we think is that the government prearranges its financing – the T.A.B. or “taxes and borrowing”; it collects taxes from the rest of us, it engages in borrowing when it sells bonds. It arranges the financing. It raises the revenue. It has money and now it goes out and spends. The spending comes last.
That’s completely backwards. What happens in reality is the federal government – the House and Senate – get a budget together. If the budget passes, there’s an appropriations process. It is through the appropriations processes that the budget authorization for government spending is triggered. That’s how the government pays for everything. We spend first, and the taxes and borrowing are secondary. The rest of us can’t do this. Money matters.
The fact that the federal government has control of the U.S. dollar, creates it, issues it, and is its sole source, means it can never run out of money.. You can try to create it, but you’d get arrested for counterfeit. You can’t do it. You can’t create high-powered money. The government’s money is special.
How should progressives answer the question, “How will you pay for it?” It’s a trap. Don’t fall into this. What they’re really asking is not how will you pay for it but who will pay for it. The question is designed to name the enemy. Who’s going to be footing the bill? In other words, who’s paying the T.A.B.? Don’t answer that question.
The bottom line is all this pay-for stuff is built around the idea that deficits are bad. They aren’t. Dr. Evil told us a long time ago that deficits don’t matter. Well, it turns out they do, but not the way we usually think about it. Deficits matter, but not because they add to the national debt, burden future generations and all that kind of stuff, create instability in the economy. Deficits matter because the government’s deficits become surpluses somewhere else in the economy. Guess what? Dick Cheney knows it and the Republicans know it. How do I know that? Because they just passed tax cuts that will add $1.5 trillion to deficits over the next 10 years. Why did they do that? Because they know that when a government is increasing its deficit somebody else’s surplus is going up, and they know exactly whose surplus it is. They’re using the budget deficit to channel financial resources to the people they are trying to help. Democrats or Greens or whoever could be using budget deficits to channel financial resources, infrastructure, real things, to the people they’re trying to help.
How should progressives talk about money, debt and taxes? Don’t repeat this stuff about taxes paying for federal government programs. It’s not taxpayer money. This is the wrong frame. Don’t talk about the debt as if it’s something that we owe. It’s something that some of us own. You may have treasuries. Mostly they are concentrated in the hands of wealthier individuals. Don’t talk about government money as if it’s something that the government needs to get from us. They’re the source of the money. We get it from them. They don’t need it from us.
An economy on FIRE
Gar: The next person is going to give us the next step. Michael Hudson is the distinguished professor of economics at University of Missouri, Kansas City. He’s also a research fellow of the Democracy Collaborative. Michael has been in this for a long time. Michael, take it away.
President of The Institute for the Study of Long-Term Economic Trends (ISLET) more
Michael Hudson: My first discussion of modern monetary theory really was in Canada 40 years ago. I was the financial advisor to the Canadian government. At that time the big problem from Canada was how provinces would get enough money to build infrastructure. I’m going to talk a little bit about that because it’s the same problem that the United States is facing today. You can understand it, I think, more clearly in the international sense.
There are two ways of financing infrastructure. One would be if the government, the Bank of Canada, which was more than any other bank able to create its own money, spent the money into the real economy for infrastructure. The banking lobbyists – I won’t call them conservatives; they were radical reactionaries and lobbyists for the banks – said, “Look, if the government creates the money, you’ll have to borrow it, and you’ll have to pay 5 percent, 6 percent, but you can save half a percentage point by borrowing German marks or Swiss francs.”
This was Trudeau’s liberal government, and you can’t get more right-wing than the liberals in Canada. What they did was they borrowed billions for Deutsche marks and Swiss francs that were turned over to the government central bank. What did the government do? All this domestic spending in the real economy was in Canadian dollars to hire Canadian labor, to buy Canadian goods and services, to build the infrastructure.
My point was, why do you need Swiss francs and German marks if you’re going to create dollars? The Swiss francs and German marks ended up in Canada’s central bank as its foreign exchange reserves. What did it need these reserves for? If the government is going to create the money as a result of this borrowing abroad, why have the foreigners?
The real question of modern monetary theory is who’s to get the benefit of the money? Will it be the 1 percent or the 99 percent?
Well, the answer from the banks was you need the foreign banks as an honest broker because they’re responsible. In literature, you think of bankers as being responsible, but they’re really not responsible. What happened after 1979 was that the Canadian dollar went down from about $1.06 into the $0.80s. The Swiss franc went way up. The German mark went way up. The result was that Canada had to pay a 50 percent premium on the capital as a result of having the banks work as the honest broker for them.
None of this was necessary. The government could spend it into the real economy. The problem is the private sector is not just the real economy. The private sector also is the FIRE – finance, insurance and real estate – sector. You can see today the ability of the government to spend money into the economy through the Federal Reserve’s quantitative easing, technically bailout money to subsidize the finance, insurance and real estate sector. This is considered to be noninflationary.
Who gets to create money
You have to ask, what kind of inflation are people talking about? When they talk about government spending into the real economy and running deficits, they say there will be price inflation. What they really mean is wage inflation. What they want to do is keep wages down. When they talk about inflation of prices, they really mean living standards going up. We don’t want that, do we, because we call that consumer price inflation. We don’t call that rising living standards. The fact is, there’s a disconnect. There’s no reason why consumer prices should rise when wages go up. There’s a disconnect with the largest increase in prices that we have today, whether it’s housing prices and rents, as you have in New York, or medical care.
The government is able to create money now for the financial sector, but there is this patter about why you can’t run a deficit for the domestic economy. Now, what is true for Canada is exactly what Stephanie has explained for the United States. Banks can create money simply on their computers. If the rich people lend this money to be spent, how is the price effect any different from the government simply creating the money? The effect is exactly the same. That’s what they don’t get. You don’t need to borrow to spend into the economy at all. It’s a science fiction story, a parallel universe, as if the governments are somehow dependent on the banks.
All this developed about 100 years ago when the Federal Reserve was created in 1913 and ‘14. Before that, there was a crisis in the United States in 1907. Congress had maybe 18 volumes of national monetary commission reports. One of the volumes explained everything that the Federal Reserve had done, creating money, moving it around 12 districts, pumping it into the economy for the autumnal drain when you have to move the crops. All of this was done by the treasury. The difference is that the treasury was controlled in Washington. I have on my website from an Indian journey all of the documents of how the Federal Reserve was created, essentially to take control of the money supply out of Washington and distribute it to the banks in the various Federal Reserve districts.
You have a whole political fight between the FIRE sector and the government sector. You can only understand this fight by looking at the politics of it.
The fact is that Karl Marx was much too optimistic about the financial system. His volume three of “Capital” was all about how finance tended to grow and extract more and more from the economy. The FIRE sector today essentially funds real estate. It extracts rents. It raises prices. It backs great monopolies. Banks don’t create money into the real economy basically. They create money to buy companies, divide real estate already in existence. They transfer wealth, but they don’t really produce.
I’m working with Gar’s group to re-describe how the gross domestic product accounts. We actually treat the FIRE sector, finance, as a subtraction from gross domestic product, not an addition to.
Getting back to Marx, Marx expected in the late 19th century that the historical destiny of capitalists, he wrote, was to take banking and money creation out of the feudal stage, out of the medieval European stage and industrialize it and essentially move towards public banking. The whole 19th century was doing this. There are three volumes of the national monetary commissionary report on the right spot for the large German banks and how German banks were working hand in hand with government to finance industry. The Bank of Canada was formed during this time.
Things had not worked out that way. World War I changed everything, and now you have instead of industrializing finance, you’ve had a financialization of industry. What you’re having instead of the government spending into the real economy, it’s starving the real economy.
What happens when a government doesn’t pump money into the economy? That means there are only two sources. One source is international. You borrow the money abroad in a foreign currency that you’ll have to repay at a currency risk. The other source is domestic; you borrow from the banks or you let the banks pump the money into the economy. The problem is the banks don’t pump the money into the economy. The banks only lend essentially for the real estate, corporate raids, corporate loans. They even make loans to corporations to pay dividends. The beneficiaries are the 1 percent or the 5 percent.
The real question of the budget deficits or modern monetary theory is who’s to get the benefit of the money? Will it be the 1 percent or will it be the 99 percent? The answer can be increasing the flow of funds, and the flow of funds, who gets what will make it very clear. Who gets the result of the government spending in forms that do not take the form of a deficit or if it runs the deficit, is it into the real economy or the FIRE sector? You need to divide the private sector into FIRE and into the industrial, agricultural and infrastructure.
Gar: Let me say, I suspect there are people out there, because I’ve done this myself several times, who hear the words ‘the banks will create the money’, and that doesn’t ring straight for most people, that money is actually created. Those questions, I’m sure, are going to hang in the air into which modern monetary theory has the answers. I want you to understand that.
Another way to think about it, although we can easily get into a trap about taxes here: When the government wants to run a war, money does not seem to be a problem. It creates money when it wants to, and it taxes back some of it if it likes to. By way of comment, having talked to a number of folks, the word ‘create’ kind of gets in the way sometimes if you’re not economists.
Fear of a job guarantee
Our next speaker is Pavlina Tcherneva, an associate professor and chair of the department of economics at Bard College and a research associate at the Levy Economics Institute. She’s led the way in showing very, very practical applications of the theory.
Associate Professor and Chair at the Department of Economics at Bard College. more
Pavlina Tcherneva: Thank you. You are all, I’m sure, familiar with the seven deadly sins. Today I would like to address the seven deadly fears of economic policy. Mostly I’d like to address and face those fears and how to defend a progressive agenda, whatever that may be.
The policy proposal that I’ve been working on for 20-odd years is an employment program that has become known as the job guarantee program that has recently entered the mainstream conversation. A number of senators and representatives have endorsed the program. There are lots of versions of the program out there, but it is a recognition that the government has a responsibility to do something about the persistent problem of unemployment.
What I’d like to do today is basically address some of those seven deadly fears. As the program has discussed, there’s a lot of response, both on the right and on the left, and a lot of it is quite alarmist, frankly. I’d like to ease our fears by addressing each one of them.
Do we really want to maintain this paradigm of allowing people to suffer all the consequences that come with unemployment?
First, what is the job guarantee? Essentially, it’s a public option for jobs that offers decent work at decent pay. The public sector acts as an employer of last resort, if you will, when people seek work and they’re unable to find good work at decent pay.
It is a permanent program. The unemployment problem is an ongoing problem, and thus, this program is a standby option for jobs. It’s federally funded but locally administered. It’s voluntary. Nobody is asked to work for their benefits. It’s open-ended. You can go to the unemployment office, and you seek work. There will be a list of options for you. The way we propose it is that those list of options will largely focus on public service and the neglected areas of public sector work. It’s open to all people irrespective of their labor market status, race, sex, color or creed.
The way I think of this program is that it’s an employment safety net, the way we have safety nets for various other problems. If the problem is that you don’t have retirement insurance, we guarantee it; we have Social Security. If the problem is access to food, we guarantee that there will be access to food.
It’s also a transitional program where people essentially get their starter jobs if they need to. They get their stepping stone. They enter into this program and then transition out of it if they so desire.
Overcoming the spending myth
Let’s discuss the fears. The first one that we normally have to address is the fear of spending. It’s based on a deep misunderstanding of what money is and what it does. Again, Stephanie explained how normally there are images that are conjured in our mind that, “Gee, my hard-earned money. I’ve been saving it, and now the government wants to tax it away from me so that it can pay for these policies. Who knows if they’re going to be good or bad?”
We just need to give up this myth of the taxpayer money because this is not how actually the public sector spends. I want to add one other purpose of taxes to the list that Stephanie provided: taxes create demand for money; for the dollar, in a sense. Just think of it this way: If the government tomorrow decided to tax you in Canadian dollars and April 15 you have to deliver Canadian dollars or euros, what will you ask your employer to pay you? Will you ask them for dollars or will you ask them for euros? The tax in this coercive way, if you will, creates demand for the very thing that the government issues: the dollar. The reason is the government needs to be able to spend something that we value to be able to fulfill its various public service objectives.
Here’s one way of thinking about it. The government is the monopoly issuer of the dollar. It is the ultimate source of dollars. Unemployment in a way is people seeking dollars but not able to find them. Whatever the other arguments for addressing the problem of unemployment, and we can discuss that, there is one key aspect to this problem. It is that there is only one sector that can actually choke up the demand for dollars. There’s only one sector that can actually provide it to those who need it, and that is the public sector.
Another piece to the story is that the unemployed are already in the public sector. The government is already responsible for the unemployed. We do the right thing. We provide unemployment insurance, as inadequate as it might be. We provide various other income supports, even though those programs are also underfunded. We have this understanding that we have to provide for people who don’t have access to decent employment or decent incomes.
We provide a slew of programs, but we don’t provide the one that many people need, and that is employment. We are not only responsible for the unemployed, but we also bear the costs of underemployment poverty. If you think of virtually all social, economic and political problems, in one way or another they are connected to communities that have lost their economic life, people who have lost economic opportunities. The distress that families feel not being able to provide for themselves. These are large invisible but very real costs that we already bear.
The fear of spending is the first fear that we need to debunk. This is a bit of an esoteric point, but I want to put it out there. If the government sector is the monopoly issuer of the currency, and it provides the currency in exchange for employment in the public sector, public sector work, then there is an exchange. We establish some sort of baseline value for that currency. We anchor the value of the currency and labor power. We know exactly what it is worth. It is worth $10 or $15 for one hour of publicly useful labor. In a sense, it’s our gold standard. It uses not gold, but it uses labor to anchor the value of the currency.
Big numbers and big government
The next fear is the fear of inflation. I think that that is really the fear of big numbers when we estimate what a job guarantee would cost. We have a proposal that you can find at the Levy Institute website that estimates a job guarantee would cost between $300 billion to $500 billion a year to employ 50 million people. A lot of people have said, “Oh gee, this is an enormous program. It’s going to be very inflationary.” Is $300 billion really inflationary? The Department of Defense, including the war budget, is about $900 billion. Social Security is upwards of $1 trillion. Medicare is $700 billion. Medicaid is $600 billion.
Somehow $300 billion is supposed to generate this massive inflation that will erode the value of the currency. This is not really the problem. A lot of people are actually worried that this actually might push up wages, that it might actually provide wages at a decent living level. We understand that the job guarantee will be the effective minimum wage for the economy, so why would you work for $7 an hour if there’s a public option of $15? The private employer has to match this. We have modeled this, and we find negligible impact of this very bold program on inflation.
The other thing that virtually everybody misses in this discussion is that a one-time adjustment in prices and wages across the economy, across the board, is not inflationary. Inflation is when prices keep going up. If the wage goes up from $15 to $16 to $20 to $25 to $30, then the private sector will have to match it. Yes, that will be inflationary, but no, we are anchoring the floor. We are raising the floor, and we are anchoring it at $15.
The second piece that everybody misses is that the job guarantee actually shrinks when the economy is growing. When the economy is growing, when private employment is growing, when there are ”inflationary pressures” in the economy, the program shrinks. Actually, it’s a dampening effect on inflation, not a fueling effect to inflation.
There’s a fear of big government, of course, but most people ignore the fact that we already have big government. What I already pointed out is that government has devoted enormous amounts of financial and real resources to deal with the fallout from unemployment, underemployment and poverty.
In this sense, the way to think about this is that the job guarantee actually reduces the costs of unemployment.
Whatever you discuss, whatever your policy priority is, always separate the financial cost from the real cost.
When you defend Social Security, don’t fall into the trap of this discussion of how will we pay for it. The question is what would we do with a whole bunch of people who are retiring who don’t have the goods and services that they might require to live a decent life. It is not a matter of financially providing for them but providing for them in real resources.
It’s the same thing with unemployment. It’s not the problem of paying for unemployment, but the problem is, do we really want to maintain this paradigm of neglect, of abandoning our public spaces, of abandoning our public purpose, of allowing people to suffer all the consequences that come with unemployment.
There’s also fear of the administrative burden. This is a unique double standard that the job guarantee faces. We never hear that we can’t go to war, we can’t engage in nation-building because it’s going to be an administrative nightmare. The job guarantee uses the existing institutional infrastructure to simply expand the number of jobs out there.
Is it really so difficult to employ 50 million people? Is this really the biggest problem that the government is facing? Well, public education serves 50 million students. Nobody is saying we have to take it away because it’s an administrative nightmare. Social Security, 50, 60 million people. Medicare 44 million. Medicaid 70 million. Yeah, it’s easy to sign a check, but all of this involves a fair amount of administration, and we don’t discuss these.
Fear of boondoggles. This was the fear during the New Deal that somehow the government is going to create bad jobs. Well, just go to the Living New Deal map, and you will find what we did and the legacy that we left. Don’t fall into the trap of productivity. What’s the productivity of these jobs? It’s a natural impulse to say, “But what will people really do?” I can give you a very long list of what they can do. Good useful jobs. The way to answer this question is what is the productivity of the unemployed today? It’s negative productivity. You have malnourished children that go to school because their parents don’t have income to provide for them. That is the productivity you need to be focusing on.
Finally, there’s the fear of political revolution. This was raised by Robert Samuelson in The Washington Post. He says, “Imagine people who work in the private sector who suddenly realize the public option provides Medicare and child care, and they don’t have it. This is going to be enormously disruptive to the business as usual model.”
Look, in information technology, disruptions are considered great, right, progressive. In public policy, disruptions are awful, terrible. This is a defense of the status quo. It is the defense of a model where firms are only profitable when they pay poverty wages. We don’t want to defend this model. We want to disrupt it.
Finally, I think all of this amounts to pure change, but Americans are really not so afraid of it; a recent survey showed that the job guarantee had overwhelming support, and even in deep red states upwards of 70 percent of respondents supported it.
Those of us that have been working on this project are very encouraged, excited that it is in the mainstream, but my cautionary note is that we put way too much on the shoulders of the job guarantee. We have had decades of neglect of the public sector. We have enormous environmental challenges. We are suddenly putting all of these problems on the shoulders of the job guarantee and saying, “Hey, look, see, this is the program that will solve these problems.” It will not.
This program provides jobs for all. This program is a very crucial piece of the progressive agenda, but we need so much more than that.
Rethinking the monetary system
Gar: I want to introduce Raúl Carrillo, who’s the staff attorney at the New Economy Project and a member of the board of directors at the Modern Money Network, and he’s going to talk about actual on-the-ground projects that he’s working on and how they relate to this theory.
Staff Attorney for the New Economy Project and modern monetary theory activist more
Raúl Carrillo: What I’m going to try to do, depending on your opinion, is synthesize or bastardize some of the ideas that were just presented by three of my heroes here and articulate those in a language that is useful, I think, to organizers, activists, people who are in this economy trying to heal the wounds, trying to take care of other people, trying to actually introduce some of these intellectual paradigms to work on the ground.
I’m particularly going to focus on two movements that I’m a part of. The first is the Modern Money movement. I’m affiliated with a number of modern money organizations, but principally Modern Money Network, which a few of us started several years ago when we were law students at Columbia and activists. We started thinking how does this kernel of what we consider to be factually correct analysis of the economy connect to law, organizing, technology, all these other things? How can we build bridges? How can we create packages that are useful for activists and organizers to use?
Over the last five years or so we’ve held about 70 symposia in the United States, United Kingdom, Germany, Australia, Brazil and a few other places, trying to connect MMT (Modern Monetary Theory) to other things.
The other one is that I work for the New Economy Project, which is a 20-year-old nonprofit here in New York City, and we do two things. One is we fight corporate power. I personally operate a financial justice hotline where folks can call when they have problems with banks, debt collectors, landlords, etc. They come to the office. We try and help them out on a very individual level. We also bring some impact litigation.
The second thing that we do is community economic development. We try to build community land trusts, financial cooperatives. We work with co-ops, all the good stuff that I know a lot of people in the audience are involved in already.
FIRE burns people. It’s right there in the name. What does the FIRE system do? It treats us like we’re disposable. We are waste.
What is “the New Economy movement”? The essential idea is we’re trying to move out capitalism, but we have a very, very strong focus on environmental sustainability. The production system with FIRE (finance, insurance and real estate) on top of it, as Michael mentioned, is tricking us, so how do we get out of here?
The New Economy Project has a particular focus on something called the “just transition,” which arose in the 1980s and 1990s. The idea here is that we don’t just want to go to an economy that’s more sustainable. Along the way we want to heal some of the wounds that have been caused. We want to help people who face the biggest threats from ecological disaster. That means a particular focus on racial justice, gender justice, all the various forms of social justice that need to come along with a push to an environmentally sustainable world.
How does Modern Monetary Theory help? I’m actually going to borrow a quote from one of the organizers of this panel: ‘What MMT and PK theory does is it concentrates our minds on the real limits, on the real things we need to make more sustainable.” That means we’re focusing on the real: What’s happening to people, what’s happening to communities, what’s happening to the planet.
The dig-burn-dump economy
If we’re talking about an economy with limits, money is not necessarily the enemy. In fact, a lot of MMTers agree. A dear friend, Fidel, often says our economy runs on waste now. One of the fears, fear of waste for the job guarantee, fear of financial waste, fear of fiscal waste. That’s nothing. We make that stuff. It’s a legal construct. It’s a social construct. Really, the problem is when money is used to burn up a planet.
This is how an environmental justice group in Oakland called the Movement Generation Justice and Ecology Project describes the process that the industrial production system applies to our planet and thus to us: We dig up resources, we burn them, then we dump the waste, we churn it up.
Not only does the industrial production system do this to nature, but the financial system does this to people. FIRE burns people. It’s right there in the name.
What does the FIRE system do? It converts a participant in the economy, you or I whether in our capacity as a worker, a tenant, a borrower, a debtor of some sort, and it turns us into nonrenewable participants. It treats us like it can draw money out of us and then discard us, whether that’s in a place of employment, whether that’s in the credit system. It treats us like we’re disposable. We are waste.
How did we get here? Again, lots of different leftist stories on how this is done, but I think that MMT adds a particular element to this. We all know the story of enclosure, property rights, etc. People become dispossessed. They become part of a labor force that is roving. We don’t have property. We can’t work just for biophysical resources. We can’t just find some land and grow some food, even if we wanted to. We have to pay taxes. By taxes, what we really mean is any kind of fines, fees, obligation with the state. That means the fees you get for walking while black in Ferguson. That means student loan interest. That means a wide variety of things.
The point is the system is set up so we have to get money, and people take advantage of that. Now capitalists are not only trying to control the means of production. They’re trying to control the means of the means of production, the FIRE system, as well as the industrial production system.
How does this system keep going? It acts like the money comes from the users, from the resources that are being used rather than by the system itself. We talked about the taxpayer money frame, how that’s particularly harmful. When we think that the money to keep a machine running has to be extracted from people, we get some really terrible political dynamics.
The other lie is that banks are just either making money wildly or they’re using our deposits and turning back around and the banks rely on us. I would say that the banks are rogue public utilities. They have been chartered by the government, licensed by the government, regulated by the government, and they’re out here not doing their job. When we talk about pushing them to do particular things, we have to recognize that it’s even worse than we thought. They’re powerful. They have the money power. They can create and generate credit at the point of lending. They can do a wide variety of other things that are very, very terrible.
Austerity makes room for financial extraction. If the government is not putting money into the economy, the banks are controlling the borrowing process, and we’re all going to die if we don’t stop it.
Money doesn’t grow on rich people, not on wealthy taxpayers, not on banks. What we want to do is get the money power away from the banks, away from rich people by making claims on the state. You’ve got that giant piggy bank, call it what you will, money can come out of the state. Monetary sovereignty means that you can spend on people, on planet, on communities.
The way that we stake our claim and make the state do that is we establish rights to the things that we want. Then the dynamics for fiscal spending become repooled. We pull money out of state coffers, depending on how much we need based on each eligible individual instead of waiting for whoever in Congress, rich folks, to write that check and change the dynamics.
Basically what we’re talking about here is that MMT allows activists and people to, once they establish rights, pull money out of the system rather than wait for them to push.
What does that mean for activists, for organizers, for leftists? We’re establishing rights. We’re marching for jobs. We’re marching for various other freedoms. We want the entitlements. Fiscal austerity is the enemy even though we might want to be austere towards nature and other sorts of respects.
The plant-nurture-thrive alternative
Now I’m going to go out on a real, I think, new limb here. I’m going to suggest that MMT combined with a new-economy focus on environmental sustainability can take us away from the dig-burn-dump model and into a plant-nurture-thrive model.
Plant. We establish rights with this right to housing, with its right to jobs. We free up space to grow, to pool funding and to have a space outside of the profit motive, even outside of the revenue motive. We can start to do new things within that space. We fertilize the space with more of that sweet, sweet money from the public government. We can start to heal wounds, start to do things more equitably. People from bad sectors will leave to new jobs and a job guarantee. People from bad buildings will leave to new houses and new forms of shelter with the home sprawl movement that’s going on.
I’m just going to do a little bit of implementation here and talk about how MMT can potentially change things. I think that public money for public purpose is awesome, and that’s going to give us a platform to do new things. Eventually, it can be public money for public power. We can do even more. The way that dynamic works is by reversing essentially the dig-burn-dump cycle that we have going on here.
We can eventually move on to even stronger things like unions, to collective bargaining. People leave spaces that are extractive. No one wants to be a part-time prison guard anymore. No one wants to work in fast fashion. No one wants to work in fast food. Not necessarily everybody is going to leave, but it provides people with the opportunity to do so, so we can move again towards a regenerative economy, towards people leaving extractive industries.
Eventually, you can layer on democratic processes into the job guarantee, into the new space that’s been created. Participatory budgeting and worker co-ops can fold into the job guarantee.
Just two more examples of implementation. Extractive finance in housing is dispossessing people, either through the initial capture of land or gentrification. The landlord is in charge. The landlord kicks you out. The landlord doesn’t like you. The landlord segregates people. You get redlined. You get gentrified. You get surveilled by all these crazy consumer reporting systems. Then the threat of homelessness keeps you in line. This is true even for the middle class who’s enthralled to the banks, if not to landlords.
With MMT, what does it look like? You establish a right to housing. MMTers don’t necessarily believe in that, but I do. The point is that you can establish a right. You create a space. Once it’s guaranteed that everyone gets this thing, now you have room to maneuver. The rights pull the money down to tenants. You can have things like social housing projects. Then you can start doing things that are more democratic over time. Community land trusts, mutual housing associations. These things can all be contemplated once we have the funding and public capital. Again, that sweet, sweet fertilizer.
In East Harlem, the New Economy Project is helping to build a community land trust where you take land off the market, the residents own it. These things can be helped by MMT.
Finally, everybody is familiar with the access to credit scenario. I think that in and of itself is a problem that we think that people don’t have enough loans. Really what we want is for people to get more money, for people to get money from the state and from benefits. More people will get higher wages whether that’s through a job guarantee program or something else.
In the instance that people need credit, right now they’d be set with a bunch of predators, whether that’s payday lenders, whether that’s banks acting terribly, whether it’s this new fintech stuff from online, which actually turns out to be just as predatory as the analog version. What you can do with an MMT framework is again, establish public infrastructure. Establish rights. You can do some forms of postal banking. You can do public banking. From then on out the threat of you having to go to a payday lender is gone, so you have room to maneuver. Again, political room and fiscal room. You can start doing things like complementary currencies. You can start doing things like public banking. You can start doing all these more democratic things once the public sector is putting pressure on the private sector and giving civil society room to grow.
As you see here, there is a regenerative model for all of these things. You just need the public money. My friends in Reston, England have a complementary currency program. They generate money, or you could say their own forms of IOUs, which they use in the local community so that people only do business with local business. They’re keeping what they call “clone town London” out of there. These are acceptable in receipt of taxes, which is very interesting.
Finally, Gar mentioned the public banking movement. The New Economy Project and a coalition of other grassroots groups are launching an effort to create one here in New York. The idea there is that the public bank will generate credit to lend to democratic enterprises, ideally we would want federal money, but this is something that is powerful that municipalities can do, and in the process we can highlight a lot of what money really is. It’s a public feature that should be used for the public good, and we can do a lot of political education with this as well as whatever material healing help to organizations throughout New York City. Public money for public power.
Gar: Let me just say one thing. I’m from Racine, Wisconsin. I had an aunt who ran a little tiny Jewish bakery. She used to say, “You know, during the Depression there wasn’t any money around. Then they decided to run a war, and there was all kinds of money around. Why can’t we do that when we want to do that?” That is probably the point.