DEGROWTH AND MMT: A THOUGHT EXPERIMENT
September 23, 2020
Modern Monetary Theory (MMT) is getting a lot of attention these days, thanks in large part to the excellent work of Stephanie Kelton and Nathan Tankus, two of the movement’s most effective communicators. Over the past few weeks a number of people inspired by their work have asked me whether there is scope for thinking about degrowth from a MMT perspective. My answer: definitely. In fact, the two belong together.
First, a bit of background. MMT may sound complicated but in fact it is remarkably simple (here is a good place to start). It points out that governments that control their own currencies are not like households. They do not have to “balance their budgets”, and, crucially, they do not have to tax or borrow before they can spend. In reality, they create the money they spend – and they can create as much of it as they want. This is clear to anyone who has been paying attention since the global financial crisis of 2008. Countries like the US and UK have created extraordinary amounts of money to prop up the banking system. The same thing is happening right now, in response to the COVID-19 crisis: governments are simply creating the money they need to respond. This has always been the case, of course, but right now it’s happening out in the open, for all to see. The notion of budget constraints has been revealed as a myth.
This is not to say that governments can create and spend money without limit. MMT economists recognize a number of limits, but they have nothing to do with budgets or deficits. The key limit is inflation: if you spend too much money into the economy, demand gets too hot and risks driving excess inflation. MMT economists propose that we should use taxation to mitigate this risk. In MMT, the purpose of taxation is not to fund government spending (again: governments fund spending simply by issuing currency), but rather to reduce excess demand. Crucially, taxation is also used to reduce inequality. You tax the rich not to fund government spending, but rather simply to remove money from people who accumulate too much, recognizing that inequality is corrosive to society and to democracy and we are all better off without it.
All of this changes how we think about money. MMT proposes that we should understand money as something we use, rather than something we own. The government creates money, spends it into the economy for all of us to use in our daily lives, and mitigates the dangers of excess money or excess accumulation by pulling some of it back out, thus keeping things in balance.
So, what does all of this mean for degrowth?
Let’s start by clarifying what degrowth is trying to do. Degrowth has two parts: an ecology part and a social justice part. It seeks to (a) reduce excess resource and energy use (specifically in high-income nations) in order to bring the economy back into balance with the living world, and (b) to do so while at the same time reducing inequality and improving people’s access to the things they need to live long, healthy, flourishing lives. So far, degrowth scholars have developed a range of convincing and feasible policy proposals for how to accomplish this double objective. I discuss the main ideas in Chapter 5 of Less is More.
But we can also approach this challenge using MMT tools – and indeed perhaps it is even easier to think of it this way. The first step is to harness the power of the government’s role as the issuer of currency to do three urgent things:
1. Develop generous, high-quality universal public services. Not just healthcare and education, but also public transportation, affordable housing, etc. Over and over again, the evidence is clear that universal public services (not perpetual GDP growth) are the key to a happy, healthy, flourishing society.
2. Roll out renewable energy infrastructure to completely replace fossil fuels in a short period of time – a matter of years, not decades – while regenerating ecosystems. Thus far we have not done this because we are told “it’s too expensive”. That is a lie. The best news of the 21st century is that every single government that controls its own currency can fund a rapid transition to renewables without even thinking twice about cost.
3. Introduce a public job guarantee, so that anyone who wants to work can get a job doing socially useful things that communities actually need (including working in public services, building renewable energy infrastructure, and regenerating ecosystems), with a living wage, at 30 hours a week. This has the additional effect of raising wages and reducing working hours across the economy, effectively shifting income from capital to labour.
This approach reduces inequality, decommodifies key parts of the economy, and ensures that everyone has access to meaningful, well-paid work and high-quality public services. In other words, it reorganizes the economy around use-value rather than exchange value – an objective that is central to degrowth thought. So this takes care of the social justice aspect of degrowth.
Of course, all of this government spending puts money into the economy, and into people’s pockets, and private consumption will begin to rise (although this is mitigated to some extent because, as I explain in Less is More, shortening the working week, reducing inequality and expanding access to public services actually takes significant pressure off of private consumption). Classic MMT sees this as a problem because it might cause excess inflationary pressures. But from the perspective of degrowth it is a problem because it will lead to an increase in resource and energy use.
This is where taxation comes in. In classic MMT you use taxation to reduce demand in order to control inflation. But we can also use taxation to reduce demand in order to bring resource and energy use down to target levels. And of course we can do this in a progressive way, by starting with the rich (which is important, because, as Thomas Piketty has pointed out, reducing the purchasing power of the rich is one of the single most effective climate policies we can deploy, because the energy use of the rich is way out of whack). So, in short, the government would create money in order to expand the use-value economy (the things that people actually need to live well), and would then use taxation to regulate the exchange-value economy, and to reduce excess private consumption (in order to keep the economy in balance with the living world).
With this approach, the age-old question of “will we have enough GDP in a degrowth scenario to provide for thriving lives?” becomes irrelevant. We can generate the funding for public services and the job guarantee without even a thought to GDP. GDP becomes an irrelevant indicator. Indeed, parts of the economy that are presently measured by GDP might shrink, but that’s okay because GDP is not the primary arbiter of provisioning. In the scenario I have described, the majority of provisioning is done directly. So, exchange-value (GDP) might decline but use-value (access to the things we need to live well) improves.
Now, some degrowth scholars have worried about MMT in the past, because we know that debt is always a bad thing when it comes to resource and energy use. The thinking goes that, just as debt represents a claim on future labour, so too it represents a claim on future resource and energy use. And because debt comes with interest, and interest grows, debt generates real pressures for GDP growth, which of course has severe ecological impact. But in MMT, deficit spending is not the same as what private borrowers experience as debt. Why? Because deficit spending does not in fact have to be paid back.
This breaks with how governments usually think about deficits. We often hear that because there is a deficit, we have to do all we can to grow the economy in order to pay it down. MMT argues that this simply isn’t true. Indeed, we might say that the deficit is just an alibi for those who seek to grow the economy for other purposes (i.e., to maximize elite accumulation). The alibi is false, and we can call it out.
All of this raises a question. If governments can create and spend money so easily, then why have they so long told us otherwise? Well, according to MMT economists, the narrative of “fiscal responsibility” is a ruse that’s intended in large part to prevent people from demanding that governments provide job guarantees and universal public services (remember, governments are happy to create money when it comes to financing wars and pumping up asset values, but when it comes to paying for public services, they say it’s not possible). Why would governments do such a thing? Because if people have access to a public job guarantee doing socially useful work, and if they have access to high-quality universal services, then why on earth would they ever agree to do socially unnecessary, meaningless or degrading labour for private firms, if the goal of such firms is primarily to accumulate profit for the holders of capital? They wouldn’t.
In other words, governments have to maintain an artificial scarcity of money in order to ensure a steady flow of cheap labour for private firms. As I argue in Less is More, capitalism seeks to sabotage public abundance in order to generate private riches.
This leaves us with an interesting point. MMT proposals align elegantly with one of degrowth’s key observations, namely, that if growthism depends on the perpetual creation of artificial scarcity, then by reversing artificial scarcity – by providing public abundance – we can dismantle the growth imperative. As Giorgos Kallis has put it, “capitalism cannot survive under conditions of abundance”. MMT provides an opportunity for us to create a post-growth, post-capitalist economy.