MMT solves social security.

, we discussed the need to decouple livelihood security from wage labor by implementing a public job guarantee coupled with a shortening of the work week, a living wage policy, and a universal care income. However, such a discussion on reorganizing social security within a degrowth context often brings up the inevitable question: how do you propose to pay for all this when rich nations can’t grow anymore?

In this article, I will explore this question by walking you through some insights on deficit-financed state expenditure (or public debt) that a new macroeconomic theory called , offers.

The MMT proposition 

MMT theorists begin with separating nations into those that are monetary sovereign and those that are not. For a nation to be monetary sovereign, it needs a) to issue its own currency, b) collect taxes in the same currency c) only issue bonds denominated in that same currency with no significant government borrowing in foreign currencies and d) not have a forcibly fixed exchange rate. Monetary  since whoever controls a currency gets to decide how labor and resources are used. MMT theorists point out that governments that control their own currencies are not like households. Contrary to what is argued by neoclassical economists, they do not have to “balance their budgets”, and do not have to tax, issue government bonds or sell assets before they can spend. In essence, a state that controls its own currency 

From the perspective of MMT, governmental spending is not limited by public debt but rather by inflation. Indeed, the topic of inflation is often brought up by MMT critics, who claim that printing money will inevitably cause inflation because ‘more money is chasing the same goods and services’. Nevertheless, mainstream neoliberal institutions, including the , have been notoriously bad at predicting inflation rates. The US federal reserve recently that it does not actually understand what drives inflation. MMT as laid out by scholars like William Mitchell, Stephan Williams and Fadhel Kaboub offers a more comprehensive and empirically convincing theory of inflation. 

According to MMT, inflation can be understood as a situation where demand surpasses a country’s real resource base (i.e. its productive capacity). As such, from an MMT perspective, government spending can be indeed a driver of inflation, since it will increase demand (there is more money circling around in the economy). However, if this public money is spent in a way that enhances or better utilizes the productive capacity of the country (creating solar panels, improving the health care system, insulated public housing etc.) inflation can be curtailed. In other words, there is more money chasing more (meaningful) goods and services. Furthermore, if a country’s productive capacity actually reaches its limits, inflation can be controlled by taxation, taking out excess demand from the economy. 

There is, however, a second driver of inflation: concentrated economic power. There is substantial empirical evidence showing that  that disproportionately drive up their prices to increase their profits, therefore appropriating a larger share of income away from common people. We can see these dynamics at play right now, as people throughout  while the .

The solution for this problem is simple: to break up forms of elite economic power that can arbitrarily raise prices by taxing or regulating it away – either as a desirable policy in its own right, or to simultaneously alleviate excess demand from the economy. A less radical solution are . Either way, monopoly pricing can be addressed directly by government policy.

Combining these insights, MMT shows that the government can spend how much it wants on desirable sectors of the economy (healthcare, education, green energy) and tax away any excess demand from undesirable sectors of the economy (luxury consumption, fossil industries, capital monopolies, military industries). From an , the purpose of taxation is not to fund government spending, but rather to reduce excess demand and break up the concentration of economic power.