This Economic Theory Could Be Used To Pay For The Green New Deal
Rep. Alexandria Ocasio-Cortez speaks about the Green New Deal in Washington, D.C., on May 13. She has shined a spotlight on a once-obscure brand of economics known as "modern monetary theory."
When Rep. Alexandria Ocasio-Cortez rolled out her "Green New Deal," calling for clean energy, universal health care and guaranteed jobs, one of the first questions she got was: How do you plan to pay for it?
The New York Democrat argued that ambitious programs can easily be financed through deficit spending.
"I think the first thing that we need to do is kind of break the mistaken idea that taxes pay for 100% of government expenditure," Ocasio-Cortez told NPR's Morning Edition [★]in February.
In doing so, she shined a spotlight on a once-obscure brand of economics known as "modern monetary theory," or MMT.
"There was something of an Oprah effect when she did that," said economist Stephanie Kelton of Stony Brook University. "People immediately probably started Googling 'modern monetary theory' to find out what she was referring to."
Run that Google search and you'll quickly find Kelton herself. The economist, who advised Bernie Sanders' 2016 campaign, is one of the best-known evangelists for the theory. Kelton says paying for big government programs is the easy part. If Congress has the will, the Federal Reserve can effectively print the money.
"If Congress authorizes a few billion dollars of additional spending, or a few hundred billion dollars, then the Fed's job is to make sure that those checks don't bounce," Kelton told NPR.
A central element of MMT is that governments that control their own currency — like the United States — don't have to worry about spending more than they collect in taxes. They can always create more money. But despite the caricature sometimes offered by both the theory's critics and supporters, Kelton insists that's not a blank check for unlimited government spending.
"Too often, people get a whiff of MMT, they don't read the literature, and they somehow arrive at the takeaway that MMT is about printing prosperity," Kelton said. "And of course when people hear printing money, they go straight to Zimbabwe or Weimar Germany."
Those are notorious cases of hyperinflation. But Kelton argues that runaway prices are only a danger when demand outstrips the real resources in an economy — the people, machines and raw materials. If there's idle capacity, MMT maintains that additional government spending does not trigger inflation.
Last week, under questioning from Ocasio-Cortez, Federal Reserve Chairman Jerome Powell acknowledged that the U.S. job market has shown more capacity to grow without sparking inflation than he and his colleagues had expected. Still, Powell is no fan of MMT.
"The idea that deficits don't matter for countries that can borrow in their own currency, I think, is just wrong," he told a Senate hearing in February. "We're going to have to either spend less or raise more revenue."
Tax historian Bruce Bartlett also blasts MMT as little more than a fig leaf, giving license for big spending in the same way Art Laffer gave Republicans cover to cut taxes with the dubious claim they'd pay for themselves.
"MMT is sort of the Laffer Curve for the left," Bartlett said.
Some of MMT's biggest supporters, however, are not liberal politicians but bond traders at firms like Pimco and Goldman Sachs. James Montier, who's with the investment firm GMO, says he turned to the theory after more conventional economics led him astray.
In the 1990s, Montier and many others were convinced that Japan's rising government debt would drive up borrowing costs. It didn't.
"It cost both me and my clients or anyone who was stupid enough to follow me money," Montier recalled. "It was one of the worst trade positions I have ever suggested in my entire life."
He says MMT offers better financial forecasts and helped him understand why interest rates in the U.S. have stayed low, despite growing government deficits.
Persistently low interest rates have also prompted some mainstream economists like Larry Summers and Jason Furman to rethink their attitudes and be less concerned about deficits. But they haven't embraced MMT.
Furman, who advised former President Barack Obama, says there are always a lot of ambitious ideas floating around Washington. He argues that those that are really worth doing are also worth paying for.
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Rep. Alexandria Ocasio-Cortez Interview About The Green New Deal : NPR
https://www.npr.org/2019/02/07/692259103/ocasio-cortez-to-unveil-ambitious-plan-to-combat-climate-changeOcasio-Cortez To Unveil Ambitious Plan To Combat Climate Change
Steve Inskeep talks to Democratic Rep. Alexandria Ocasio-Cortez of New York, who is unveiling her signature policy proposal, the Green New Deal.
STEVE INSKEEP, HOST:
Alexandria Ocasio-Cortez is among the most famous members of Congress. And for now, among the less-influential, a freshman in a house where seniority counts. Her status is reflected in her new office, down a distant corridor of an office building on Capitol Hill.
ALEXANDRIA OCASIO-CORTEZ: I picked the office that was arguably the furthest walk from the Capitol.
INSKEEP: Which allowed her staff a bit more space. So you're, like, effectively living in the suburbs to get a bigger house?
OCASIO-CORTEZ: Exactly. That's exactly the choice I made. (Laughter).
INSKEEP: We met Ocasio-Cortez inside that office. Sunlight fell through the oversized window onto her fuchsia suit. Her office is still a fraction of the size of the committee chairmen who hold real power in Congress, though she has something they do not. The 29-year-old is a media star. She has been since she upset a leading Democrat in a New York City primary last year. Her surprise victory cast her as a party insurgent. Her label as a Democratic Socialist also alarmed conservatives, who now see her face constantly on Fox News.
Today, she tries to leverage her fame. She joins dozens of other lawmakers proposing an environmental and economic plan, called the Green New Deal.
OCASIO-CORTEZ: Even the solutions that we have considered big and bold are nowhere near the scale of the actual problem that climate change presents to us, to our country and to the world.
INSKEEP: You can find the Green New Deal resolution on our website today. NPR is the first to publish this call to transform the economy. It's a resolution calling for massive increases in renewable energy production, like wind and solar. It would have the United States set a goal to become carbon neutral in 10 years, which is a very ambitious timeline. This resolution says what should be done but offers few specifics on how to do it. That would have to come in later legislation. Instead, the congresswoman aims to promote big goals.
Why, in this resolution, do you make a point of saying the United States bears disproportionate responsibility for the problem?
OCASIO-CORTEZ: Because I think we do. And if we want the United States to continue to be a global leader then that means we have to lead on the solution of this issue. And I think that it is completely wrong to point fingers at other developing nations and to say, well, China's doing this and India's doing that and Russia is doing this, when we can just choose to lead and we don't have to hold ourselves to a lower bar.
INSKEEP: You're talking about things that obviously would cost a lot of money. I know you'd rather think of it as an investment rather than a cost, but it is just certainly a lot of money. You don't specify where it's going to come from, other than saying it will all pay for itself.
OCASIO-CORTEZ: Yeah. I think the first thing that we need to do is kind of break the mistaken idea that taxes pay for a hundred percent of government expenditure. It's just not how government expenditure works. We can recoup costs, but oftentimes you look at, for example, the GOP tax cut, which I think was an irresponsible use of government expenditure. But government projects are often financed by a combination of taxes, deficit spending and other kinds of investments - you know, bonds and so on.
INSKEEP: Well, I get that. But deficit spending is borrowing money that has to be paid back eventually through taxes.
OCASIO-CORTEZ: Yeah. And I think it - I think that is always the crux of it. So when we decide to go into the realm of deficit spending, we have to do so responsibly. We ask, is this an investment or is this actually going to pay for itself?
INSKEEP: So you're saying borrow the money, make the investment. The economy will grow. It will pay off the debt.
OCASIO-CORTEZ: Absolutely. Because we're creating jobs.
INSKEEP: Although, I do have to say, you mentioned the Republican tax cut. They said the same thing about the tax cut - let's do this tax cut. The economy will grow. It's going to be great. It's going to pay for itself. Hasn't turned out to be true at all.
OCASIO-CORTEZ: Absolutely. And I think that that is an important distinction to make because when they were advancing that cause, they had no evidence to say that these things were going to happen. But we actually do have the evidence. For every $1 invested in infrastructure, we get $6 back.
INSKEEP: As you know, Congresswoman, one reason that people who are politically conservative are skeptical of efforts to combat climate change is that it sounds to them like it requires massive government intervention, which they just don't like. Are you prepared to put on the table that, yes, actually, they're right, what this requires is massive government intervention?
OCASIO-CORTEZ: It does. It does. Yeah. I have no problem saying that. Why? Because we have tried their approach for 40 years. For 40 years, we tried to let the private sector take care of it. They said, we got this, we can do this, the forces of the market are going to force us to innovate. Except for the fact that there's a little thing in economics called externalities, and what that means is that a corporation can dump pollution in the river and they don't have to pay for it, and taxpayers have to pay for cleaning up our air, cleaning up our water and saving the planet.
And so we've already been paying the costs, except we have not been getting any of the benefit. And so what we're here to say is that government is not just for cleaning up other people's mess, but it's also for building solutions in places where the private sector will not.
INSKEEP: So if you get this resolution passed, of course, it's a framework, it's an idea, it's a proposal and then you would need specific legislation to encourage wind power, to encourage solar, to do any number of things - efficiency, on and on. Those proposals, just mechanically, would need to move through various House committees, like the Energy and Commerce Committee, on its way to becoming law, committees that are chaired by Democrats who you have questioned or criticized because they take, for example, energy money. Frank Pallone of the Energy and Commerce Committee comes to mind. Do you have confidence in your fellow, more senior, Democrats that they would move the legislation that is necessary to do what you think needs to be done?
OCASIO-CORTEZ: I think this is where our style and where our organizing comes in, when everyday people begin to organize, when they make their presence known and their opinions known to their officials. It's the same way that we were able to save the ACA in a Republican majority. It's the same way that we're able to overcome some of those challenges of private industry and the role of money in politics.
INSKEEP: Are you saying you kind of don't trust some of your fellow Democrats, but they'll need to be publicly pressured?
OCASIO-CORTEZ: I think that - well, I don't think trust is the right word for it. But I do think that when there's a wide spectrum of debate on an issue, that is where the public plays a role. And I do have trust is in my colleagues' capacity to change and evolve and be adaptable and listen to their constituents.
INSKEEP: Do you feel that you know how to take the great fame that you have won over the last several months and turn that fame into power?
OCASIO-CORTEZ: No. (Laughter). I think that a part of where I am right now is that I'm learning. I think that really what I hope we're able to do as a party and as a nation is rediscover the power of public imagination. I think that this is a very special moment. And, frankly, that is something that I think the president did do, in that he was able to take his profile and say, here's this hugely impossible thing that seems ridiculous, but I'm going to seriously push for it. And for him, that's his wall. And obviously, I'm diametrically opposed to it. But I think that the reason he's so attached to this thing, despite the fact that it's not what voters want, despite the fact that it's not what the American people want, is that it's the only vision he has. He has no other picture of America, except an America with a huge wall on the Southern border.
And I think that what we have a responsibility to do is show what another America looks like. OK. Let's take all of that political energy, all of that resource that would go into building a massive second medieval wall on our Southern border. And what if we actually took all that concrete and poured it into roads? What if we took all of that engineering and dedicated it to new energy? What if we took all of that but actually invested in something that will have payback and a return on our investment for the American people?
INSKEEP: Congresswoman, thanks so much.
OCASIO-CORTEZ: Of course. Thank you.
INSKEEP: Alexandria Ocasio-Cortez, Democrat representing the Bronx and Queens, was in her office across the street from the Capitol here in Washington.
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