Bit #23: MMT & Degrowth?— Radical System Change: Bitcoin & Degrowth — Issue #14
Originally published on Medium on August 31, 2022.
This week’s issue reviews a new paper called, “How to pay for saving the world: Modern Monetary Theory for a degrowth transition”. Is MMT a superior choice to bitcoin? I promise to get back to Peet’s book soon.
One of the biggest names in the degrowth space is economic anthropologist, Jason Hickel. Hickel is best known for his books, The Divide: A Brief Guide to Global Inequality and its Solutions and Less is More: How Degrowth Will Save the World. Hickel is also a big proponent of using Modern Monetary Theory (MMT) to make a transition away from a growth economy to a degrowth economy possible.
This new paper, “How to pay for saving the world: Modern Monetary Theory for a degrowth transition”, was published at SSRN on July 25, 2022. Hickel is listed along with co-authors Christopher Olk and Colleen Schneider. Being an SSRN paper, it’s technically a pre-print that has not been peer-reviewed, so the final form of this paper could change.
Here’s my quick take on the paper and then I’ll go into some analysis: MMT is presented as a necessary top-down solution for transitioning from a growth economy to a degrowth economy. More than that, many of the points in which the authors try to show how MMT and degrowth overlap are fairly generic policy points. That is to say, they seem more like policy decisions rather than the framing of the fundamentals of a new economic system. This to me, is the major problem with the “theory” part of Modern Monetary Theory. I find that MMT is nothing more than describing how a fiat monetary system works combined with a policy agenda.
This works fine if you have the right people in charge, of course. The right people are the ones with your own political view. Simply put, to follow an MMT-led degrowth transition, you need at minimum Bernie Sanders majority in Congress.
The usual MMT definition is given, “ …a state that issues its own non-convertible currency and has no foreign-denominated debt never faces a financial (or monetary supply-side) constraint to its expenditure. There is only a real (monetary demand-side) constraint to public spending, and that is the productive capacity of the economy.” This is fundamentally true. Simply put, I control the money printer, I can print as much as I want. I can also make you give me back some of that money, too, so I can burn it. That’s the essence of the MMT observation. Governments create money through government expenditures and with taxes, they can destroy it.
In addition, this money creation should have productive constraints, which as we’ve touched on in past newsletter issues, should have ecological and resource constraints. The authors are critical of some standard ideas about money creation in ecological economics. In particular, they write that ecological economists tend to take a monetarist view of money. I’m not entirely sure this is accurate. The reality is that money creation, at least in the United States, is 90–95% done by the private bank sector. In addition, ecological economists that I’ve read, at least, understand very well that banks do not act as intermediaries. Rather, they know banks are the source of new money through credit creation. I’m not convinced that MMTers are the only heterodox economists capable of making this observation. Plus, they understand that net-money creation (like increasing debt without taxation to “burn” that money) means more use of resources.
The authors claim that “a very large debt-to-GDP ratio does not have to be problematic as the case of Japan demonstrates”. We’ll see how this plays out because the yen has not been doing well this year and the Japanese are applying another tenet of MMTers which is to keep bond rates at a steady zero percent. This is effectively a negative interest rate when accounting for inflation. If bondholders lose faith in your sovereign currency, why will they hold it at a negative rate? We’ll see how this works for Japan.
At any rate, how your deficit spending grows is also important. Many observers have noted that the government is already doing MMT, in fact, quantitative easing is basically MMT for the financial sector. MMT proponents generally don’t like hearing this fact, but it’s true. It’s not the kind of MMT they want, but it’s MMT nonetheless. It’s true because the reality is that MMT isn’t a breakthrough economic theory, it’s stating the fact of how our monetary system works when the state’s liabilities are denominated in its own currency.
In other words, this whole thing about MMT saving the planet is a little rubbish. It’s just saying, “let’s use our existing system and add some policy prescriptions and save the planet”. This is not revolutionary at all. This is why the entirety of this paper is just saying, “let’s add some constraints here (with policy), let’s direct some policy there…”
There’s a lot more in this paper that I want to review but I don’t want to overwhelm the reader so I’ll save it for the next newsletter. It’s not that I don’t think that governments can spend money, I just don’t buy the MMT hype. To get to the punchline, I don’t think degrowth needs MMT. Given our existing political challenges around climate change, I don’t believe that we should entertain fairytales. Such low probability aspirations that require, within a few years, a takeover of the political apparatus of the major polluting nations to shape policy in our favor (although we shouldn’t totally abandon this effort, either). We’re going to have to be more creative than this. Obviously, this is why this newsletter is called “Bitcoin & Degrowth” and not “MMT & Degrowth.” :)
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“Radical System Change — Bitcoin & Degrowth” is a newsletter on the connection between bitcoin and elements of the “degrowth” movement. Degrowth argues that never-ending economic growth is leading us toward an unsustainable and ecologically destructive path.
