Louisa Connors and William Mitchell suggest MMT needs to be reframed if it is to catch on. They’re right.
In a 2017 paper entitled Framing Modern Monetary Theory, Drs Louisa Connors and William Mitchell argue that MMT has not gained traction among non-experts in economic theory because of the way economists talk about economics in general. They explain that economists often talk about MMT the same way they talk about other economic theories, using concepts that are familiar to most people, such as supply and demand. However, this effort is self-defeating because MMT requires people to shift in their understanding of how economics works. Thus, MMT needs a new language so that non-economists can make sense out of its basic tenets.
This argument makes a lot of sense. MMT challenges many of the economic principles that most people take for granted and, unless you are an economist, it’s difficult to grasp what some of the terms being used actually refer to. As the authors state:
One cannot conclude, for example, that a deficit equal to 2 percent of GDP signals a more expansionary fiscal stance by government than a deficit of half the size. These complexities are lost to the public but are fundamental to an accurate understanding of the issues.
This would be bad enough if lay-people were dependent only on so-called financial experts on TV news shows, many of whom use economic terms like GDP and deficit in a sensationalistic way to get viewers’ attention rather than explaining in everyday language what is really going on in the US economy. But thanks to the rise of social media, anyone can claim to be a macroeconomics expert and publish an online blog full of opinions that may or may not be correct.
The solution to this problem is not to conclude that macroeconomics is over our heads, but, as Connors and Mitchell propose, we should use new metaphors to help explain a macroeconomic framework that is consistent with the MMT worldview so that people can understand and evaluate economic news appropriately.
Core Concepts
MMT relies on a number of concepts that are different from traditional free-market economic theories. Here are some of the biggest ones that Connors and Mitchell explore in their paper.
A new vision of what the economy is
Most economists since the 1970s have viewed the economy as if it were a deity that people exist to serve. Proponents of this view believe that negative economic news is the result of human failure — e.g., ordinary people’s choice not to spend money causes recessions. A corollary of this view is that if people work hard and make appropriate sacrifices, the economy will reward them and that poverty is a consequence of negative choices such as refusal to work. Furthermore, government intervention in the economy is seen as a negative that will throw everything out of whack, while if the economy is left alone it will reward and punish people appropriately for their behavior.
Although this may sound like a traditionally conservative/libertarian viewpoint, Connors and Mitchell point out that progressives tend to embrace it also. For example, they often argue for more gradual spending cuts instead of rejecting the notion that spending and deficits are bad things.
This is an example of how MMT needs to be reframed. A progressive framing of MMT has a vision of the economy that is different from traditional orthodox economics. For progressive proponents of MMT, the economy exists to serve people, not the other way around. Instead of the economy being a powerful, living entity that makes the rules, MMT allows us to argue that people have the power and that we need to choose economic policies that most benefit the people whom the economy is meant to serve.
This is an important distinction because it takes the focus off of spending per se and instead encourages people to ask big questions about WHAT we should be spending on. Instead of talking about how many trillions of dollars a proposed program might cost, which is what most media focuses on, if we came from an MMT perspective, we’d talk about how well that proposal serves citizens’ needs and what kind of policies the government ought to be funding.
The Power of Language
Clearly a new concept of how the economy works needs language that supports its vision rather than language that supports the opposing point of view. Talking about MMT concepts using the language of traditional economic theory is like speaking English in a community that only speaks Spanish. Some of the words may be similar, but they don’t mean the same things, making communication difficult.
Furthermore, language has power and reinforces key concepts that unconsciously influence our thinking. Connors and Mitchell point out that much discussion about the economy uses words expressing concepts of “up” and “down”. In US culture, moving up is considered positive and moving down is considered negative. So when economic experts talk about deficits, it automatically conjures negative feelings — however subtle — because the word itself implies that the government has less money than it needs.
Some of the common ways discussions of the economy reinforce traditional economic views rather than MMT include:
-
Using metaphors that equate government spending to individual finances. For example, economists may refer to the federal deficit as evidence that “the government is living beyond its means”. This reinforces the idea that, just as your family cannot survive long-term if you spend more money than you take in, the government cannot survive long-term if it runs a deficit. In the MMT view, this analogy is inaccurate, and so is language implying its correctness.
-
Language implying that government spending is out of control. Some economic experts use language like “the ever-exploding deficit” to indicate that current levels of government spending are going to lead to financial ruin for the country. This kind of language instills fear in people as well as being at odds with MMT’s views on deficit spending.
-
Language suggesting that our children’s future is at risk due to government spending. You might hear terms like “mortgaging the future”, which suggest that our children and grandchildren will suffer the consequences of today’s government spending. MMT rejects this idea, instead viewing our children’s future at risk only if the government spends money on programs that don’t benefit them and refuses to fund programs that do.
-
Language disparaging those who use social programs such as welfare. Opponents of programs like welfare and food stamps often use language such as “government dependents” to suggest that such people are being infantilized by the government. Viewing welfare recipients this way helps justify cuts in funding to such programs. MMT rejects the idea that a healthy economy requires kicking people off of government-funded programs.
The use of all of these terms reinforces myths about how government spending works and encourages people to support policies that leave the economy–and the people it serves–in poor shape.
Myths MMT Rejects
Each of these problematic metaphors supports a so-called truth about the economy that MMT rejects.
-
The government budget is analogous to a household budget. Household members do not literally make money (another metaphor that is inaccurate!). They are given money in exchange for services or as a gift, and then use that money to pay the bills. Conversely, the government creates and issues currency. This difference means that households must get money before paying bills, while the government does not. Instead, the government goes through a whole process that begins with Congress authorizing spending and ends with the government transferring money to the recipient’s account to create money. This all happens BEFORE taxes are collected. Since this is the case, personal finance advice is inapplicable to the government, and discussions about how the government needs to balance its budget are misguided.
-
Federal deficits are bad and surpluses are good. This assumption comes out of assumption #1. However, from the MMT perspective, deficits and surpluses must be evaluated in context to determine what is really going on.
There are many factors that must be considered when examining a deficit or surplus. One of the most important is the level of private (non-governmental) spending. If people are not spending money, traditional economists might call this a deficit, which is a misleading term because it has nothing to do with the difference between spending and economic capacity. In any case, this economic slowdown is best corrected by increasing government spending, not decreasing it as traditional economists advise. As for deficits, if they are caused by appropriate levels of government spending on programs that serve the people, this is a sign of a healthy economy.
Non-government surpluses are dependent on government deficits. In fact, the non-governmental surplus is always equal to the government deficit. Thus, deficits are not the enemy that traditional economists view them as, and fighting to create a government surplus will very likely lead to a recession. -
Fiscal surpluses contribute to national saving. This is a nonsensical statement in the MMT paradigm. MMT understands that the government is the sole issuer of currency and thus cannot save its own currency. Again, the government is not analogous to a household, where surplus funds must be set aside to be used to cover later spending. The government spends first and creates money second so there is no need to save. In addition, creating governmental surpluses will lead to a recession for the reasons explained in #2 above.
-
Fiscal outcomes must be balanced over the economic cycle. This erroneous assumption would require the government to have control over all economic outcomes. This is not possible in a system that is controlled by the people and not by the economy itself, as people may reduce private spending for a variety of reasons beyond the government’s control. It is far healthier for the economic health of the country for the government to adjust spending as needed to support full employment and to base its decisions on private spending levels rather than on a pre-determined outcome based on where we are “supposed” to be in the business cycle.
-
Fiscal deficits are problematic because they drive up interest rates and crowd out private investment. This incorrect assumption is based on the idea of deficits being bad and surpluses being good. Governments sell bonds to delay spending into the economy and prevent inflation. These bonds aren’t in competition with private investments. Any funds that private citizens re-invest into the government were created by past deficits and such investment stimulates the economy rather than interfering with economic growth as this myth suggests.
-
Fiscal deficits mean taxes need to go up. This would be true if taxes were used to pay for government programs. Since the government does not use taxes to pay for its expenditures, this is not the case. Taxation instead serves as a check on private spending and can discourage certain behaviors, such as polluting or purchase of tobacco; it has nothing to do with government spending.
-
The government will run out of money. This claim is a favorite among conservative economists, but it does not make sense within an MMT framework. Since the government is the issuer of currency, it cannot run out of money. What is true is that the workers and materials needed to bring a proposed program into reality may not be available at a given point in time. However, money will never be an issue as long as the government deals in its own currency.
-
Government spending leads to inflation. Government spending that leads to an increase in the use of resources that were formerly unused doesn’t lead to inflation. For example, if government spending creates jobs and lowers unemployment rates, it won’t cause inflation.
-
Fiscal deficits lead to big government. Arguments about government size are political arguments, not economic ones. All governments, regardless of size, need to run deficits to provide full employment to their citizens. Thus, deficits have nothing to do with the size of the government.
The Challenge for Progressives
Progressives should be leading the charge to get people to adopt this new way of thinking about how the economy works. To do that, they need to stop using language that supports traditional economic thinking and instead adopt language that supports MMT.
Connors and Mitchell argue that progressives must start by expressing the vision of the economy as serving the people rather than the other way around. Talking to people about this in ways they will understand comes before explaining facts about how the economy works as listed above. Without the understanding that its people and not the economy that have the power, MMT will never make sense and cannot be converted into a mainstream idea.
It’s also important, in Connors and Mitchell’s view, for progressives to provide specific goals they want to achieve within an MMT framework. For example, the slogan “jobs for all who want them” is not specific enough. Instead, progressives need to push policy proposals that will increase the demand for workers by a specific percentage so that the number of job openings will more closely match the number of people seeking work. They also need to be able to explain clearly why the old economic framework does not work and why progressive policies are needed to combat unemployment (or whatever issue the policy is meant to fix).
To do this, progressives must stop speaking in terms of economic statistics such as the size of the deficit and start talking in terms of the purposes of their programs. Connors and Mitchell hold up New Zealand as an example. New Zealand created a job creation program with the goal of “zero waste of people.” This language was clear, purpose-driven and resonated with people. The progressives who created this program also set a specific goal of unemployment of less than 2% and underemployment of 0%. Similarly, progressives elsewhere in the world must focus on the benefits they want to bring to people, and not on economic terms used by conservatives, such as “deficit size”.
One specific word progressives should avoid is “spend.” Governments don’t spend. They fund programs, and from a progressive perspective, they invest in people. Using this kind of language should help support MMT concepts and get progressives away from the price-tag discussions that are so prevalent in debates about progressive policy proposals.
Changing the language reframes this debate and helps bring progressive goals into reality. Currently, both progressives and non-progressives are shackled by the language of austerity and the idea that the government can and will run out of money. That’s why when progressive policies are proposed, they are criticized not on their merits but for being “too expensive”. If the general public understood that there is no such thing as a proposal the government cannot fund and that the question is whether or not policies serve the needs of the people.
There is a lot of work that needs to be done to get the language of austerity out of progressive discourse. Almost all of our economic terms are rooted in this language and often cause people to associate government spending with negative outcomes.
Imagine if people saw progressive policies as positive and good for the country as a whole while they saw the so-called necessary cuts to programs like welfare and food stamps as bad for the country! Then progressives could truly make a difference.
It starts with changing the way progressives talk about their proposals. Some of the changes Connors and Mitchell suggest include talking about the need for “unemployment relief” instead of about tax rates, using terms like “government investment” instead of “government spending” and using people-centered language when discussing policy proposals.
Finally, and most importantly, progressives must change the way they talk about the cost of proposed programs. Instead of, for example, talking about Medicare For All costing $32 trillion dollars over 10 years, which gives people sticker shock and makes the program sound “too expensive”, progressives must talk in terms of opportunity costs and how they are going to minimize them. For example, progressives could talk about how a single-payer health care program might initially put some insurance workers out of a job and propose ways to make sure those workers are taken care of so that the loss of employment is minimal.
In short, if progressives want a better world, they must not only learn MMT but be able to explain MMT principles to the general public in an understandable way. By reframing debates over progressive policies so that they no longer use the language of austerity when discussing them, progressives can make it clear that conservative objections to these policies are based on ideological differences and not economic ones. It is only by doing this that progressives can gain widespread support for their ideas and move forward towards collectively beneficial goals.