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Modern Monetary Theory, Taxation, and Democracy

close-up photograph of bank seal on banknote

The coronavirus pandemic has resulted in massive increases in government spending. Many governments around the world are scrambling to cover lost wages, provide benefits to those who are hit hardest by COVID, and to stimulate economic growth to ensure an economic recovery once the pandemic ends. Yet, with deficits of several nations hitting levels not seen since the Second World War and with more deficit spending still expected there are long term concerns about how all of this spending will be paid for. Because of this, several economists are now suggesting that this may be the time to seriously consider taking an approach consistent with modern monetary theory (MMT). However, MMT carries with it broad and far-ranging ethical consequences.

This year the U.S. federal government’s deficit is set to be a fourfold increase over last year (3.8 trillion dollars). The Canadian federal government’s deficit is likely to be over eighteen times larger than it was last year (343 billion dollars). Many other governments are also spending modern record deficits. One approach to dealing with this crisis is to essentially repeat the response to the 2008 recession; stimulate the economy and then commit to austerity by cutting spending and/or raising taxes. Another approach would be to adopt policies that are in keeping with MMT which would allow for increases in the supply of money to stimulate the economy instead of relying on taking on larger government debt.

Modern monetary theory is less a normative theory than it is descriptive. It requires a bit of a paradigm shift in thinking. Obviously, MMT and its relationship to modern economies is complicated, so I will focus on a few relevant points to addressing certain moral concerns. According to current understandings, governments must raise revenue through taxation or by taking on debt by selling bonds. Traditionally that is how things needed to work under a system like the gold standard. However, modern currencies such as the US dollar are fiat currencies; they have value because society collectively deems it so. But if the government can print its own money, why do they need your tax dollars? The truth is that they don’t, but because taxes can only be paid in that currency it creates a demand for that currency and thus adds to its value. If the government requires additional money for policy purposes, it can simply order that money be printed and then spend it rather than waiting on tax revenue or borrowing.

There is obviously a concern about inflation with this idea. Most people are aware of cases where runaway inflation can seriously harm an economy; Germany in the 1920s experienced hyperinflation where wheelbarrows full of cash were needed to buy inexpensive items, and more recently Venezuela experienced hyperinflation. If you print too much money too fast, the value of the currency can fall, and prices will go up. But MMT suggests that inflation can be controlled through taxation. When the government increases taxes, it can withdraw that currency from circulation and thus stem inflation. However, the aim should be to create money to invest in the economy to allow the efficient use of its resources and ensure that demand does not outpace the economy itself; this is also a way to check inflation.

My aim here is not to defend MMT, but to recognize its potential for significant, ethically-salient consequences. The most pressing issue right now is the potential that MMT offers. As noted, governments are currently spending record-setting deficits to cover the costs of COVID and to help stimulate growth from the recession it has created. Billions of dollars could be funneled into programs ranging from infrastructure development, to a universal basic income, to funding a Green New Deal. There are seriously ethically-beneficial possibilities. This is why several journalists and experts have suggested that the COVID crisis should make us seriously consider pursuing such policies. Another important factor to consider is that following a traditional monetary understanding, governments may be taking on billions of unnecessary debt that will inhibit future government capabilities for future generations.

On the other hand, there is risk that under MMT there may arise a situation where inflation begins to increase during recession or recovery when raising taxes would be a bad idea. But quantitative easing practices and massive spending have not produced inflation. In fact, central banks are currently looking to increase inflation anyways. However, there is a more significant concern that is highlighted in both the traditional monetary understanding and MMT: the relationship to values and democracy.

Critics of MMT frequently complain that it would essentially break down the wall that has been erected between central banks and elected governments. According to a recent article evaluating the merits of MMT during COVID, “serious problems may arise from putting the power to create, allocate, and spend money permanently in the hands of politically elected governments.” Governments, critics allege, have shifty politicians who only want to promise the moon in return for votes. While the general statement may be true according to a statistical bell curve, it is still a rather vague criticism. More importantly, in a democratic nation, if the public wanted to send itself knowingly into inflation, should it not be allowed to if it so wished? The myth that you can separate politics from central banking is inherently absurd when in practice it is undemocratic or resistant to democratic reform. There is also the fact that this independence has already been reduced after the 2008 recession anyways.

On the other hand, MMT, while theoretically bringing a democratic influence to central banking, may serve to undermine democracy. Voting and taxation have been closely intertwined concepts. America famously rejected taxation without political representation. The concept of paying taxes in return for government services is also important as it is often preached that paying taxes is an important civic duty; we pay taxes to ensure our mutual security and benefits. Much of the rhetoric about government accountability revolves around making sure that politicians spend tax money appropriately. How much of our thinking about government spending and accountability changes once governments can basically say, “We don’t need your tax dollars”?

Governments wouldn’t really need a budget either as they are currently understood. There would be no deficit. While there would be detailed accounting, governmental budgets would effectively be a spending plan rather than a balance sheet. It could seriously challenge, undermine, stress, and maybe improve several democratic norms and traditions. Given that some have argued that the US government is already effectively following MMT, the political questions are going to take on a newfound importance.

Some Hospitals Sue Their Delinquent Patients. Should They?

photograph of coin jar spilling out on top of medical bills

Despite the passing of the Patient Protection and Affordable Care Act — i.e., Obamacare — in 2010, health care reform remains a contentious political issue. Costly procedures and huge medical bills still pose insurmountable financial burdens for many Americans — even those who are insured; thus, the appetite to ameliorate the pain remains. As reported in a recent CNBC article, a recent study concluded that 66.5% of all bankruptcies were related to medical issues. Whatever the positive effects of health insurance reform have been, it has not provided full protection for people from the threat of financial ruin because of unpaid medical bills.

Are there policies that healthcare systems and hospitals have instituted that may be exacerbating this problem? Indeed. Some hospitals will sue their patients for these unpaid medical bills, thus subjecting some patients to the additional expenses and stresses of navigating the legal system. Now, not all hospitals do this, and some hospitals sue their patients much more than others. A recent NPR article covered a study published in The Journal of the American Medical Association (JAMA) that showed that 36% of hospitals in Virginia sued patients and garnished wages in 2017. What’s more, just 5 hospitals accounted for more than half of the lawsuits, and all but one of these hospitals were non-profit institutions. As such, it is important to recognize this as a choice made by certain hospitals, rather than a widely accepted and unavoidable practice. In fact, hospitals have other choices to make regarding unpaid debts. These debts could be passed to collection agencies or written off as “bad debt.”

Hospitals, of course, face financial pressures of their own, and suing and garnishing to recoup unpaid medical debt is one strategy for easing these pressures. Hospitals defend the practice as both legal and transparent. Detractors claim that the practice violates the ethos of hospitals, understood as institutions that exist for the community benefit. We can approach the underlying divide in this debate in terms of whether healthcare is morally special. If health care is not special — if it is a normal consumer good just like other consumer goods — then it is fitting and proper to treat trade in healthcare goods as subject to contract law, where the courts play a vital role in ensuring fairness in economic relations. On the other hand, if health care is morally special — if it is not just like other consumer goods because it has some essential connection to the concerns of justice — then different rules governing economic conflicts in the exchange of health care goods ought to apply.

Presume that we are treat healthcare like any other good. By receiving healthcare services, customers implicitly agree to pay for them. By refusing to pay, they have broken this implicit contract. The courts exist as a transparent, politically legitimate, and unbiased enforcer of these contracts, ensuring that what debts have legally and properly been incurred do get paid. If service providers are not given the public assurance that they will be paid for the services they provide, then they would have to take on the extra risk of either losing out on payments or the extra burden of trying to collect on their own. Hospitals, thus, have a legal right to sue their patients, and it is fitting that they do.

If healthcare is a different kind of good — if healthcare is considered somehow special — then the above standard analysis of why service providers ought to have a right to sue no longer applies so neatly. Two observations can be made to suggest healthcare ought to be treated as special. First, healthcare exists to protect, maintain, and enhance a person’s health. Though through most of human history, our abilities to significantly affect the course of diseases had been limited, technological and social advances of the 20th and 21st century have produced a healthcare system that indeed can prolong the length and enhance the quality of lives. Having a life, of course, is a precondition of living a good life. Sickness and premature death limit the opportunities of living a life according to one’s life-plan. If justice entails the principal that society ought to foster equal opportunity, then healthcare has special moral significance because of its connection to health and, therefore, life opportunities. This is the basic argument made by Norman Daniels in his 1985 book Just Health Care.

Healthcare’s special status may also be rooted in vulnerability. The instinctive value we place on protecting our own health and well-being makes us vulnerable to exploitation when our health is threatened. The standard model outlined above presumes that the consumer will act rationally and take into consideration things like price and need when purchasing a product. And yet for the need of prolonging one’s own life and health, there is often no price we wouldn’t accept. This is not to say that reforms to the healthcare system that would force hospitals to be more transparent about price wouldn’t be a welcome change. Rather, I doubt that this change alone would significantly protect patients’ vulnerability to exploitation on this matter.

Considering these observations, one may argue, healthcare should be given a special status, and standard norms of contract law ought not to define the rights and responsibilities of providers in attempting to collect on medical debts. If we follow this line of argument, we are still stuck with the obvious rejoinder that providers deserve to be compensated for their vital labor. We should not expect them to work for free. I think this quite quickly pushes us down the path of envisioning publicly funded schemes to finance health care, whether that be a single-payer model or some other mixed system. If healthcare’s moral importance undercuts the private rights of economic actors in the healthcare market, then public obligations ought to step in to ensure a scheme that distributes care to those in need and adequately compensates the caregivers central to the system.

Is it Time for a Permanent Olympic Venue?

Photo of illuminated Olympic rings against dark city

The Olympic flame has been lit once again, this time in Pyeongchang, South Korea. The 23rd Winter Olympic games have been accompanied with a lot of controversy, hope, and high expectations. The image of two Koreas marching together under one flag has reminded many of a not-so-distant, more peaceful past. However, this is not the issue at hand. Despite many moral dilemmas arising from the North-South relations, this time the focus is on the ethics of hosting the Olympics. Continue reading “Is it Time for a Permanent Olympic Venue?”

Student Loan Debt’s Enforcement Problem

The prospect of student loan debt is often enough to scare any college graduate. For many, such fear is all too common; according to the Wall Street Journal, 71% of the Class of 2015 graduated with student loan debt. For many of these graduates, the amount owed is scary enough, in itself. What happens, then, when heavily-armed members of law enforcement are thrown into the mix?

Continue reading “Student Loan Debt’s Enforcement Problem”