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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.

Clean Energy Infrastructure, Environmental Justice and the Ethics of NIMBY

Photograph of a field with wind turbines in the background

From DAPL to cancer-alley, sympathy to the opposition to industrial infrastructure and its harms are a cornerstone of the modern environmental movement. An important component of the movement has been the unified resistance of marginalized groups against powerful interest groups seeking to exploit the environment around them. Organized resistance to environmentally destructive projects are often no longer opposed under the guise of the environment’s inherent value alone, but also the rights of people to a healthy and safe environment. Prioritizing the interests of local citizens and the grassroots over special interests is not only fundamental to environmental justice but also to NIMBY-ism. NIMBY-ism, or “Not in my backyard”-ism, is an argument used commonly in disputes between citizen and government, or citizen and corporation, over the use of space on and around a person’s property. NIMBY-ism usually connotes negatively, as those who oppose the development often do so on the basis that it affects them personally, and not that the development is wrong in itself.

One striking example of NIMBYism used to oppose environmentally friendly infrastructure is that of wind farms in Indiana. Recently, Renewable Energy Systems pulled their development plan for large wind farms spanning across Cass and Miami counties due to technical difficulties. Many in the local community were pleased by this decision, with some even describing it as “fabulous news.” The project was estimated to generate 600 megawatts of electricity by establishing 150-225 turbines between the two counties. The project generated a great deal of controversy, with the local paper, the Pharos-Tribune claiming, “The debate and disagreements over placing wind turbines in Cass County had turned family members against one another and neighbor against neighbor.” And such opposition and controversy is not unique to Cass and Miami county. “Indiana Wind Watch” is an organization recently formed to “protect every Hoosier from the unfortunate fate of living near irresponsibly-sited industrial wind turbines.” The organization was founded in 2018, claims to be grassroots, and aims to provide resources to communities and individuals opposing wind farm developments. The reason Indiana Wind Watch opposes wind energy projects is because Indiana is “too populated.” Regardless of whether or not any of the information on Indiana Wind Watch is correct, the movement organized in Cass and Miami county demonstrates NIMBY-ism perfectly.

One could argue that if the opposition is based on false information, it should not be taken as true opposition. However, do members of Cass and Miami county truly need a reason to oppose development on and around their county by an international corporation?  This case parallels other environmental justice projects in that it centers around energy development and infrastructure. However, unlike cases such as Keystone XL and the Dakota Access Pipeline, this case involves building infrastructure that is positive for the environment. So would it be fair to call the opposition to wind farms in Cass and Miami county an environmental justice movement? According to the EPA, environmental justice “is the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation and enforcement of environmental laws, regulations and policies.” According to this definition, opposition to clean energy infrastructure could still constitute as environmental justice, which may seem somewhat counterintuitive. Though wind farms do have negative environmental impacts, such as killing birds and bats and low level noise, their impact is by and large less harmful than that of pipelines and energy plants.

However, it seems that though the citizens who opposed this project organized an environmental justice movement, the well-being of the environment did not seem to be a central motivator within the opposition. Much of the opposition to the turbines centered around concern about property rights and safety. Opposers argued that Harvest Wind Energy LLC’s plans for the placement of the turbines endangered those living near them and could potentially infringe on their property rights. Another potential concern about the project is that it was organized by a multi-national corporation, which might not have the best interests of small rural Indiana communities in mind. The Indiana Wind Watch emphasizes this concern in their opposition to wind development, and even described the situation in Cass County as “a truly David and Goliath battle for the protection of their county and homes.” Much of this rhetoric directly mirrors that of other environmental movements, particularly within the battle against “Big Oil” and fossil fuel interests. These types of arguments focus on the justice aspect of energy development and are critical of the difference in power between every day citizens and large corporate interests.

Even if a movement involves justice and the environment, is it necessarily an environmental justice movement, especially when its consequences lead to environmental degradation? If we reserve the right to withhold the distinction of environmental justice to movements that only have outcomes we deem as environmentally favorable, the way in which the environment is defined may become a force for exclusion and oppression.

It seems as though a level of NIMBYism is required in environmental justice, but perhaps it’s not only Not in My Backyard, but rather Not in Anybody’s Backyard. Moving toward a clean energy future will require totally new infrastructure and development, and as long as this infrastructure displaces people, it probably will not pass without controversy. The real question is how environmentalists should approach this issue, and whether they should critically reflect on the meaning of environmental justice.

This article has a set of discussion questions tailored for classroom use. Click here to download them. To see a full list of our discussion questions, check out the Educational Resources page.

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?”

Is Infrastructure an Ethical Obligation?

It’s no debate that American infrastructure has been deteriorating. Across the country, bridges are collapsing, roads are riddled with potholes, schools have chipping paint; even the United States House of Representatives had lead in their water this summer. During their campaigns, both Hillary Clinton and Donald Trump have declared their intentions to drastically increase spending on infrastructure if they are elected to the presidency. Clinton announced that her administration would spend $250 billion on infrastructure over the next five years, paid for by a business tax on companies with assets abroad. In response, Trump stated he would double Clinton’s proposed investment by borrowing funds via the sale of government bonds. Numerous economists and bipartisan politicians have agreed with both candidates – America has an infrastructure problem that needs to be addressed, and soon.

Continue reading “Is Infrastructure an Ethical Obligation?”