Can the US Adopt the Modern Monetary Theory to Fund Development Projects?
The Green New Deal, a combination of Roosevelt’s New Deal with modern ideas like renewable energy, is an assembly of ideas put forth by US Congresswoman Alexandria Ocasio-Cortez that calls for greater clean energy development, universal healthcare, and guaranteed jobs. However, this Green New Deal relies heavily on one thing to work — Modern Monetary Theory.
Modern Monetary Theory, or MMT, is the idea that governments that have control of their own currency can pay for anything they want without collecting taxes. In other words, countries that print their own money and have monetary sovereignty can spend money on things such as public programs without having to rely on taxes. There are two conditions that must be met in order for MMT to work: one, the economy must be a currency issuer, and two, there must be a single, sovereign government where fiscal and monetary policy is one. Given these two conditions, let's analyze whether the US can adopt the MMT to fund development projects.
The United States does have monetary sovereignty, but currently, has an independent central bank. Therefore, in order for it to adopt MMT, the central bank must be eliminated in order to create one sovereign government — in other words, the US would have to abolish the federal reserve. This poses a challenge since, in the past, the federal reserve was not able to be abolished despite having been criticized for booms and busts since it was authorized in 1913. Still, if we could abolish the federal reserve then the US would be able to adopt MMT and fund sustainable development projects.
The reason that the US should try to adopt MMT to fund sustainable development projects is that the Green New Deal will create more jobs and allow us to shift to more sustainable energy resources and development across the country. Such advancements will help us fight climate change, an ever-pressing issue, and allow us to mitigate the wealth inequalities in US society.
From an economic perspective, the US may adopt the Green New Deal. Jeffrey Miron, vice president of Cato Institute and the director of graduate and undergraduate studies in the Department of Economics at Harvard University, contends that that the Green New Deal would cost upwards of 6.6 trillion dollars per year. While many are skeptical of the debt that the deal may bring, some democrats are turning towards MMT as a solution. Others claim that the low rate of inflation is due to the central bank regulating the supply and if MMT is implemented to fund the New Deal, it may be possible that we may see a rapid increase in inflation. Despite these claims, it is possible to implement MMT to fund the Green New Deal if we are able to also counteract the inflation with anti-inflation regulations such as increasing taxes, wages and pricing, and rationing.
So yes, the US can adopt the MMT to fund the Green New Deal and other development projects as long the outcomes of doing so such as inflation are approached in ways that can allow us to mitigate or prevent them as a whole. In the long run, this adoption could allow us to address climate change and reduce economic inequality, goals which we should strive to work towards in order to make this country, this world a better place.