A monetarily sovereign government is one that issues its own currency and is the currency’s sole issuer. Ideally, it allows the currency’s value to float in relation to other currencies in foreign exchange markets, meaning its currency is not convertible at a fixed rate into either another currency or a commodity (other than possibly the commodity labor-power through the provision of a job guarantee). Although this ideal maximizes policy space, a government that promises convertibility can renege at a later date, and so, strictly speaking, does not relinquish its monetary sovereignty so long as it retains the authority to issue its own currency. A monetarily sovereign government that operates a flexible exchange rate faces no revenue constraint provided it refrains from borrowing in a foreign currency and so avoids exchange-rate risk on its debt.
Have you noticed how things we used to be able to do are beyond our capabilities now?
We finally reached a point where we were able to provide free university education. Then we grew wealthier, and some countries couldn’t afford it anymore.
Some of us still have universal public health care systems, but they’re increasingly a chronic burden. Maybe they made sense once, but it’s only a matter of time before they go. Sure, Cuba can do it, but they’re poorer than us.
On the left, it sometimes feels as if we spend a lot of time in a losing battle. When the general population rejects or shows little interest in our latest set of progressive proposals and votes for political candidates even more right wing than the last, it’s common to engage in a little hand wringing, accuse ourselves of having failed to devise or effectively articulate a practical vision, and go back to the drawing board wondering how we can do things better next time. Meanwhile, the general population continues along a well trodden path of embracing war, environmental destruction, extreme inequality, mass unemployment and mean-spirited attacks on the poor along with policies tinged with racist or nationalistic overtones.
Often, in trying to get at the “essentials” of how a capitalist economy functions, we consider a simplified model of a closed economy without government. Through such models it is possible to make the argument that exploitation, instability, unemployment and/or demand deficiency (depending on the particular Marxian or Keynesian flavor of the model) are endogenous to a private market system in which production is for monetary profit. Not only is it then possible to hold that the problems are inherent to laissez-faire capitalism but also that their solution can only come from the “outside” – either through revolutionary overthrow of the system or reformist management by the state. In debate between the proponents of laissez-faire capitalism and its dissenters, the approach is useful and informative. Proponents of laissez-faire desire an economy in which the role of the state is minimized, and the simplified models take that line of thought to its logical conclusion and suggest it is untenable. However, it is also easy to lose sight of what is missed in abstracting from the state. A habit of thought tends to emerge in which the state is seen as peripheral to capitalism and perhaps even powerless to do much at all when faced with the supposed awesome might of private market forces and the realities of capitalist social relations of production. But the state is actually foundational to capitalism, and the current economic system would not exist, let alone function effectively, without it.
The news of one of neoliberalism’s champions kicking the bucket has eventually trickled down to heteconomist land. Few keystrokes will be wasted here on that score other than to lament that she did not take neoliberalism with her. The truth is, she couldn’t, even if she’d wanted to. Why? Because it is widely embraced, and few will let go, present company mostly excluded, of course. Is this the fault of progressives? A failure of progressive “messaging”? I say we can spare ourselves the hand-wringing. For the time being, most people, in their actions at least, are nasty pieces of work. Yes, in our society nastiness is encouraged. The problem is systemic. Is this much consolation?
The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt. With private debt burdens mounting in relation to real GDP, we were told that consenting adults knew what they were doing. Then the crisis hit. Since then, as the private sector attempted to deleverage and get its unsustainable debt levels under control, we were told that the government’s deficits, which increased as a matter of accounting, were unsustainable. The outcome, depending on which doomsayer you listened to, would supposedly be hyperinflation, escalating interest rates, sovereign default, a crippling debt burden on future generations or some heady combination of any or all of these calamities. For governments that issue their own flexible exchange-rate nonconvertible currencies, these claims are nonsense. Even in the Eurozone the sovereign-debt crisis is a manufactured one that can be alleviated indefinitely by the ECB. So what explains the neoliberal preference for private debt and aversion to government deficits? The class-interested motivations seem crystal clear.
Neoclassical economics, which remains the prevailing orthodoxy, emerged in the late nineteenth century as apologetics in the context of rising working-class opposition to capitalism. Classical political economy had not provided defenders of the system with a comparable apologetic. Not only had it partly informed Marx’s analysis of capitalism but there were socialist movements drawing on interpretations of Ricardo’s labor theory of value. Class was central to the understanding of capitalism in both classical political economy and Marx, and no attempt had been made to conceal the class antagonisms inherent in the system. The neoclassical economists, with transparent intent, sought to change all this. Ever since, they have worked hard to deny or obfuscate any aspect of capitalism that might be damaging to this apologetic project. Three theoretical insights in the history of economic thought seem particularly relevant in this respect.
Living in a country in which 70 percent of print journalists are owned by Rupert Murdoch’s evil empire, and many of the rest someday hope to be, my expectations of the “news” media are low. Even so, it would surprise if the comments sections of the online newspaper editions were quite so policed as the contents of the articles. I would hazard a guess that any reference to MMT or other ideas opposed to the neoliberal orthodoxy that were expressed in a thoughtful and non-abusive manner would not actually be systematically hunted down, deleted, and barred from that point forward. More likely, the idiocy, mean-spiritedness and/or sheer indifference of the typical reader would be regarded protection enough against the possibility of logic, empathy or fact undermining, in even the slightest degree, the neoliberal bipartisan line. Evidently, obtuseness in the typical Bulgarian cannot be so taken for granted. Any coherent challenge to elite aspirations, even in comments, must be stamped out. There must still be a few thinking human beings in that part of the world who might have a light-bulb moment if confronted with truth. Why else would two of the largest mainstream news publications extinguish any reference to Mosler Economics and Modern Monetary Theory?
Liars in prominent positions have made big claims for “contractionary expansion”. We are supposed to believe that if the government cuts back expenditure on education, healthcare and public services, and savages the welfare state, universal prosperity will ensue. Even a child could see this for the dishonest nonsense it is.
When I was young and heard politicians extol the virtues of “family values” and blame a decline in them on moral atrophy, I wondered how they couldn’t see that it was their economic policies, with deleterious effects on the social safety net and job security, that most undermined these “values”. Then I turned 3, and saw how naïve I had been. They never cared about those values. They just wanted an explanation of social disintegration that exempted from blame their class-interested attacks on the living conditions of general populations the world over.