Opposition to Modern Monetary Theory (MMT) tends to come from two different directions. From the one side, there are those who deny that monetarily sovereign governments have the fiscal capacity to maintain full employment and price stability. From the other side, there are some who accuse MMT of failing to account for the environmental consequences of full-employment policies. Addressing criticisms of the first type has been a major focus of earlier posts. But it is actually criticisms of the second type that would, if valid, give far greater cause for concern.
For anyone who takes the time to acquaint themselves with MMT, however, it quickly becomes clear that the approach is well suited to giving full consideration to environmental factors. When Modern Monetary Theorists insist that a currency-issuing government is only constrained by the availability of real resources and political factors, it needs to be understood that these resource limits include, above all, those imposed by ecology.
Not only does MMT allow for such factors to be given full weight in assessing what activities should take place and how they should be conducted, but it clearly shows that society has the capacity to make these choices even if doing so is unprofitable for capitalists. Subject to resource limits, a currency-issuing government can always use its fiscal capacity to undertake or encourage activity that is of social benefit, irrespective of the prospective private return to capital, provided any political opposition can be overcome.
In contrast, some politicians representing the environmental movement have succumbed to theoretical misconceptions such as the ‘government budget constraint’ and ‘market for loanable funds’ doctrines that are entirely inapplicable to sovereign currency systems. These misconceptions lead them to adopt policy positions that undermine their own social and environmental aims (such as a misguided commitment to balancing the budget over the business cycle). This enables the costs of policies to be presented in the public debate as financial rather than what they really are – resource based. This mystifies the nature of the policy challenges and gives political opponents leverage they would not possess in a transparent public debate.
Needless to say, MMT does not make the choices over resource usage and the related conflicts any easier to resolve. What it does do is put these questions front and center, where they should be, and frees us conceptually from the superstition that our economic hardships can be due to a mysterious shortage of what the government can always freely create – its own currency.