As a respite from a chaotic spring spent under quarantine, my family booked a weeklong vacation last month in a cozy, remote house in the California desert. While the kids cannonballed into the saltwater pool and my wife sped through several novels, I spent my time in the sun doing exactly the sort of thing you’d imagine an opinion columnist might do on summer vacation: I read two hot new books about macroeconomics.
Wait, don’t leave! I promise this isn’t as dry as it sounds.
The first book was “The Price of Peace,” Zachary Carter’s incisive biography of the British economist John Maynard Keynes, which illustrates the awesome power of economic theory to alter the fates of nations and the lives of millions of people. The second was the “The Deficit Myth,” in which the economist Stephanie Kelton convincingly overturns the conventional wisdom that federal budget deficits are somehow bad for the nation.
I’m on record as a doomer, but in different ways, these tomes sparked the first real note of optimism I’ve felt about America’s future in quite a while. Together, they suggest a compelling political, moral and economic case for the federal government to begin to do, again, what it once saw as its duty — to make big, bold, and even expensive investments to improve the lives of Americans, and perhaps of people around the world.
In the last few years, and especially in the hellish last couple of months, the United States has come to feel like a failed state. The coronavirus is spreading, the economy is crumbling, society is fragmenting, our infrastructure is falling apart, health care is inadequate and costly, child care is impossible, and life expectancy is declining.
The federal government is not only often unwilling to help, but seemingly incapable of it. To get just about anything done anymore, Uncle Sam must go hat in hand to the behemoth private companies that now rule much of our lives. Please, Google, will you create a coronavirus testing website? Please, Walmart, will you set up in-person testing sites?
And whenever anyone is brave enough to suggest that the government itself should provide useful services to Americans — whether big-ticket items like health care, child care and college education, or smaller things like an upgraded electric grid or a national broadband service — the first reaction from many on the right and the left is one of defeat and resignation. “How will you pay for it?” they ask. And, often, the whole conversation stops right there, because with a $26.5 trillion national debt, America looks hopelessly broke.
It is not. Kelton argues that our government’s inability to provide for citizens isn’t due to a lack for money; instead, our leaders lack political will.
Kelton — who has worked as an economist for Democrats in the Senate and as an adviser to Bernie Sanders’s presidential campaigns — is one of the leading proponents of Modern Monetary Theory, or M.M.T. The theory argues that because the government is in charge of its own currency, it cannot “run out” of money the way a household or a business can, and it therefore does not need to raise taxes to fund government spending.
This doesn’t mean that the government’s resources are infinite, just that deficits are not a true limit on what’s possible. Instead of being constrained by deficits, Kelton and other M.M.T.ers argue, policymakers should care about “real” measures of economic activity: unemployment and inflation.
Whatever the deficit, if unemployment is rife, it’s an indication that aggregate demand is low; to boost demand, the government can freely spend, spend, spend — and should stop spending only when there is a danger that it will lead to a rise in prices — that is, inflation — not because deficits will soar. In practice, Kelton and other M.M.T.ers propose a federal jobs guarantee, in which the government would hire anyone who needs a job for a set wage. The policy, she argues, would promote full employment while keeping inflation stable.
M.M.T. is controversial even among left-leaning economists — Lawrence H. Summers, who once worked as Barack Obama’s director of the National Economic Council, has called it “a recipe for disaster” — and it’s easy for non-economists to get lost in the many technical debates surrounding the idea.
But one doesn’t need to buy into everything about M.M.T. to see Kelton’s fundamental point — that in the 40 years since Ronald Reagan won the White House, both the left and the right have been unnecessarily obsessed with deficits, to the detriment of the well-being of citizens.
The cruelest example of this mind-set occurred after the Great Recession in 2008. At the time, many experts suggested that an adequate response to the downturn would require the government to spend a trillion dollars or more to boost demand. Instead, Obama and his aides, worried about sticker shock, lowballed their stimulus, and millions of people remained unemployed.
In the decade since that recession, many economists and lawmakers have grown less worried about deficits, because red ink has not led to economic calamity. That’s to the good: Deficits are rarely questioned when lawmakers are spending on the military or on tax cuts for corporations, so it’s only fair that they aren’t constrained by deficits when spending on things like health care, child care and education.
And right now, in the midst of a pandemic, the economy needs as much help as it can get. In March, Congress passed and the president signed the CARES Act, which provided more than $2 trillion in economic stimulus. Studies show that it has had a remarkable effect — despite a steep increase in unemployment due to the virus, the expansion in aid prevented a rise in poverty.
But most of that stimulus will soon come to an end. Congress is working on another relief package, but already lawmakers are fighting about its size: Democrats in the House passed a $3 trillion bill; Trump and Senate Republicans are looking at something closer to $1 trillion.
Near the end of his Keynes book, Carter writes that Keynesianism “is not so much a school of economic thought as a spirit of radical optimism, unjustified by most of human history and extremely difficult to conjure up precisely when it is most needed: during the depths of a depression or amid the fevers of war.”
We are in similarly dire straits now — and one way we might escape is to do what Keynes would suggest we do: spend our way toward a better tomorrow.
Office Hours With Farhad Manjoo
Farhad wants to chat with readers on the phone. If you’re interested in talking to a New York Times columnist about anything that’s on your mind, please fill out this form. Farhad will select a few readers to call.