Modern monetary theory is not the only one here. For a historical perspective, we can revisit what John Maynard Keynes proposed in “How to Pay for War: A Radical Plan for the Chancellor of the Exchequer”, a work less well known to him. To the contemporary ear, the title suggests that Keynes was trying to figure out how to find the money to fund WWII expenses. He wasn’t.
Keynes understood that the British government, which controlled its national currency, could create all the money it needed. The purpose of this book was to show the government how to increase and maintain higher spending levels while controlling inflationary pressures along the way. He noted the soldiers, bombers, tanks, combat gear and more that would be needed to continue the war and how the whole economy would have to be redirected, quickly, to deliver these things.
We have all grown accustomed to seeing taxes as an important source of revenue for the federal government. This is in part because it’s easy to think of the federal government as like state and local governments, which without sufficient revenue – from income taxes, property taxes, sales taxes and more. – could not finance their operations. Yet these entities do not have the federal government’s currency issuing powers, which dramatically alters the government’s spending capacity.
In 1945, a man named Beardsley Ruml gave a fiery speech to the American Bar Association titled “Taxes for Revenue Are Obsolete.” It was not a crank. He was the chairman of the New York Federal Reserve Bank. As Mr Ruml explained in this speech, taxes help first and foremost to avoid a situation where too much money drives out too little property: “The dollars that the government spends become purchasing power between the hands of those who received them ”, he says, while“ the dollars that the government takes in taxes cannot be spent by the people ”.
More recently, economists like L. Randall Wray and Yeva Nersisyan have started to think about how to pay for a Green New Deal using Keynes’ earlier “radical” framework. And even if one accepted the terms of the old deficit budgeting now favored in Washington, going even further on infrastructure, if executed carefully, is still doable: Larry Summers, former economist Obama’s principal in the White House, admitted in 2014 that “Investments in public infrastructure can pay for themselves” and that “by increasing the capacity of the economy, investments in infrastructure increase the capacity of the economy. manage any level of debt.
We are facing huge cross-crises: climate crisis, employment crisis, health crisis and housing crisis, among others. It will take a lot of money to do what is necessary. As Kate Aronoff recently wrote in The New Republic: “To meet the emissions targets set in the Paris Agreement, experts estimate that the United States government will need to spend at least $ 1 trillion per year. ” And the White House’s infrastructure proposal, while historically ambitious, still falls far short of the scale of the problem.
Ms Ocasio-Cortez pointed out, for example, that Mr Biden’s plan called for a $ 40 billion investment in public housing for the entire country, but New York alone might have that level of need.