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 the war: A Radical Plan for the Chancellor of the Exchequer ”, one of his lesser-known works. 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 equipment and more that would be needed to continue the war and how the whole economy would have to be reoriented, 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 significantly changes the government’s spending capacity.
In 1945 a man named Beardsley Ruml delivered a fiery speech in front of the American Bar Association titled “Income taxes are obsolete. It wasn’t 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 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 be amortized by themselves” and that “by increasing the capacity of the economy, investments in infrastructure increase the capacity to 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. Like Kate Aronoff recently written 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 has a $ 40 billion investment in public housing for the whole nation, but on its own, New York can have this level of need.