Reagan proved deficits don’t matter.

Dick Cheney

Who the hell cares about the budget? We’re going to have a country.

Donald Trump

In Part 1, we looked at UBI as the new primary purpose of government, the only way out of the immediate predicaments of underemployment, collapsing labor value, and the political explosiveness generated by the resulting economic deprivation. Then in Part 2, we explored BHBs (Bigger Home Bases), the absolutely necessary application point for UBI, in order to create rapid economic contraction in a sustainable, operable manner.

Now, we need to examine Modern Money Theory (MMT), the third leg of the stool, the last piece of the only project that can, in my opinion, actually save the world. MMT provides the philosophical underpinning for UBI and BHBs, and it is the theoretical substance that justifies and explains how governments can be used to flip the script on plutocracy. MMT can provide a streamlined, simplified role for the state, one that sharply limits its scope and role in society, while at the same time vastly increasing its power to create better lives for regular people instead of serving the interests of the aloof, unaccountable elite.

Modern Money Theory isn’t as sexy and tangible as UBI and BHBs, but without its deployment, the other two pieces of the project will sputter and likely fail in the long run. The sea chance in economic understanding that MMT provides is essential for the whole thing to really work.

The power of MMT is especially salient in our current moment, as Elonald Mump buzzsaws through the federal bureaucracy under the guise of eliminating fraud, waste, and corruption, and to supposedly get the federal fiscal house in order. This line of thinking has been simmering and growing since the famous Reagan mantra about the nine most terrifying words, and is one of the main motifs that MMT takes on and demolishes. In my next post, we’ll look at the fundamental errors of Trumpism more closely: where they come from, why they’re so resilient, and how they’re leading us off the cliff. But for this piece, we’ll just focus on Modern Money Theory, the last pillar of the UBI-BHB-MMT project.

It should go without saying that I am not a professional economist, nor do I pretend to be an expert in MMT. So for full background on this rich and vibrant school of thought, I would encourage people to check out the books and websites of the economists listed at the end of this piece. But even with my layman’s understanding, I do believe that MMT is the most powerful analytical tool for understanding the nature of federal spending, currency dynamics, and the actual nature and purpose of national deficits and debt. And to be honest, the “T” part of MMT is a bit of a misnomer. MMT, as outlined by Warren Mosler, one of the godfathers of the movement, is really just a description of how things actually work in real time, right now, at the Fed, the Treasury, and in Congress. MMT is not some pie-in-the-sky dream of what should be. It is a description of how the mechanics of federal budgeting and spending operate now, even though these mechanics are hidden behind layers of obfuscation and outright deception by the ruling plutocrats.

MMT: The Basics

First, just a reminder that the US dollar does not tie out to any physical, precious substance. This has been true since 1971, when Nixon took the US off the gold standard, which meant that US dollars could no longer be converted to gold by dollar holders. So the USD is a free-floating currency, not tied to gold, silver, pork bellies, or any other tangible thing, In MMT parlance, we call this a “fiat currency,” a medium of exchange the derives its legitimacy from a political fact, the existence and power of the US government and US society as a whole. As such, dollars are essentially a crystallization of all the things that make us a nation, our trust in each other and in our government, and of the ongoing faith we have in our collective destiny as a people. Money encapsulates all of the institutions that we have been building and refining for two and a half centuries: our laws, our physical infrastructure, the expansion of liberty to more parts of the population, the services that government can provide for increasing popular welfare, increased economic dynamism fostered by robust public support and legal guardrails alike, etc. Money gathers up all these various threads, and allows a single entity to bear the incredible weight of the largest economy in the history of civilization, while also serving as the most stable investment vehicle in the world.

When people imagine that money is only created by the rich, the Ayn Rand view that only the “creative” corporate elite deserve to control all of the economic conditions of a society, they are engaging in an utterly delusional concept that ignores our long collective history and experience. I cannot think of anything more unpatriotic than pretending that only a small circle of plutocrats are worthy of economic success and abundance. Similarly, the fervor of the crypto-obsessed is sociopathic, because it strives to escape the all responsibility the various parts of society which create the existence of the nation itself.

So, because the federal government creates and sustains the currency, it is nothing like the many different currency users. Individuals, families, businesses, local and state governments: these are all currency users, and they have to, for the most part, balance their incoming funds and outgoing expenses. Households, businesses, and sub-federal governments cannot just create money out of thin air when they run out of usable liquidity. They must borrow to spend beyond their income. The federal government is under no such constraint. It is the currency issuer, not a currency user. As such, the government can always “afford” to spend as much as it wants, whenever it wants, on whatever it wants. The federal government does not need to tax first and then spend later, based on what tax revenue comes in. In fact, in the broadest sense, the government actually spends first, and only later takes in taxes, in a totally separate stream of activity.

That brings us to a very important tenet of MMT: federal taxes don’t pay for federal spending. At other levels of government, taxes do pay for spending, because towns, cities, counties, and states can’t just print money. So those smaller government entities do rely on taxes. But the federal government can spend money into existence whenever it wants, through Congress or the Fed, and it’s usually done through computer keystrokes. The simple fact that the US has only had a budget surplus 12 times since 1933 demonstrates that taxes don’t actually “pay for” spending, in any meaningful sense. All that spending since 1933 has happened, it was real. And taxes didn’t pay for it all.

At this point, most are raising their hands energetically, asking “What about the national debt, smart guy? What’s that all about?” We have had to “borrow” $36+ trillion to make up for our historical “overspending,” so obviously we must be constrained at the federal level too, otherwise we wouldn’t have had to borrow all that money, right?

Well, that’s actually wrong. When we talk about the federal deficit (spending exceeding tax in any one year) leading to the ballooning national debt, what exactly are we talking about? What is the national debt, anyway? Let’s suppose that Congress tells the Treasury to go and pay April’s Social Security payments, and then the Treasury goes to their checking account at the Fed, and there’s no money in it. Does the Secretary of the Treasury says, “Fuck, we’re out of money! Let’s go borrow money from Bank of America and the People’s Bank of China!” And then those banks will drop some cash into the Treasury’s bank account (with interest), allowing the US government to send out its checks.

Is that how it works? Of course not. When the federal government “needs more money,” it just tells the Treasury to issue a new round of government bonds (T-Bills, Treasuries). Domestic and international investors then buy those bonds, which drops money into the Treasury Department’s operating account at the Fed, providing liquid capital to spend. And speaking of the Fed, this all happens inside the Fed, and it’s all in US dollars. All large investors (banks, hedge funds, foreign banks, sovereign national funds) have accounts at the Fed, and they all want to hold USD for trade purposes, as well as for reliable investment reasons (the US has not had a substantive default on its bonds in over 200 years — there was a gold convertibility problem in 1933-34, and a temporary technical glitch in 1979, neither of which can be seen as serious defaults).

So the “national debt” is actually just the total of all the outstanding government bond investment instruments that the US uses to facilitate international trade, heat up or cool down the economy as a whole, and to honor its role as the world’s most reliable location for safe investing (i.e., the world’s reserve currency). People want to hold US bonds, because they represent the full faith and credit of the biggest consumer market and the biggest overall economy in the history of civilization. Of the $36 trillion in outstanding federal bonds, $19.7 trillion is with domestic investors (401K programs and the like), $8.7 trillion is with foreign investors (Japan and China with $1.2 each), and $7 trillion we owe to ourselves (Social Security, the Fed, and other government internal investment funds). When all of this “debt” comes due, the Fed just credits the investors’ accounts at the Fed itself (with interest), and everyone just goes on with life. Needless to say, this is happening all the time. The national debt is constantly rolling over, with bonds maturing, getting paid out, and then new bonds being sold. Bond holders can’t just “call in” their loans all at once and demand gold or planeloads of crisp hundreds. That’s not how it works. They’re not even loans, as such. They are investment vehicles that lubricate the ongoing domestic and international economic systems.

But in reality, the federal government doesn’t actually “need” to sell bonds at all to finance its spending, just like taxes are not needed before spending can happen. Taxes and government bonds are used to create buy-in for the US dollar itself, lending it heft and relevance, facilitating the mechanisms that come with having the world’s reserve currency. This is what MMT calls “driving the currency.”

Need proof that taxes and bonds aren’t necessary for federal spending? Remember the 2008 financial crash (GFC)? Well, the Fed spent $2.5 trillion (about 17% of GDP) to buy up troubled public and private debt, the largest monetary action in world history. Where did that money come from? Did the Treasury sell $2.5 trillion in new bonds, or did the US government do a special tax assessment to the American people, like when your condo complex unexpectedly needs to bill all the unit owners for a new roof? No, neither of these things happened. As Ben Bernanke, the Chairman of the Fed at the time, admitted, they just keystroked the money into existence at the Fed over a few weeks, the pure epitome of a fiat currency.

The Rope-a-Dope

Considering all these things, then what is going on in our political environment? If the government doesn’t need to tax or sell bonds to be able to “afford” federal spending (remember the two quotes at the top of this piece), then why do we have a “debt ceiling” (which itself is a misnomer), and why is there so much hand-wringing about national debt, DOGE-targeted waste and fraud, and all that? Why are politicians constantly making the erroneous and highly-damaging comparison of the federal budget to a struggling family trying to balance their checkbook at the kitchen table?

The first explanation is that most Congresspeople are just not that smart, at least in the realm of economics. They spend a good chunk of their time just fundraising and networking, and most are not involved in the budgetary side of things. They just don’t need to know stuff about the Fed and the Treasury and all that, so they carry on with their performative polarized rhetoric, making sure not to get on the wrong side of their party’s leadership. And for House Reps especially, they need to stay on top of the year-round electioneering grind, dialing for dollars and warding off primary challengers. In that environment, it’s just easier to repeat the “we need to tighten our purse strings” shtick, and leave it at that.

The more in-depth explanation is that the debt scaremongering and the false equivalence of the federal budget to the household checkbook (or banking app, to not show my age) is designed to keep the US government operating in the interests of the plutocrats.

The first part of this plutocrat servicing come from the long Conservative tradition, in the vein of Reagan and Grover Norquist: the desire to shrink government down to a small-enough size to drown it in a bathtub (in Norquist’s elegant phrasing). This is the approach we’re seeing now, with DOGE laying waste to everything in sight, especially anything remotely associated with issues of health, global warming, sexual identity, diversity, and the like (“Take that, Enola Gay agenda!”). Shrinking government down is the perennial dream of unreconstructed Ayn Randians, libertarians, and corporate criminals of all kinds. And of course, when government is out of the way, and massive tax cuts for the plutocrats are locked in, of course trickle-down will really, finally start to work (honest, it will – this time is different).

The second part of this is more specifically for the plutocrats in the banking and other financial sectors. When the wider social agenda of government is curtailed, the operation of the Fed to buttress big banks can be more purely applied. Money can be kept scarce for regular people, while the government keeps the bailout and free money spigot open for, let’s be frank, the entities that will loan money to those whom the government has just abandoned via its social agenda cuts. This government/lender alliance thus operates as a kind of arsonist-firefighter, only regular people are never really completely saved from the fires of deprivation. They’re left in a slow burn of personal debt, lifetime wage slavery, and psychological meltdown.

The last and most obvious reason for constantly bemoaning national debt and federal waste is the desire of the private sector to get their hands on the torrents of cash flowing through systems like Social Security and Medicare. This has been discussed at length all over the place, so I won’t dwell on it here. Suffice it to say that, if plutocrats want to get their hands on federal program cash, it isn’t because they want to get poorer.

The White Horse

It is in this overall context where the MMT philosophy could be deployed to end the propping up of plutocrats, in favor of spending money directly into people’s hands via a Universal Basic Income. When discussing UBI, the first question skeptics usually have is, “How do we pay for it?” With MMT support, the answer is, “We can pay for whatever we want, because the government is not revenue-constrained.” If we want to help people directly, and on an ongoing, permanent basis, we can do it.

The UBI-BHB-MMT project is a full-spectrum solution to our current polycrisis. As I see it, it is the only way to make the enormous, rapid changes that are necessary to avoid the full-scale collapse of our economic, political, and ecological systems. It is a blueprint for quickly and substantially reducing our impact on the planet, and doing it in a way that people will embrace, and which plutocrats will be unable to resist.

A couple granular notes on MMT:

• Most MMT thinkers do not support UBI. Instead, they mostly propose a Federal Job Guarantee program (JG), where the government employs anyone who cannot find a job in the private sector. The idea is the the JG will help drive the currency (like taxes), since people only get paid in USD, and will provide a living wage floor that will compel the private sector to raise their own wages, creating a better labor market for workers, While I understand the JG concept, I think that UBI, set within a BHB social format, is a preferable approach. UBI itself would be the currency driver, arguably a better one than the JG, or even taxes, as it puts US dollars into everyone’s pockets all the time. Also, culturally and ecologically, we need to move away from paid work as a formative necessity for character, dignity, and self-worth. The micro-household, with atomized labor and consumption, is literally killing the planet and our own psyches, so a drastic upsizing of the household via BHBs will provide a much healthier matrix for individual and social development and fulfillment.
• While MMT stresses that the federal government is not revenue-constrained, and that all “debt limits” are only self-imposed by political bodies that misunderstand the nature of the federal budget, MMT economists do not advocate willy-nilly spending just for spending’s sake. They stress that it’s not so much the amount we spend, but what we spend it on. Federal spending should still be used to combat inflation, moderate business cycles, etc. So runaway spending is not the lesson of MMT. The main idea is that we just don’t need to obsess about deficits and debts at the federal level, because the nature of federal spending is nothing like the world of the currency users.

MMT Resouces:

• Warren Mosler (“Soft Currency Economics” is a seminal text)
• Stephanie Kelton (“The Deficit Myth” is probably the best-known book in the MMT genre; she was an economic advisor to Bernie Sanders)
• Bill Mitchell (bill mitchell.org)
• JD Alt
• L Randall Wray
• http://www.mmt.works
• neweconomicperspectives.org
• modernmoneybasics.com