A Socialist Sets the Budget

I’m one of those geeks who actually enjoys looking at (and even trying to predict) who serves on which committees in Congress, so I am actually always abreast of who is on the verge of taking over as the chairman or ranking member of a new committee due to the retirements or electoral defeats of other members. I knew, for example, that Socialist Senator Bernie Sanders of Vermont was well-positioned to take over for Sen. Tom Harkin as the top “Democrat” on the Health, Education, Labor and Pensions (HELP) committee. So, I was surprised to see that he hadn’t gotten the job. Instead, that position was taken by Senator Patty Murray of Washington.

Now, I knew that Sen. Murray had the seniority to claim HELP if she wanted it, but I presumed that she’d prefer to stay as the ranking member on the Budget Committee. You may remember that Sen. Murray has been a central player (along with Rep. Paul Ryan of Wisconsin) in negotiating through all the government shutdowns and fiscal cliffs and CRomnibuses and so forth. Murray is fourth in the Senate Democratic leadership behind Harry Reid, Dick Durbin, and Chuck Schumer, and she has twice run the Democratic Senatorial Campaign Committee. She’s also a high-ranking member of the powerful Appropriations Committee, sitting below only Ranking Member Barbara Mikulski of Maryland and president pro tempore emeritus Patrick Leahy of Vermont.

Maybe she is tired of dealing with fiscal crises, but she opted not to stay as the Democratic point-woman on budget negotiations now that she and her party are in the minority.

However, her decision opened the door for Bernie Sanders, especially because she was denying Sanders a leadership chair on HELP. So, now, all of a sudden, we have a committed socialist in position to argue budget priorities with the Republican House and Senate for the last two years of Obama’s presidency. Not only that, but Sanders is in pretty good position to be the chairman of the Budget Committee if the Democrats have a good election night in 2016 and elect a Democratic president and win back control of the Senate.

Over at Vox, Dylan Matthews explains plenty about why this matters. We can start with the person Sen. Sanders hired to serve as his chief economist on the committee:

His big move: naming University of Missouri – Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.

For years, the main disagreement between Democratic and Republican budget negotiators was about how to balance the budget — what to cut, what to tax, how fast to implement it — but not whether to balance it. Even most liberal economists agree that, in the medium-run, it’s better to have less government debt rather than more. Kelton denies that premise. She thinks that, in many cases, government surpluses are actively destructive and balancing the budget is very dangerous. For example, Kelton thinks the Clinton surpluses are nothing to brag about and they actually inflicted economic damage lasting over a decade.

As Matthews goes on to explain, Professor Kelton is a proponent of Modern Monetary Theory (MMT), “a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.” Perhaps the most radical thing about MMT is its view of the dollar as more of an artifact of value than a determinant.

MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin…

…The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy. That’s what Kelton argues happened after the Clinton surpluses of the late 1990s / early 2000s. Any dollar of government surplus must show up as private debt, she reasons. And the private sectors just can’t run up debt like that indefinitely. “Eventually, something will give,” Kelton once wrote to Business Insider. “And when it does, the private sector will retrench, the economy will contract, and the government’s budget will move back into deficit.”

You may have heard this argument being propounded during the debate over the Trillion-Dollar Coin. Interestingly, Paul Krugman, who isn’t a proponent of MMT, ultimately signed off on the Trillion Dollar Coin idea because it was preferable to economic terrorism. For Krugman, the coin idea could work only in very specific circumstances, basically with interest rates at zero so that bonds and cash were basically equal in value. That’s different, of course, from the idea that the dollar and its value are just arbitrary conventions that people use out of habit. We could, under this view, dispense with taxation altogether and just print whatever money we needed to fund the government at whatever level we’d like. But we don’t do that because we like to maintain the fiction that our currency (and our paychecks) is how things are paid for. The need to pay taxes compels people to use the currency printed by the government.

There’s actually more to this argument than may at first meet the eye, but there’s also more to the argument that there’s value in maintaining that fiction. Maybe there is something absurd about how we generate money in this economy, but it does seem to work. And it isn’t long before absurdity takes over once you abandon the assumption that a dollar created must be paid for in debt (or that what we spend must have some relationship to what we raise in revenue).

In any case, that’s a theoretical argument that I’ll leave to people who are better informed about monetary policy. What’s important here is that the chief economist for the Democrats on the Senate Budget Committee doesn’t think we need to give a damn about the debt.

Matthews thinks this may create rifts in the Democratic caucus and a headache for the Obama administration, but it should be acknowledged that the Democratic leadership allowed this to happen. It must have been, in some sense, what they wanted to happen.

And, regardless, the headache is more likely to come when Sanders is chairman and can craft the budget plan.

So, watch out Hillary!

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.