MMT is becoming to be generally well regarded on the political left. Part of that acceptance is due to MMT’s insistence that unemployment isn’t an insoluble problem and that deficits don’t matter, or at least not in the way the neoliberals claim they do. There’s an obvious way for the left to find their spending money, once basic economic principles are grasped, to fund their social programs and at the same time fix the unemployment problem which plagues nearly all western economies.
That may not have quite the same appeal to the right, but nevertheless, there is something in MMT for them too. MMT in itself isn’t a prescription for what Governments should do, but rather an economic theory which explains how real economies function and therefore how they react to applied fiscal and monetary policies. So, if MMT is right, and the evidence is very much in its favour, it would make sense to look at how it could help all shades of the political spectrum.
One of the major questions to answer , from all political viewpoints, is ‘how big should the State be’? Hardly anyone is saying 0% of GDP. Hardly anyone is saying 100%. So there is really no correct answer. Everyone has their own opinion. I’d be happy with a State sector which was about 40% of GDP. Others, on the left, may prefer 50% or more. On the right they may prefer 25% or less.
So, using MMT how should anyone argue for a State sector of only 25%? Typically that would be only half the size of the State sector in present day European countries. For a start, considerations on the size of government should be decoupled from considerations of deficit reduction. It’s possible to have any combination of small or large government, and small or large government deficit or even surplus. If there’s an argument for smaller government then the political right just needs to make that argument.
This should run along the lines of ‘Yes, we are going to cut government spending by removing or reducing various services, but we are also going to cut taxation too to help everyone to pay for those services which will no longer be provided by Government.’ A sort of Super- Reaganomics! The Government deficit shouldn’t be mentioned. A high deficit did not seem to unduly worry President Reagan, who was astute enough to realise that money to expand the economy had to come from government. He just favoured leaving it in the economy longer by taxing less rather than spending more.
Any attempt at a forced reduction in the deficit is likely to be counterproductive from a rightward perspective. It would lead to not only increased unemployment but also a failure of many businesses in the private sector. It would lead to increasing claims that capitalism was failing. There would be increased calls, as there are in the UK now, for more nationalisations to fix the problems of a failing system.
The Governement’s deficit, which incidentally has to equal the non-government’s surplus, as shown in the previous posting, has also to equal the level of the net savings of the private sector plus the payment for net imports into the economy. These are largely outside the direct control of government in a free society and the equation is just as true for an economy with a smaller government sector as it is for a larger one.
PS If you have a political representative who is of a rightish persuasion, please, if you agree with it, forward this article to them. These days that could include Labour MPs and Democratic Congress persons too! I’ll retract any comments if they can prove any flaws in the argument.