In a Democratic presidential primary where candidates have championed many ideas once relegated to the far left of American politics — a federal jobs guarantee; forgiveness of student debt; reparations for descendants of slaves — there is one left-wing economic position none has espoused.
That idea — “modern monetary theory” — has coursed through the online, activist and academic left over the past several years. It argues that the U.S. government cannot go bankrupt and therefore does not need to raise tax revenue to fund new spending initiatives.
MMT supporters say it is a mistake to push for lower deficits because that risks contracting spending and, as a result, slowing economic growth.
The theory has long been criticized by economists affiliated with the party, drawing criticism from Fed Chair Janet L. Yellen and Lawrence Summers, who served as an adviser to President Barack Obama.
Although Rep. Alexandria Ocasio-Cortez (D-N.Y.) has said it deserves a “larger part of the conversation,” the theory has essentially no support among congressional Democrats.
The 2020 presidential contenders have been shy to embrace it. Though they have worked with economists who support MMT, Warren’s and Sanders’s campaigns suggest they have largely accepted the more conventional view that the government should be careful not to explode the federal deficit, and have proposed paying for large new federal programs with new tax revenue.
“In segments of the online community, there has been some enthusiasm for MMT. But politicians have been much slower to embrace it,” said Ernie Tedeschi, an economist who served in the Treasury Department under Obama.
Supporters of MMT recognize the Democratic presidential candidates have not espoused their beliefs on the stump. But they say their work has still measurably shifted policy by pressing against what they regard as mainstream economists’ overblown fears of the deficit.
MMT advocates also note some of the proposals they most support, like a Green New Deal, have gained traction among key Democrats. Much of the Democratic field, as well as more than 90 members of Congress, have embraced Ocasio-Cortez and Sen. Edward J. Markey’s (D-Mass.) resolution to decarbonize the U.S. economy with a massive federal jobs and infrastructure investment. Sanders has said he will introduce a federal jobs guarantee, which Stephanie Kelton, an MMT economist who worked for Sanders on the budget committee, played a key role in persuading the senator from Vermont to support. MMT has promoted the idea of a jobs guarantee for more than two decades.
MMT advocates also see encouraging signs that Democrats have begun to agree with their rejection of traditional fears of large fiscal deficits. Earlier this year, Warren and Sanders joined Ocasio-Cortez and Rep. Ro Khanna (D-Calif.) in criticizing a House rule requiring legislation to be paid for when passed.
“It’s not easy to overnight move people’s perspectives. It’s very difficult to communicate these ideas in a way people can understand,” said Pavlina R. Tcherneva, an economist at Bard College and an MMT supporter. “But for me, what’s more important is that the conversation has profoundly shifted. We are now talking about big, bold policies that everybody used to say were pie in the sky.”
But both Sanders and Warren have taken positions that appear to break with MMT. Sanders has repeatedly criticized the impact of the GOP tax law on the federal deficit. He has for years called himself the true fiscal hawk of the Senate, citing his votes against expensive conservative priorities such as the Iraq War; tax cuts passed under both President George W. Bush and President Trump; and higher budgets for the military.
Sanders has also released plans to pay for his social programs with taxes on offshore tax havens and Wall Street transactions and by lifting payroll taxes on the wealthy. He has been less direct about paying for Medicare-for-all, his plan to nationalize the U.S. health insurance industry, but has released a white paper with potential tax hikes and has acknowledged it will require tax hikes on middle-class Americans — hikes he says will be offset by eliminating premium and deductible payments.
“I am concerned about the debt. That’s a legitimate concern. Every American should be concerned about it,” Sanders said at a Fox News town hall event in Pennsylvania earlier this month. The deficit “is not something we should be leaving to our kids and our grandchildren. But we pay for what we are proposing.”
Warren has proposed close to $3 trillion in tax hikes on corporate profits above $100 million and on wealthy people with more than $50 million. The taxes would generate more than enough money to pay for her universal child care, free college tuition and student debt forgiveness programs, according to nonpartisan estimates. Asked whether she believes Democrats should be restricted by the need to be wary of the national debt, she said: “Even under the current monetary theories, debt matters. There comes a point where debt matters.”
MMT advocates hope to see a presidential candidate more directly espouse their beliefs at some point, but they acknowledge it could take years for that to occur. Rep. John Yarmuth (D-Ky.), chair of the House Budget Committee, has also signaled interest in holding hearings on MMT, according to Bloomberg News.
“There is a very big political danger to say this in the open for anyone running for president,” said L. Randall Wray, an economist at Bard College who has supported modern monetary theory for decades. “The thing is: We have to make it acceptable to say this in public before we can expect a presidential candidate to.”
Other close allies of Sanders, however, hope he resists the pull of MMT. Jeffrey Sachs, an MMT skeptic and a Columbia University economist who has advised Sanders, says European countries with stronger safety nets created them by bringing in substantially more tax revenue.
“We will need more revenue to pay for more public services. The Scandinavian countries have known this, and shown this, for decades,” Sachs said. “Still, it’s all readily manageable, and leads to a much higher quality of life, with more happiness, lower health-care costs, lower inequality and longer life expectancy.”