MMT, Unproductive Money And Unnecessary Consumption
As the crises of global warming and biodiversity edge ever closer to collapse, I find myself thinking, why don’t the people traveling to event after event just stay at home instead and watch Finding The Money. The documentary, which talks about money and specifically Modern Monetary Theory (MMT), reminds us that governments spend money into existence and governments can never run out of money. So, the fact that governments keep saying that there is a limited budget to deal with the climate/biodiversity crisis or that they need private sector money to help cover the cost is simply rubbish. As MMT states, ‘finding’ the money is the easy part.
That’s because all money originates from government, without a government issuing a currency, there is no money. Sure, you could issue your own money, but you can’t pay your taxes in it. So, taxes validate the government issued currency and they create the demand for the currency in the first place. This is simply a description of reality, not a theory.
What makes MMT a macroeconomic theory is that it discusses HOW the (unlimited) money that governments can spend into existence SHOULD be used to prevent inflation. If the money entering circulation cannot be used for productive purposes because of a lack of resources (land, labour, energy, materials), then the money will be unproductive and simply raise prices causing inflation.
Basically, to solve existential problems, such as climate breakdown and biodiversity loss, we need to accept the money issued by governments must be productive money. Therein lies the problem – too much money in the system today is unproductive!
What Is Unproductive Money?
- The most obvious example of unproductive money is the funds parked in secrecy jurisdictions.
- In addition, money used for speculation purposes is unproductive money.
- Money spent creating unnecessary stuff, goods/services/jobs, such as luxury goods and bullshit jobs is unproductive money.
Governments don’t want to tackle the system that has been created in the last 50 years which enables unproductive money because that would mean facing up to the state capture by the rich and powerful. The hoarding and speculative spending of the wealthy needs to be closed down, so the money issued by the government to tackle the climate and biodiversity crisis is spent on ‘real’ solutions.
The reason war bonds were issued during WWII wasn’t because the government needed the money to pay for the war effort, it was a way to delay people’s spending and consumption on unnecessary goods. This is how the resources – labour, skills, energy, materials – were diverted to ending the war. For example, no cars were produced in Detroit between 1942 and 1945. Can you imagine the government saying, “let’s put a moratorium on producing cars for say 6 years, and instead divert the funds to creating solar panels and wind turbines”?
But this is the decision we have to make, in the current climate/biodiversity crisis; namely what production and consumption needs to be suspended? Because finding the money is the easy part, access to the resources to implement real solutions is what needs to be planned for.
Of course, calling this out is not currently acceptable to the mainstream, which has invested heavily in equating any form of economic growth with ‘progress’. The reason mainstream economists like to call MMT “voodoo economics” or “a crackpot theory”, isn’t because of governments printing money. These economists simply don’t want to confront the hoarding in secrecy jurisdictions, speculation or wasting resources on producing unnecessary goods, even though we are in the midst of a global crisis.
Their approach to economics is to narrow the subject to the point where the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model – ‘the market’. That’s why the government being the issuer of all money cannot be talked about, because if an economy cannot work without the government creating the money in the first place, then people will realise that the free market is just a construct (some would say a sham) and we can change the construct.
Finding the Money should, once and for all, clarify that you can’t compare a government budget to a household budget, they are nothing like each other. It should also rubbish statements such as Thatcher’s, “there is no such thing as public money – only taxpayer money” or the constant reiteration that there are budget constraints (and austerity), and we can’t keep spending, because, “we can’t pass these huge deficits onto our children and grandchildren to deal with”.
In fact, without the government spending the money into existence, there can be no household budget for anyone! Maybe this is best explained with MMT’s famous graph:
Which is basically just saying: (Private Balance) + (Government Balance) + (Foreign Balance) ≡ 0
The government’s budget deficit is the private sector surplus. One cannot exist without the other, that is the private sector cannot exist without the government ‘deficit spending’.
If you want proof of this just check out the consolidated balance sheets of any country’s reserve/central bank. For example, the Reserve Bank of Australia is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959. One of its powers is issuing Australia’s currency. The Reserve Bank of Australia consolidated balance sheet shows a balance of zero, as does the Bank of England and the US Federal Reserve.
All this shows that finding the money to invest in real solutions to the climate crisis and biodiversity loss is easy. The government just spends it into existence. Problems only arise if governments don’t corral how this is spent, particularly at time when we need to deal with very real crises and also when there is high competition for limited resources.
So, I go back to all those people traveling from event to event talking about the climate crisis, biodiversity loss, transnational crime etc, their time may be better spent staying at home, watching Finding the Money to understand how the system really works and coming to terms with what needs to be stopped, what needs to have a moratorium and who to hold accountable to make this happen:
- The secrecy jurisdictions that evolved after WWII need to be closed down, because they stop money being productive, this is like making a car with no engine and expecting it to work. It is conservatively estimated that there are US$21-32 TRILLION sitting in secrecy jurisdictions – this is unproductive money.
- Private banking licenses that enable speculative spending (e.g. unproductive investment loans) need to be closed down because this is unproductive money. The economy is a human creation guided by rules and laws and we can change the rules and laws if they aren’t serving the right purpose. The laws that enable unproductive spending and speculation aren’t helpful as we try to solve the real problems.
- We need a suspension (moratorium) on the production of unnecessary goods and services because we can’t afford limited resources (land, labour, energy, materials) to be spent on creating unproductive goods and services. No you don’t need another investment property that needs to be filled with stuff, or another luxury handbag or a private jet or to fly off for yet another holiday. The very real issues we collectively face mean that we must remember the history of the last century, where certain industries were subjected to drastic regulation, and even a full halt to production, as the result of a crisis. This was done so that all the money issued could be spend on the productive goods, services and the jobs that were needed to solve the crisis.
- We need to tax the rich, even though MMT clarifies their money isn’t needed, because (repeat after me), “the government, who is the issuer of currency, can just issue money”. The reason for this is that psychology has clarified there is a wealth-empathy gap. As people get richer, they become too detached from the real world and the problems we collectively face. In the end we must decide “What is too rich?” The answer could be anything that threatens democracy to create wealth for the few, while destroying the planet for all. How will future historians describe the stupidity of the last 50 years?
- As MMT clarifies we must challenge any government that says we can’t keep spending, because we can’t pass these huge deficits onto our children and grandchildren to deal with. This mantra must be replaced with governments will spend what is needed, while regulating the private sector to rehabilitate the planet so it is liveable for future generations.
This has become popularised as ‘donut economics’, but it will only work if we make MMT the basis of economics (and sack all neoclassical economists!).
Jason Hickel, who wrote The Divide: A Brief Guide to Global Inequality and Its Solutions, which tracks the evolution of global inequality, said of Finding the Money, “This film is a gift to humanity. Everyone should watch it”. He is right, it is.
To all those heading to the:
- Biodiversity Conference (CBD CoP, 16 – 21 October-1 November 2024),
- Climate Conference (UNFCCC CoP 29, 11-22 November 2024) and
- Land Conference (UNCCD CoP 16, 2-13 December 2024)
Watch Finding the Money first and then start asking the right questions.
Lynn Johnson is a physicist by education and has worked as an executive coach and a strategy consultant for over 20 years. In her work she pushes for systemic change, not piecemeal solutions, this includes campaigning for modernising the legal trade in endangered species, to help tackle the illegal wildlife trade.