Recently I read a book written by economist, Stephanie Kelton, called the “The Deficit Myth”, which provided a comprehensive analysis on modern monetary theory (MMT). In essence, deficits do not matter because as a sovereign fiat currency nation who’s debt is entirely in our own currency, the United States can spend as much money as we need with inflation being our only limiting factor. While I concur with the validity of MMT, I differ with Stephanie’s claim that politicians in both political parties are not already thoroughly versed in MMT. They are. And the implications are transformative.
The most cursory review of historical economy data shows two generations of politicians have purposely driven federal debt from $1 Trillion dollars in 1980 to over $27 Trillion dollars currently through the use of MMT.
Deficit spending paid for trillions of dollars of military spending, regressive tax cuts, a new entitlement (Medicare Part D) converted into a multi-trillion dollar boondoggle for the pharmaceutical industry by making bulk purchase pricing illegal, and a deregulation scheme that gutted environmental protection laws and repealed Glass-Steagall (to whom we have Bill Clinton to thank!). And pursuant to MMT, the trillions of dollars in annual deficits funneled surpluses to the private sector.
Tragically, fiscal policy supported by both political parties targeted the trillions in surpluses to the wealthiest Americans via trade agreements (GATT and NAFTA) that allowed American multi-national corporations to off-shore labor, assets, and profits further avoiding US taxation, while simultaneously forcing US labor to compete for jobs with 3rd world labor.
The GINI coefficient is the economic data point used to measure income and wealth inequality. A GINI coefficient of 0 equals perfect economic equality and 1 equals absolute economic inequality. According to the World Bank, the 1979 GINI coefficient in the US was .345 verses 2019 of .48 (source: Statista). 2019 US GINI coefficient is tied for the 20th most unequal economy in the world with Costa Rica, and by far the most unequal of all G7 nations (UK is #2 with .392). Yet this was all before COVID-19.
Since COVID-19 was declared a global pandemic, the US Congress has approved multiple stimulus packages with the most significant being the CARES Act approved the end of March 2020, and the recent $900 Billion dollar stimulus package. The CARES Act on its face included $2.2 Trillion dollars in economic stimulus, but also authorized the Federal Reserve to invest ten times the $425 Billion dollar allocation for corporations with more than 500 employees (or $4.25 Trillion dollars). A rough estimate of the distribution of the two stimulus packages follows:
Small Businesses (less than 500 employees) and Individuals =
$320B ($1,200 one time payments)
$160B ($600 one time payments)
$300B ($600/week Pandemic Unemployment Assistance or PUA
$ 63B ($300/week PUA)
$480B (80% Payroll Protection Program or PPP; 20% poached by large corporations)
$285B (PPP 2nd round)
$ 25B (Rent support)
$ 10B (Child care)
$1.643 Trillion dollars
(25.2% of the two primary stimulus packages)
Large Corporations (500+ employees)
$ 75B (Airlines)
$425B (large co. with 500+ employees)
$4,250B (Fed Reserve Investment)
$120B (PPP poaching)
$ 15B (Airline 2nd stimulus)
$4.885 Trillion dollars
(74.8% of the two primary stimulus packages)
$6.528 Trillion dollars*
*(Total allocated excludes approximately $822 Billion dollars largely for emergency services, state & local government support, vaccination purchases & distribution, and a laundry list of heinous pork).
By the end of 2020, the economic damage of COVID-19 includes a 31% contraction in 2Q20 GDP (vs. 1Q20), 33% growth in 3Q20 GDP (vs. 2Q20 or 90% annualized of 2019 GDP), small businesses in operation down 29% since January 2020, net job loss of approximately 10 million jobs (primarily for jobs with annual salaries of $27k/year or less where employment is down 20%; jobs with annual salaries over $60k/year have returned to pre-COVID-19 employment levels). 4Q20 data, including the critical holiday shopping season (Fed Chair stated retail sales are sluggish), have yet to be reported.
Given the fiscal stimulus has been heavily skewed toward large corporations verses small businesses or individuals (75% vs. 25%), Wall Street posted historic gains despite the global pandemic:
DOW industrials up 7.2% verses 2019
S&P 500 up 16.3%
Russell 2000 up 18.4%
NASDAQ composite up 43.6% (highest since 2009)
Source: Wall Street Journal
As of 11/30/2020, US Billionaires’ net worth increased $1 Trillion dollars since the pandemic began (Source: Statista and Americans for Tax Fairness).
According to the US Census Household Pulse Survey completed 12/21/2020:
33% of US households are having a hard time covering basic expenses.
33% expect joblessness to lead to eviction in the next 60 days.
12% report food shortages for their household.
Accordingly, COVID-19 has provided our political leaders the opportunity to use over $9 Trillion dollars** in deficit spending and stimulus to exacerbate income and wealth inequality in America.
**($9T = $5T in deficits (2020: $3.7T; 2021 so far: $1.329T [source: Congressional Budget Office] + $4.25T from the Federal Reserve)
This is the US pandemic economy.
The American people cannot rely on the current political parties or politicians or establishment political or economic commentators for constructive support in rebuilding the post-COVID-19 economy.
Recently (according to Reuters), Paul Krugman announced he expects the US economic recovery from the pandemic to be “much faster and continue much longer than many people expect.” The Nobel Laureate in Economics cites higher US savings rate and pent up demand as the drivers for the US economic recovery. Undoubtedly, the extraordinary savings and pent up demand must be from the 60% of American households (excluding 29% small business failures) that are not living paycheck to paycheck and can afford a $400 unexpected expense. Tragically, 40% of US households do not qualify (according to Federal Reserve data & a Harvard University study).
Solutions to the economic challenges facing people impacted by COVID-19 will not be coming from establishment sources.
Therefore, I strongly recommend focusing our attention regarding the post-pandemic economy on non-establishment commentators such as Richard Wolff, Yanis Varoufaukis, Peter Joseph, Chris Hedges, and Yuval Noah Harari.
Yuval Harari has written extensively about the economic impact of technological disruption, which has been accelerated by COVID-19. Take note of the extraordinary performance of the tech companies on the NASDAQ composite (up 43.6% vs. 2019). Large industrial corporations like General Motors (beyond buying back their own shares) are investing in automated technology to dramatically reduce the cost structure of their business models in anticipation of materially lower aggregate demand in the near term (3 to 5 years). Accelerating automation will make large portions of the working class “economically irrelevant” (according to Yuval Harari).
This is the discussion we need to have on the new post-pandemic economy.
Ecological sustainability is the reason why we must not simply restore the pre-COVID economy. While the climate science and global environmental events are irrefutable, powerful carbon based energy interests continue to block meaningful progress to keep global average temperature increases from exceeding the critical limit of 1.5 degrees.
The prospect of a sixth mass extinction event has been warned by diverse commentators including Pope Frances (see his 2015 encyclical “Laudato Si”) and David Attenborough (see his latest documentary released in September 2020: “A Life on Our Planet”).
The time is urgently now to escape the binary mythology of capitalism (developed in the 1700’s) or socialism (developed in the 1800’s), and innovate an economy of the 21st century. Much work has been done in this area.
Peter Joseph founded the Zeitgeist Movement (see https://www.thezeitgeistmovement.com/about/) in 2008 as a science based economic sustainability project, which advocates for a global resource management economic system informed by open source innovation and utilizing decentralized production. Peter is a deeply thoughtful, exceptionally articulate advocate for a new, redefined economy that aligns with equality and ecological sustainability. Peter’s latest book “The New Human Rights Movement” was made into his latest film “InterReflections”, which was released October 2020.
If 2020 was the year of COVID-19, 2021 will be the year of the Economy.
To meet the challenges of the new pandemic economy, it behooves each of us to break with the conventional narrative in order to shift our consideration towards building a future worthy of our progeny.