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Time to Tell a Different Story on Inflation & Debt?
Modern Monetary Theory offers an alternative but Politicians and Policy Makers Are Ignoring it.
Most of the snow has finally melted here along the banks of the Connecticut River. Soon the leaves of skunk cabbage, false hellebore and wild leeks will begin poking through the leaves. Dried grasses and dead stalks of bamboo that occupy the interstices between the oaks, the silver maple, and the other hardwoods of the floodplain forest. The Bald Eagles are yet to begin their daily flights along the river byway, but the Canada geese have descended in droves into the valley, their sights and sounds occupying most of the airspace on the floodplains and marshes as Kodi and I take our daily walk.
The pre-contact population of Abenaki (also called Wabanaki) is estimated in the range of 80,000 - 145,000, spread through the area, then known as N’dakinna and now including parts of Maine, New Hampshire, Vermont, and Quebec. A series of plagues in the early 1600s, unmaliciously introduced by European traders and settlers, who simply spread their own diseases into a population that had no natural immunities began a process that decimated the population. Later, disease as an instrument of war would add insult to injury; human-induced with malice and aforethought. Lord Jeffrey Amherst, for whom the Massachusetts College is named, sent wagonloads of smallpox-infected blankets to Abenaki Villages in an effort to finally exterminate the remnants of the Abenaki after years of other European plagues had already weakened Native tribes all over the country.
But Amherst was telling himself the wrong story about the Abenaki and their neighbors in the Iroquois Confederacy. The story he, and most of his contemporaries, told was of a primitive race of savages gathered in villages like Saint Francis, Quebec. Despite the fact that both nations had been forming confederacies, governments, and traditions far longer than the British or the French.
He also deluded himself into believing that he could wipe out the Abenaki by focusing on a few villages in Quebec where many - but by no means all - of the Abenaki people had fled from the colonists as they ravaged their way north from Massachusetts and Portsmouth.
That story, that the Abenaki people had all fled to Quebec has been revealed to be a wishful myth because today we know that a large portion of the Abenaki simply melted into the background all over northern New England.
Like my grandfather, whose father Simeon Gideon Roi was Iroquois and his mother, Emelia Bedard Roi, a full-blood Abenaki, they hid in plain sight. During a long life, Emelia gave birth to 24 children as they moved quietly back and forth between Saint Francis, Quebec and Whitefield, New Hampshire. 19 of those children lived to adulthood and as they became adults they too quietly established their own lives, some with the surname King, others Roy and perhaps even a few maintaining the Roi moniker.
Though I don’t know more than I was told by my own father and one living son of Simeon and Emelia - my uncle Joe, who died 20 years ago - I have these two sources that confirmed that Simeon and Amelia warned them to cling to their heritage but to keep it a secret, in order to fit in.
|On the Wings of Eagles|
The changing nature of the narrative - the stories we tell - about our Native American brothers and sisters have evolved over the years and today we proudly point to the Iroquois Confederacy as a source of the wisdom that helped lead our founders to a constitutional government (if we can keep it!*) and established the environmental ethos of all Native people as an existential imperative in the age of climate change.
The great physicist Stephen Hawking, in a 1999 speech celebrating the new Millennium at the White House said this: "The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge. . . . As scientists, we believe that any theory is provisional; that it must be constantly tested against observations; that we must revise it or abandon it when the observations demand it. But non-scientists believe that many theories are certain: the theory of evolution, the Big Bang theory, and so on. Unfortunately, common sense is just another name for the prejudices that we have acquired by the age of eighteen."
Mark Twain is said to have put it a bit more simply: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
We humans live our lives bound by a casually woven fabric of narrative. These stories that we tell ourselves are both a source of stability and a prison of imaginary infallibility. They provide structure to our lives, yet, at the same time, to paraphrase Twain, sometimes they just ain’t so.
Right now we have hundreds of politicians running around like Chicken Little bemoaning the problem of inflation.
Without a doubt, inflation - occurring worldwide - is a serious problem. The day-to-day difficulty that families face, particularly middle and lower-income families, are a very real economic threat to the stability of families.
How we confront inflation is another of those stories that we have been telling ourselves for nearly 50 years. The ham-handed and seemingly dull instrument of interest rates has become the commonly accepted methodology for taming inflation. But is this simply another story we have been telling ourselves that, to quote George and Ira Gershwin, “ain’t necessarily so”?
After all, nearly 50 years of Nobel-winning work in economics has come and gone with little to no appreciable change in the way the Fed approaches the challenges of inflation.
The Federal Reserve, also known as the Fed, began using interest rates as a tool to control inflation in the early 1980s. At that time, inflation in the United States was high, reaching double digits in some years, and the Fed decided to take action to bring it down.
In October 1979, Paul Volcker became the chairman of the Federal Reserve, and he implemented a policy of raising interest rates to combat inflation. The Fed raised interest rates sharply, which made borrowing more expensive and slowed down economic activity. This policy, which became known as "monetarism" or "tight money policy," was aimed at reducing the money supply and curbing inflation.
|Borne on a Beam|
By the mid-1980s, inflation had come down, and the Fed began to lower interest rates again. But at least half a decade of economic pain was required, with no real evidence that it had been the tight-fisted policies that had caused inflation to decline.
Since then, the Fed has continued to use interest rates as a “tool” to manage inflation and other aspects of the economy, such as unemployment and economic growth. Yet, most economists will tell you that the way that the Fed approaches using interest rates to tame inflation is little more than the manifestation of a hunch, a coin flip, masked in a torrent of economic jargon designed to make us think that they are in possession of the secret keys to the kingdom of inflationland.
Is there another story that we should be telling ourselves about taming inflation?
Indeed there is. It is a school of economic thought called Modern Monetary Theory, also known as MMT. It’s been around for thirty years now but may finally be on the verge of getting its day in the sun.
Unlike the monetarist policies of the Fed, MMT does not rely on a single dull instrument to tackle the problems associate with Inflation. In fact, it is a far more nuanced and comprehensive set of theories that involve a more holistic view of our economy and the various factors contributing to inflation.
Ironically, addressing inflation using the tenets of MMT is also potentially far less painful - particularly for middle-income Americans and the poor.
Yet it faces pushback from both of the major political parties. Not because it is any less credible than Monetarist theory but because each party - in their own perverse way - see it as a threat to their electability, particularly their ability to motivate their respective bases.
In fact, a cynic might say that both parties have long embraced the idea that deficits are not necessarily bad, they just keep it a closely guarded secret from the public. At least publicly, they have bought into a 50-year-old story that just isn’t so and, from their perspective, it seems to be working for them.
Unfortunately, for the vast majority of us not only is it not working, it works against us, benefiting the well-heeled and harming those at the bottom of the economic ladder.
The foundation on which MMT rests is a fascinating one: that in a national economy - unlike a household budget - deficits are only important as one component of the broader economic picture, particularly in an economy that has a “fiat currency”. A fiat currency is one that is controlled and printed exclusively by its own country.
Furthermore a “deficit” reflects only one side of an economic equation and for every deficit there is an accompanying “investment” or “surplus”. Yet we rarely take that side of the economic equation into account. For example, Eisenhower’s Interstate Highway system was built with deficit spending, yet the economic gains from it accounted for far more than was spent to build our modern highway system.
One of the most comprehensive cost-benefit analyses of the system was conducted by the Federal Highway Administration (FHWA) in 1997. The study found that the benefits of the Interstate Highway System far outweighed its costs. The benefits included reduced travel time, improved safety, increased economic productivity, and greater mobility for people and goods.
The FHWA study estimated that the system had generated $6 in benefits for every $1 spent on construction and maintenance. The study also found that the Interstate Highway System had contributed significantly to the growth of the U.S. economy, with estimates suggesting that it had increased national productivity by between 0.5% and 1% per year.
Every introductory economics course, for the last 50 years, lays the lion’s share of the blame on the specter of inflation attributed to the federal deficit. Yet, in all but 2 of those 50 years deficit spending has been the rule. The few periods of high inflation are more closely tied to the cost of energy and, recently,to disruptions of the supply chain during the Covid-19 epidemic.
For nearly 50 years, two economic realities have dominated our lives. The first is a growing, and now savage, inequity of wealth; and the second is consistent deficit spending. These two realities should cause us to question the story behind the story.
|The Whisper of Wind|
The problem is not only the story we have been telling ourselves about debt, deficits, and inflation. It is also the political rhetoric from both the left and the right that has infected our national dialog. Every time the Republicans pass a tax cut, or increase military spending without regard to the deficit, the Democrats jump on it like a duck on a june bug; claiming that we’re stealing from our children’s future. When Democrats pass legislation, like the recent Inflation Reduction Act, the Republicans cry foul and leap to the conclusion that we now need to re-examine every entitlement program to make up the deficit. These things may be great for riling up the base but the only deficit that matters in this is a policy deficit. . . a statesmanship deficit.
We all grew up with Presidents, and politicians of all kinds mouthing the myth that government budgeting should be run like a family budget. But the federal budget is nothing like a family budget. Costs can be spread out over generations, benefits can quickly accrue that outweigh the investment. Families can’t just print money if things get tight but the Federal Government has no such problem.
There is nothing fundamentally wrong with government running a deficit. What matters is whether deficit spending enhances our economy and our quality of life.
It’s time to tell a different story.
Notes & Links
Stephanie Kelton: The big myth of government deficits
How do we pay for it? with Stephanie Kelton & Fadhel Kaboub
More spending, on the right targets, is a solution to Inflation.
About Wayne D. King: Author, podcaster, artist, activist, social entrepreneur and recovering politician. A three-term State Senator, 1994 Democratic nominee for Governor. His art (WayneDKing.com) is exhibited nationally in galleries and he has published four books of his images, most recently, "New Hampshire - a Love Story”. His novel "Sacred Trust" a vicarious, high voltage adventure to stop a private powerline as well as the photographic books are available at most local bookstores or on Amazon. He lives on the “Narrows” in Bath, NH at the confluence of the Connecticut and Ammonoosuc Rivers and proudly flies the American, Iroquois and Abenaki Flags. His website is: Anamaki.com