Nathan Tankus - Research Director, Modern Money Network The Third International MMT Conference

1. Monetary Policy for a Green New Deal Nathan Tankus - Research Director, Modern Money Network The Third International MMT Conference September 27-29 Stony Brook University

2. Reframing the Budgetary Conversation “Taxes and borrowing don’t ‘pay for’ a monetary sovereign’s government spending” This MMT rhetoric is aimed at financial constraints In aggregate demand terms, taxes partially “pay for” government spending, but not dollar for dollar But so do “non-fiscal payfors”

3. What “Non-Fiscal Payfors” Are Available? Producing more. Unemployment is common! Savings policies- increase household propensity to save Environmental regulation- disemploying physical resources Financial Regulation- reducing credit restricts private sector spending Antitrust & Corporate Law reform- freezing private investment, downsizing companies, restricting dividends etc.

4. Financial Regulation is a Great “Non-Fiscal Payfor” Financial Sector is very large, consumes a lot of resources It facilitates allocating resources away from “brown” sectors Politically unpopular with the population Shrinking finance promotes financial stability

5. Orthodoxy on “Monetary Policy as a Payfor” Orthodoxy talks about interest rate policy “offsetting” fiscal policy all the time CBO even **assumes** that the Federal Reserve will manage inflation Obscured by the long term expansionary fiscal effect of higher interest rates

6. Reviewing Financial Regulation in a “payfor” Context Capital requirements don’t reduce resource use Liquidity requirements don’t reduce resource use Indirect regulation, too indirect. Easier to ‘innovate’ around constraints

7. Reviewing Financial Regulation in a “payfor” Context Cont. Direct qualitative & quantitative credit regulation Simpler Directly targets reducing demand Harder to innovate around Require holding originated assets Can focus on “Brown” sectors

8. Direct Credit Regulation Globally Prominent in mid-20th century Particularly successful in mid-20th France Used in South Korea, Taiwan, Brazil etc. historically Important countercyclical stabilization tool in modern China

9. Permanent Zero Interest Rate Policy End domestic financial cycles based on capital gains/losses and/or time limited access to “cheap” finance End global financial cycles based on exchange rate fluctuations and time limited access to “cheap finance” End the political ‘threat’ of projected exploding interest payments

10. Direct Credit Regulation & the Green New Deal Restricting credit directly restricts demand in the economy Qualitative credit regulation against fossil fuels can greatly limit fossil fuel investment Frees up resources to be redeployed Restricting household credit forces paying down debts, a form of saving

11. Direct Credit Regulation on Non-Financial Corporations Directly limits their leverage, limiting financial instability Limits concerns about ‘shadow’ banking stepping into the void Limits abuses of smaller suppliers Helps restrict growth of big business Restricts ability to engage in undesirable competitive practices

12. Non-Fiscal Payfors at a ‘Reformed’ Congressional Budget Office Not ‘micromanaged’ by congress Congress directs financial regulatory agencies to reduce demand by x amount Can be sector and geographically specific (i.e. “allocated”) Requires agencies and congress to develop sector specific macroeconomic expertise

13. International Monetary Policy: Central Bank Liquidity Swap Lines Legislate a change in the conditions from “capital openness” to safeguarding democratic rights and a Green Job Guarantee Remove discretion from the Federal Reserve Key tool of a left wing foreign policy

14. Takeaways! Orthodox economic policy only has fiscal payfors MMT opens the way to many more, politically popular payfors MMT still matters at full employment! Non-Fiscal Payfors are always on the table Non-Fiscal payfors more effectively democratize and rebalance the economy than many taxes