A New Economic Paradigm

Photo by Joel Gaff at Unsplash.com

Every year the United States produces an estimated $21 trillion in gross domestic product (GDP). Despite this abundance of goods and services, an increasing share of the population finds itself lacking essentials. We have more than enough food to feed everyone, but nearly one in ten people experienced food insecurity at some point in 2019, according to the U.S. Department of Agriculture. The same year, it was recorded that nearly 600,000 people were homeless on a single night in January, while the U.S. Census reported that nearly 13 percent of homes were vacant. What is going on here?

In last month’s column, we examined the forces driving income inequality and how the market incentives in our economy tend to phase out human work in favor of more profitable alternatives, like artificial intelligence (AI).

Let’s look at a couple promising theories and solutions that could provide a more resilient economic model to address the social and environmental challenges our country faces.

There are two prevailing myths that continue to circulate in politics and public spheres: one is that the government needs to collect taxes in order to pay for welfare programs, and two, that deficit spending is bad. Contrary to these popular beliefs, a newly emerging economic framework, called Modern Monetary Theory (MMT), is challenging these notions.

Proponents of MMT point to the fact that the government has no primary need to raise funds through taxation because there are no restraints on the amount of new money that the government can print—proving that “availability of funds” is no barrier to funding welfare programs. Witness the estimated $5 trillion the U.S. government created in response to the Covid pandemic. MMT posits that the main reason for taxation is to give fiat currency value and to mitigate inflation. For the same reason, MMT argues that we should not view deficit spending as bad on the basis that we (or future generations) will have difficulty paying it off. In fact, the national budget does not function as an individual or company budget does—the U.S. government does not need money to spend money, just as a theater does not first “save up” tickets for a show in order to sell them out. They have full discretion over how many tickets to produce and distribute as circumstances dictate.

This economic paradigm shift could have massive ramifications in supporting welfare initiatives and mitigating the devastating effects of recessions and market shocks, like the shift to an AI-driven economy.

Given the rising economic inequalities we are witnessing, many who ascribe to MMT’s ideas advocate implementation of a Universal Basic Income (UBI), or at least some form of an employment guarantee. Perhaps MMT could provide a path for underprivileged people out of poverty by creating bottom-up solutions to large-scale issues that the government and private sector have been unable to address.

MMT provides us with a promising, if speculative, glimpse into how we are adapting the modern economy to better balance the tension between human labor and an AI-managed workforce. MMT challenges long-held beliefs about the nature of money and government debt. It offers a new framework for managing inflation and, in theory, better control of the ups and downs of our economic system.

Next month we will dive into some of the technologies that may make currency a driver for sustainable progress. Stay tuned for carbon credits, community currency, and more.

If you would like to partner with TerraCycle Fairfield and make Fairfield a greener place to live, email TerraCycleTown@gmail.com.