For Bernie Sanders, the economy looks unlike anything any politician this close to the presidency has ever put forth before.
To understand the Bernie Sanders economy—his plans for free health care, college tuition, and a government-guaranteed job for every American—it helps to view it through the lens of modern monetary theory, or MMT. While Sanders has not labeled himself an acolyte of MMT, the theory helps explain the unorthodox framework of his economic policy.
The premise is fairly simple: MMT argues that the way we have viewed government policy–that it’s like a household with a fixed capacity for earning and spending—is wrong.
The question is not, “How much will a new program or policy add to the deficit?” but “Can a policy be implemented without significantly raising inflation?” If the answer is yes, then whether it adds $50 billion or $50 trillion to the deficit is largely irrelevant because the US government can pay off its debt at any time by printing more dollars and handing those out to its creditors.
“We need to make budgets centered around our real resource capacity and not some arbitrary, imaginary revenue constraint,” Stephanie Kelton, an economics professor at Stony Brook University and MMT’s most well-known advocate, told the media recently on the sidelines of the National Association for Business Economics conference in Washington.
Critics point out that Sanders’ ideas for increasing government revenue—including heavy taxes on the wealthy, raising the corporate tax rate to 35%, and eliminating most corporate tax breaks and loopholes— will fall well short of paying for the new programs he proposes.
But the tax changes are not intended to offset the spending so much as they are designed to rewire the economy and “spread the wealth,” a central tenet of Sanders’ democratic socialist philosophy.
There’s no telling whether Kelton and Sanders are right, because no government has ever attempted to implement the MMT approach. However, the fact that the US national debt has ballooned to $23.4 trillion and both US and global inflation are near their lowest levels on record does support their case.
Sanders’ economic agenda is not merely to “give people free stuff.” Backed by the fundamentals of an untested economic model (MMT) and socialist redistribution, a Sanders presidency would question and seek to overhaul much of what has underpinned US government policy for generations. Whether that is good or bad depends on how much one likes the current state of things.