We Need a World War II Kind of Effort to Combat Climate Change
by John Lawrence, December 30, 2020
Modern Monetary Theory (MMT) advocates that the government provide a job guarantee. If the private sector cannot provide enough jobs for full employment, then a temporary job would be readily available until employment in the private sector was found again. This is in lieu of unemployment insurance. Right now the Federal Reserve has the twin mandates of full employment and low inflation. But by full employment the Fed means that level of unemployment necessary to keep inflation in check. In other words the Fed deliberately intends to keep a certain percentage of people unemployed lest inflation get too big. It does this by twiddling with the interest rate which it sets. If the Fed wants to reduce inflation it raises the interest rate which reduces economic activity and more people are laid off. If the Fed wants to increase employment it lowers the interest rate resulting in more economic activity and people are rehired. MMT suggests a better way to control inflation and create full employment.
Inflation occurs when there is too much money sloshing around in the economy and not enough things to spend it on - a limited supply of goods and services. In this case either supply can be increased or money can be drained from the economy by means of taxes. This can be done without deliberately trying to increase unemployment. Be that as it may, we have the historical case of full employment demanded by the war time effort required to manufacture ships, planes, armaments etc necessary to win World War II. In that case employees were sucked out of the private sector into the public sector. People had to stop what they were doing in the private sector and come work for Uncle Sam in order to defeat the Nazis. Uncle Sam seems like a more personable guy to work for than the impersonal government, but they're really the same. Even MMT recognizes that private sector employment is primary. In other words if private sector jobs are available they should be filled first. The government job guarantee would only kick in for people who could not find jobs in the private sector.
However, in cases of national emergencies such as World War II, the government must take jobs away from the private sector. The national emergency we are now facing is climate change. Actually it is more than a national emergency; it's a worldwide emergency. As MMT points out, there will always be money to pay workers to address the issue of global warming and material resources are available so there should be no concerns over inflation. The other concern is where will the money come from to pay for the workers and materials necessary to combat global warming. Since the US is a sovereign currency issuer, this money does not need to come from taxes, but can come by means of the Federal Reserve just printing it like it did for the Quantitative Easing (QE) program when it transferred $4.5 trillion to the Too Big To Fail banks after the Great Recession. The Fed can just print money and give it to the banks, but Congress has to authorize the Fed to print money and make it available to the mainstream economy. The QE doesn't add to the deficit while money authorized by Congress requires the sale of Treasury bonds which does add to the deficit if enough money from taxes is not available. As an example, Trump's tax cuts were paid for by Treasury bonds which added $2 trillion to the deficit. MMT maintains that deficits don't matter. Stephanie Kelton writes in The Deficit Myth:
"In short, the job guarantee is the MMT solution to our chronic jobs deficit. Instead of trapping millions in unemployment as a sacrificial tribute to the "natural rate" of unemployment, the job guarantee insures that everyone who wants to work can have a job. ...it's also a better price stabilizer. It spends only enough to hire everyone who is prepared to work, and it maintains a pool of employable people from which the private sector can readily hire at a modest premium over the program wage. Further, by establishing the right to a living-wage job, the job guarantee strengthens the bargaining power of labor, reduces racial inequities, decreases poverty, and raises the floor on low-wage work while building stronger, more vibrant, more connected communities.
"Has anything like this ever been tried? No country has implemented a full-fledged job guarantee, but a number of countries have experimented with versions of the idea. In the 1930s. the US fought the Great Depression by directly creating millions of jobs under President Franklin D. Roosevelt's New Deal. The Public Works Administration (PWA) put hundreds of thousands of men to work building schools, hospitals, libraries, post offices, bridges, and dams. In its first six years, the Works Progress Administration created about eight million construction and conservation jobs as well as thousands of jobs for writers, actors and musicians. The National Youth Administration created 1.5 million part-time jobs for high school kids and 600,000 for college students. As MMT proposes, the jobs were federally funded, but the programs weren't permanent, and they didn't guarantee employment to all [only the unemployed]."
Kelton's book was written before COVID so she couldn't have foreseen how many people would become unemployed because of the pandemic. What is important to gather here is that combating the global warming crisis will require millions of workers and massive amounts of government spending. As has been pointed out in my previous articles, taxes need not be raised to get the money for this. The US Federal Reserve creates money by a few keystrokes on a computer, and the national debt need never be paid off since the US dollar is a sovereign currency. If the Fed takes debt onto its balance sheet it just stays there. No entity can demand that the Fed ever pay it off. Taxes are just tools to control inflation, not tools to get money to get things done. The Green New Deal will require massive amounts of human and material resources which can be paid for by the Fed's "printing" money - actually keystrokes on a computer. After global warming has been sufficiently dealt with - it will probably take a World War II effort for 10 years - the workers involved can return to their jobs in the private sector. In the meantime many inessential jobs will probably have to go unfulfilled just as required in the national effort to defeat the Nazis.