Why We Need Modern Monetary Theory (MMT) and Why It Needs Universal Basic Income (UBI)

Going from “can we pay for it?” to “can we resource it?” is the mindset shift needed for a human-centered resource-based economy built with a mindset of abundance on a foundation of human rights.

In the beginning, man said, Let there be money: and there was money. Centuries later, on March 27, 2020, the United States passed into law the Coronavirus Aid, Relief, and Economic Security Act and with the stroke of a pen, over $2 trillion was spent without first taxing or borrowing from anyone. It included $1,200 stimulus checks for adults and $500 for kids. Another $900 billion was spent without first taxing or borrowing from anyone nine months later as the Consolidated Appropriations Act. It included $600 stimulus checks per adult and kid. Another $1.9 trillion was spent without first taxing or borrowing from anyone another three months later when a third stimulus check went out thanks to the American Rescue Plan Act, this one for $1,400 per adult and kid. It was followed in July by the first of six monthly payments of $250 to $300 more per kid. All told, within one year, $1 trillion in cash was sent directly to the bank accounts and mailboxes of about 85% of Americans, no strings attached.

We didn’t “pay for” any of this. We just did it. None of it was made possible by taxing or borrowing from anyone first, and that’s the big lesson I believe everyone needs to take away from the COVID-19 pandemic besides the effectiveness of direct cash payments and dangers of politicizing science and public health. Americans needed money, so it was created out of nothing. The thing is, that’s not new. It’s how money works in any country that issues its own currency.

Here’s the now less secret truth: the US government is not funded by taxes. It creates its own currency out of nothing. It spends it into existence. Taxes then remove money from the money supply to maintain its value (among other things). For the cryptocurrency enthusiasts out there, the US dollar utilizes a mint and burn model. The eater address is the IRS.

In other words, yes there is in fact a “magical money tree.” All money is a human invention and there is in fact no limit to the amount of money that can be created. There is however a limit at any point in time to the goods and services that can be exchanged for money at that point in time, and that real and always changing limit depends entirely on the amount of natural resources, human labor, machine labor, knowledge, skills, time, energy, etc. that is available to meet demand with supply at that point in time. That’s what really matters – what money is meant to measure – not money itself. Money is only a human construct created to very roughly measure the stuff it’s traded for, and taxation is important for a multitude of reasons, but making spending possible by a currency issuing government just isn’t one of them. This is the heart of what’s come to be known as Modern Monetary Theory (or MMT).

Conventional thinking says that the US government first needs to obtain money from taxes or borrowing in order to spend it. MMT says that the government first spends money, then it taxes or borrows money to remove it from circulation. That may seem like a somewhat silly difference, but I’ve come to believe it’s actually an extremely important one, and one that once adopted, is the most likely path to a better future that includes a truly Universal Basic Income — like Alaska’s annual dividend but monthly and larger — that’s the highest it can be without surpassing inflation targets.

I’ve never been against MMT as a descriptive theory, but for years I’ve just seen it as an alternative way of looking at federal spending and taxes, but having just lived through the year 2020, and having read Stephanie Kelton’s book The Deficit Myth, I’ve come to believe MMT may just be the key to achieving UBI, and perhaps even the only way.

Now to begin this MMT-UBI journey (which I admit will take some time to fully explore) let’s first imagine a very special bathtub…

The Magical Bathtub

Imagine a bathtub where our goal is to fill the tub as close to the brim as possible without spilling over onto the floor. Water flowing into the tub represents government spending and water flowing down the drain represents taxation. The tub itself represents the economy and an overflowing tub is inflation. If more money flows into the tub than down the drain, the water level rises. That’s what running a federal budget deficit looks like, because a deficit is spending more than taxing, and the government’s deficit is the private sector’s surplus. A balanced budget would be matching the rate of water flowing in with the rate draining out, which would keep the water level steady where it is. If the tub is full, that would make more sense, but if it isn’t, it makes sense to either increase the flow rate, or decrease the drain rate to fill the tub all the way.

Curious for the ending?  You can read further  on https://vocal.media/theSwamp/why-we-need-modern-monetary-theory-mmt-and-why-it-needs-universal-basic-income-ubi

or buy the book

or download the pdf: Why We Need Modern Monetary Theory (MMT) and Why It Needs Universal Basic Income (UBI) _ The Swamp (PDF)

Daily Basic Income News

Basicincome & EuroDividend as sociopolitical pillars of the EU and its member countries

BASIC INCOME AND THE EURO-DIVIDEND AS SOCIOPOLITICAL
PILLARS OF THE EU AND ITS MEMBER COUNTRIES

Interdisciplinary Conference at the University of Freiburg, Germany October 11-12, 2018

In Europe, the public debate about a universal basic income (UBI) is usually a national one. In recent years a European version of a UBI has attracted more and more attention – primarily pushed by the suggestion of Philippe Van Parijs titled a “Euro-Dividend”.

This conference aims to shed light at pros and cons of a EU wide UBI regulation and its relation to national approaches from an interdisciplinary perspective. Both UBI approaches shall be analysed and discussed with respect to justice, economic and migration effects, legal aspects, creation of
solidarity in the EU, and political viability. On the first day, the conference will address general issues about UBI while the schedule of the second day contains EU-related concepts just like the Euro-Dividend.

CALL FOR PAPERS Continue reading “Basicincome & EuroDividend as sociopolitical pillars of the EU and its member countries”

Eurodividend: A partial basic income paid to all Europeans

Europe is in deep trouble – economically, socially, and politically. We need new, bolder and stronger instruments to counter the forces of disintegration. A partial basic income paid to all Europeans – a Eurodividend – could become the policy instrument that safeguards the EU and especially the Eurozone from asymetric economic shocks and reconciles citizens with the idea of European integration.

Today, the risk of poverty and social exclusion levels in the EU and in particular the precarity of young people, child poverty and in-work poverty are extremely worrying whilst the prospects of the EU’s 2020 poverty target (i.e. to lift 20 million people out of poverty by 2020) look rather dim. Moreover, unemployment levels remain very high and particularly affect young people whereas the technological and digital revolution is affecting employment in various aspects, through the replacement of a great amount of jobs, the reorganisation of the workplace and the increase of the gap between productivity gains and income earned by workers. Finally, in the Eurozone, the introduction of the euro has produced increasing economic divergence between deficit and surplus countries (in terms of GDP per capita, labour productivity or unemployment levels among others) as well as important social imbalances in terms of public investment in education, healthcare, or social security. Continue reading “Eurodividend: A partial basic income paid to all Europeans”

ECB confirms ‘Helicopter Money’ is Legally Feasible under Conditions

Mario Draghi first discussed the notion of ‘helicopter money’ in March 2016, saying “it is an interesting concept.” Since then however, the head of the European Central Bank repeatedly stated that the idea that central banks could distribute money directly to citizens, was fraught with accounting-wise, technical and legal complexity.” However the ECB had declined at several occasion to specify in detail which were the foreseen legal obstacles.

In a letter dated 29 November to Spanish MEP Jonas Fernandez, the ECB finally provides clarifications. And our interpretation of the letter lead to the conclusion that those legal issues are very weak and solvable.

The QE for People campaign praises the ECB for finally providing this legal clarification. “By providing a detailed answer on this point, the ECB acknowledges its understanding of our proposal, which many economists say could bring significant benefits to the economy” said Stan Jourdan, QE for People campaign coordinator.

Helicopter money must be designed as monetary policy

Continue reading “ECB confirms ‘Helicopter Money’ is Legally Feasible under Conditions”

Can helicopter money kick start the Eurozone?

With Eurozone growth still sluggish, should the European Central Bank (ECB) consider a radical option – like helicopter money?

ING senior economist Teunis Brosens explains, in this eZonomics video, that the ECB has already employed quantitative easing[1] and lowered interest rates below zero. But how effective these measures will be is unclear, he says.

Continue reading “Can helicopter money kick start the Eurozone?”

The Euro Dividend by Philippe van Parijs

Criticizing is easy. Making proposals is harder. Here is one, simple and radical, yet — I shall argue — reasonable and urgent.

Euro-dividend is how I shall call it. It consists of paying a modest basic income to every legal resident of the European Union, or at least of the subset of member states that either have adopted the Euro or are committed to doing so soon. This income provides each resident with a universal and unconditional floor that can be supplemented at will by labour income, capital income and social benefits. Its level can vary from country to country to track the cost of living, and it can be lower for the young and higher for the elderly. It is to be financed by the Value Added Tax. To fund a Euro-dividend averaging 200 Euros per month for all EU residents, one needs to tax the EU’s harmonized VAT base at a rate of about 20%, which amounts to close to 10% of the EU’s GDP. Continue reading “The Euro Dividend by Philippe van Parijs”

No Eurozone without Euro-dividend

The four characteristics that make the difference between the euro zone and the dollar zone and a concrete proposal to save the euro.

Abstract

The vulnerability of the European currency union is ultimately rooted in the extreme weakness of two major buffering mechanisms that have proved crucial to the sustainability of the currency union formed by the United States: inter-state mobility and inter-state solidarity. As little hope can reasonably be staked in increased mobility between member states of the European Union, it is of crucial importance to explore the way in which a far higher level of solidarity could be institutionalized between member states. After having considered and rejected a number of options, the paper ends up focusing on a universal euro-dividend paid to every resident of the European Union (or of the Eurozone) and funded exclusively or mainly by a Value Added Tax. Taking for illustrative purposes a monthly euro-dividend of 200 euros funded by a 20% EUwide VAT, it explores some of the key consequences of such a set up and the conditions of its political feasibility. Continue reading “No Eurozone without Euro-dividend”