The ivory tower currently occupied by the old guard economists who oversaw economic policymaking by both the Clinton and Obama administrations is now under siege. The stakes could not be higher. This is what provoked economist Larry Summers to publish an op-ed in the Washington Post earlier this year in defense of his turf. Because the issues in question can be intimidating to laypersons, there will be a tendency among the public to tune out the debate and defer to the “experts.” But what is fundamentally at stake is which experts deserve our confidence.
As African-American faith leaders committed to the social justice tradition of the Black Church, we would like to raise our voices to point out that it is not lost on us that Larry Summers and the establishment economists have done immense damage to the communities we serve, as well as to the broader American public, via their influence on economic policymaking. We recognize in the new school of economic thought, called Modern Monetary Theory (MMT), a credible, highly impressive, and genuinely public-spirited alternative to the disastrous economic stewardship offered by the old guard. MMT also offers a powerful theoretical defense of the Federal Job Guarantee, a proposal that was pioneered by America’s first black economist, Sadie Alexander, and a centerpiece of the activism of civil rights icon, Coretta Scott King.
As for the establishment economists, we have not forgotten that it was, in large part, their economic stewardship that ultimately brought us decades of stagnant wages, mass incarceration, deteriorating public schools, sky high levels of student debt, the worst health care system in the “developed” world, a housing affordability crisis, the Great Recession, the rise of Trump, and perpetual delay of action to tackle the climate crisis. The communities we serve are among the hardest hit by each of the items on this laundry list of national emergencies. It is time for a changing of the guard, and we urge our fellow citizens and community advocacy organizations to join us in calling on our elected representatives to educate themselves in the new economic thinking that has the potential to enable us to right our ship before it is too late.
In 1992, President Bill Clinton was elected with a mandate for progressive reform, the centerpiece of which was his proposed middle-class tax cut. Upon taking office, however, he promptly capitulated to the admonitions of what is now the old guard, Rubin Wing of the Democratic Party, of which Summers was and remains a key player. The bond vigilantes, they said, would not tolerate the implementation of Clinton’s democratic mandate. If Clinton proceeded with his agenda, these bond traders would dump treasury debt en masse, driving up our federal government’s borrowing costs. The only responsible thing to do, it was argued, was to capitulate to the bond market and undertake an aggressive policy of deficit reduction. By the end of his administration, Clinton boasted a budget surplus, having abandoned his original agenda and mandate, largely aligning Democratic Party economic policymaking with the “small government” economic agenda of the Republican Party. Along the way, Summers and the Rubinites, with the enthusiastic cooperation of the Republican Party, oversaw the deregulation of Wall Street and derivatives markets, setting the stage for the subprime bubble and collapse we would later see culminate in 2008. This harmful superstition of prioritizing the balancing of our federal budget maintains its grip on the Democratic Party to this day in the form of the “Paygo” provision in the House rules package.
What Summers and the Rubinites failed to mention to President Clinton was that the interest rates on treasuries are, in fact, entirely subject to the control of our federal government, via the Federal Reserve, as was demonstrated clearly during World War II. By failing to alert President Clinton to the full extent of our public power, they ceded veto power over our democracy to financial markets at a time when it was entirely unnecessary. Then, after leaving on the table public spending capacity that could have been used to attend to public priorities, they oversaw, via the deregulation of finance, an expansion of private credit creation that ultimately led to an unprecedented destruction of black wealth in the foreclosure crisis.
With federal spending considered off-limits, the financial sector becomes the only game in town for financing the development of our communities. By failing to use the full extent of our capacity for responsible public spending, we needlessly leave the American people as sitting ducks for an often-predatory Wall Street. This must change.
At the core of MMT is a recognition of the importance of integrating an accurate understanding of money creation into our economic thinking. While the old guard dismisses money creation as an unserious recipe for hyperinflation, the challengers show us that money creation is in fact ubiquitous. It takes place in our federal spending, the financial sector’s credit creation, and even our government’s issuance of treasuries, which are properly understood as a form of money. Contrary to mischaracterizations by opponents like Summers, MMT argues not that we can create money indefinitely without an impact on inflation, but that inflation, rather than tax revenue or interest rates, should be viewed as the actual constraint on public spending. This may seem like a minor adjustment, but the implications are profound.
Over the past 20 years, our federal government has done about $15 trillion worth of deficit spending, which is properly understood as money creation through public spending, in excess of tax receipts. Yet the Federal Reserve has typically undershot its inflation target over this period. This means that had we constrained ourselves to a balanced budget approach, we would have left at least $15 trillion in public spending capacity on the table. How much more public spending capacity, that could be deployed on behalf of our most deeply held and brutally neglected public priorities, do we leave on the table by following the old guard’s advice?
In the meantime, we leave most of the deficit spending to the Republicans, to be spent on tax cuts and wars, while the Democratic Party presents itself as the party of seriousness and responsibility, lamentably handcuffed in their ability to deliver what the public wants. Our public priorities go unattended to, with for-profit substitutes for basic public services stepping in to fill the void. The financial sector creates and allocates what are, in essence, public funds with little public accountability, while Washington selectively frets about how to pay for things. In the absence of more robust public spending to attend to our public priorities, we turn to the financial sector to help us muddle through, and our household debt mounts. Our increasing dependence upon these private-sector substitutes for basic public services is sold to us as a matter of dignity and self-reliance.
We say, “no more.” The notion that dignity and self-reliance are to be found only in the private sector has proven to be an insidious trap. What could be more dignified than exercising our democratic power on our own public behalf? We must learn to see our government as a tool of empowerment for our communities, and demand it be deployed accordingly. It is high time that the public exercise the full extent of its capacity for responsible money creation on behalf of public priorities, from full employment, to universal health care, to education, and affordable housing. “No more” to leaving our public priorities unattended to while predatory, for-profit substitutes fill in the void. “No more” to leaving the power and responsibility of creating our money to an unaccountable financial sector.
The old guard economists have long provided the Democrats with the false alibi for their failure to serve the public to which they are accountable: the idea that using our public power of money creation to attend to public priorities is somehow “irresponsible.” It is time we see this alibi for the irresponsibility and economic malpractice that it is. With the danger of another four years of Trump and the failure to address the climate crisis looming, there is no time to defer to the inertia of sticking with the familiar. We stand with the Modern Monetary Theory academics in their siege of the ivory tower, and we call on all who care about our common future to do the same.
We, the undersigned clergy, commend and support this call to exercise democratic power for responsible money creation on behalf of public priorities.
-Rev. Dr. Jamal Bryant, New Birth Missionary Baptist Church (Lithonia, Ga.)
-Rev. Dr. William Campbell, Union Bethel AME Church (Brandywine, Md.)
-Rev. Dr. Delman Coates, Mt. Ennon Baptist Church (Clinton, Md.)
-Rev. Martin Espinosa, Ray of Hope Community Church (Nashville, Tenn.)
-Rev. John Faison, Watson Grove Missionary Baptist Church (Nashville and Franklin, Tenn.)
-Rev. Willie Francois III, Mount Zion Baptist Church (Pleasantville, N.J.)Rev. Dr. Eugene Gibson, Jr., The Place of the Outpouring @Olivet Fellowship (Memphis, Tenn.)
-Rev. Dr. Charles Goodman, Jr., The Historic Tabernacle Baptist Church (Augusta, Ga.)
-Rev. Stephen Green, Heard AME Church (Roselle, N.J.)
-Rev. Dr. Frederick Haynes, III, Friendship-West Baptist Church (Dallas, Texas)
-Rev. Dr. Donté Hickman, Southern Baptist Church (Baltimore, Md.)
-Rev. Dr. Kevin Johnson, Dare to Imagine Church (Philadelphia, Pa.)
-Rev. Anthony Moore, Carolina Missionary Baptist Church (Fort Washington, Md.)
-Rev. Dr. Donald Moore, Mt. Carmel Baptist Church (Philadelphia, Pa.)
-Rev. Shane Scott, Macedonia Church of LA (Los Angeles, Calif.)
-Rev. Dr. Timothy Sloan, The Luke Church (Humble, Texas)
-Rev. Michael Walrond, Jr., First Corinthian Baptist Church (Harlem, N.Y.)
-Rev. Dr. Vernon Walton, First Baptist Church of Vienna (Vienna, Va.)
-Rev. Dr. Lance Watson, Saint Paul’s Baptist Church (Richmond and Petersburg, Va.)
-Rev. Dr. Lisa Weah, New Bethlehem Baptist Church (Baltimore, Md.)
-Rev. Dr. Renita Weems, Ray of Hope Community Church (Nashville, Tenn.)
-Rev. Dr. F. Bruce Williams, Bates Memorial Baptist Church (Louisville, Ky.)
-Rev. Reginald Williams, First Baptist Church of University Park (University Park, Ill.)
Dr. Delman Coates is senior pastor of Mt. Ennon Baptist Church in Clinton, Md., and founder of the Our Money Campaign. He is a graduate of Morehouse College, Harvard Divinity School, and Columbia University.
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