Today, the Progressive Policy Institute’s Innovation Frontier Project released a new report exploring the critical role contract workers play in this post-pandemic workforce, and the policies that will help provide support to this important workforce. The report is titled “Supporting Contractors’ Career Development in the Future of Work,” and is authored by Dr. Liz Wilke, Principal Economist at Gusto and cohort member of PPI’s Mosaic Project.
“Supporting contractors to continually invest in their skills, confidently and expertly manage their professional affairs, and ensure that they benefit from basic workplace protections available to employees can support this important segment of the workforce, ensure their long-term success, and enhance the benefits they bring to American businesses,” writes report author Liz Wilke.
Reliance on contract workers is expected to increase as 90% of companies expect to use them more in the future. The report looks at the rise of contract and gig workers in recent years and identifies some of the resources needed to sustain America’s growing workforce.
In addition to releasing the paper, Dr. Wilke and the Director of PPI’s Mosaic Project, Jasmine Stoughton, sat down to examine Dr. Wilke’s findings in a new “Mosaic Moment” podcast, a series on PPI’s Radically Pragmatic podcast. They discussed gaps in the social safety net for both contractors and employees, the complexities of filing taxes as an independent worker, and how upskilling and career training could be the key to navigating our modern economy.
Liz Wilke, PhD, is a Principal Economist at Gusto, researching the state of work and business in the modern economy. She is a veteran of both the technology and government sectors, where she directed research programs and public spending that supports dynamic, resilient companies and workers across the globe. Liz currently lives in Washington, D.C.
Based in Washington, D.C., and housed in the Progressive Policy Institute, the Innovation Frontier Project explores the role of public policy in science, technology and innovation. The project is managed by Jordan Shapiro. Learn more by visiting innovationfrontier.org.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Ben Ritz, Director of the Progressive Policy Institute’s (PPI) Center for Funding America’s Future, released the following statement in response to the Biden Administration’s announcement of another extension of the student loan repayment pause:
“Extending the pause on student debt repayments and interest accrual, which was first enacted in the early days of the COVID-19 pandemic, demonstrates a lack of concern about the squeeze that rising prices are putting on American families, especially those who don’t have the higher incomes associated with a college education. Even the administration has admitted that continuing the pause worsens inflation when they announced their previous plan to bring it to an end this year.
“We understand that the court challenges facing the president’s legally dubious attempt to cancel up to $20,000 of debt for some borrowers creates undue uncertainty for them. The White House should have considered the likely – and now ongoing – legal fight over this policy before promising debt cancellation to tens of millions of people. Regardless, there is no reason high-income individuals not eligible for debt cancellation under the president’s plan, or those who have balances of more than $20,000, should be exempt from repaying balances that have no chance of being canceled even if the administration prevails in court.
“The administration says repayments will resume ‘no later than’ August 30th. But every time they have said that in the past, they have kicked the can down the road. This shortsighted fiscal policy must come to an end. Democrats and Republicans in the next Congress must work together on a bipartisan basis to curtail the limited debt modification authority this administration has brazenly abused and replace it with real solutions to control the skyrocketing cost of higher education.”
In the wake of the collapse of crypto exchange platform FTX, the Progressive Policy Institute (PPI) today sent a letter to leadership of the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs calling for a functional and modern regulatory regime for digital assets.
Efforts to provide clarity to the regulatory framework of stablecoins have advanced in the House Committee on Financial Services, albeit slowly. The crash of FTX is yet another example of customers losing their savings due to the failure of unregulated institutions, highlighting the need for quick action from federal policymakers on digital assets. PPI urges the leadership of the House Financial Services and Senate Banking Committees to come together in a bipartisan way and advance regulation that balances both the benefits and risks of digital assets for investors and future consumers.
The Honorable Maxine Waters Chair U.S. House Committee on Financial Services Washington, DC 20515
The Honorable Patrick McHenry
Ranking Member
U.S. House Committee on Financial Services
Washington, DC 20515
The Honorable Sherrod Brown Chair U.S. Senate Committee on Banking, Housing and Urban Affairs Washington, DC 20515
The Honorable Pat Toomey
Ranking Member
U.S. Senate Committee on Banking, Housing and Urban Affairs
Washington, DC 20515
Dear Chair Waters, Ranking Member McHenry, Chair Brown, and Ranking Member Toomey:
The collapse of crypto exchange platform FTX underscores the need for a modern, clear, and well functioning regulatory regime for digital assets. In a moment where uncertainty for cryptocurrency investors is rising — with customers losing their savings in the failures of unregulated institutions — the need for legislation to protect investors in the market for digital assets has never been more clear. But protecting investors while enabling the innovation that drives progress will require a balanced approach.
Stablecoins can mitigate the risk of volatility associated with other cryptocurrencies and capitalize on the benefits of digital assets, such as allowing for faster and more efficient transmission of money. However, without a regulatory definition of ‘stablecoins,’ other tokens call themselves stablecoins and are listed as such but are not truly stable, hurting consumers who invest in them. The industry has seen so-called-stablecoins lose value almost overnight, as evidenced by the collapse of TerraUSD in May 2022.
Bipartisan legislative efforts by House Financial Services Committee Chair Maxine Waters and Ranking Member Patrick McHenry have sought to address the need for regulatory clarity in the realm of stablecoins. These efforts can be an important building block in the effort to provide sensible protections for investors.
In the wake of the failure of FTX, regulation may need to be expanded to a broader scope. Fundamentally, though, regulation must both ensure stability and liquidity, and put appropriate measures in place to protect consumers when that is not the case. In regard to stablecoin regulation, a first step is defining a stablecoin as something backed by dollars, allowing consumers to determine legitimate value of digital assets in the market. Additional measures could include enforceable reserve requirements for stablecoins, transparency, and disclosure requirements for the assets backing those stablecoins, compliance with anti-money laundering/counter-terrorism financing rules, and clear rules regarding the timely redemption of payment from the sale of stablecoins.
Innovative payment systems like stablecoins bring competition to the banking and money transmission industries and can provide less expensive, more efficient payments. But legislation is needed to make this system more sustainable. It is crucial that Congress move forward to regulate digital assets, including stablecoins, in a way that balances their benefits and risks.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Paul Weinstein, Jr., a Senior Fellow at the Progressive Policy Institute, released the following statement:
“This week’s statement by the Federal Housing Finance Authority (FHFA) that it has “validated and approved” of the FICO 10T and VantageScore 4.0 credit scoring models is welcome news. The prior model, FICO Classic, had been in use by Fannie Mae and Freddie Mac for nearly twenty years, and an update was long overdue. Fortunately, the improvements to FICO 10T are significant, and both models will hopefully prove to be more inclusive as both can factor in payment histories for borrowers — such as rent and utilities payments.
“As noted in the past, because Vantage is owned by the three major credit reporting agencies, there is potential for a conflict of interest. This is cause for concern and should be carefully monitored.”
The extraordinary growth of the market for cryptocurrencies and other digital assets is one of the most remarkable stories of the past decade. In the United States, an estimated 40 million people have bought and sold digital assets, suggesting that what was once a niche interest is finding its way into the financial mainstream.
In the years after the pseudonymous Satoshi Nakamoto introduced the world to Bitcoin in a 2008 white paper,1 the use of digital assets grew steadily, reaching a market capitalization of about $14 billion in 2016. Since then, however, the total value of cryptocurrencies and crypto tokens in circulation has skyrocketed, rising to nearly $3 trillion in November 2021, before crashing down to $1.3 trillion in mid-May 2022. On any given day, more than $90 billion in digital assets change hands.
This spring’s crypto market collapse is just the latest reminder for investors that crypto assets come with extra risk and volatility, especially in times of economic and political uncertainty. It has also led for calls to establish rules to protect investors and ensure the proper functioning of the markets.
The potential benefits of widespread adoption of cryptocurrencies are many. The ability to make transactions without the assistance of an intermediary, like a bank, could create opportunities for individuals who do not have easy access to traditional financial services. The ability to transfer value quickly and securely across borders could make international trade much more efficient and remittances cheaper and faster. The use of “programmable” money could make complex business arrangements, like revenue sharing, execute in real time with perfect transparency.
However, growing public interest in a new and volatile marketplace is a prospect that has regulators in the U.S. deeply concerned. Fraud in the unregulated crypto marketplace is a significant problem, raising questions about the need for investor protections. Because it is possible to transact in digital assets without the use of an intermediary, like a regulated financial institution, and because those transactions can be made anonymously, such activity has been linked to billions of dollars’ worth of illegal activity.
The growing market for stablecoins, tokens with their value pegged to other assets, often a fiat currency, have raised questions about the possibility of systemically destabilizing runs on stablecoin issuers.
As more Americans become interested in investing and transacting in digital assets, there are real questions about whether and how they ought to be handled by existing financial institutions. Should banks be allowed to hold cryptocurrencies on their balance sheets? If so, how would they value the often-volatile assets?
Digital assets also raise important and complicated questions about tax policy. Current U.S. policy holds that every time a token changes hands, it reflects a taxable event, in which the person transferring the token incurs a capital gain or loss, and the person receiving it establishes the basis against which their eventual capital gain or loss will be measured.
The Biden administration, in March 2022, issued a sweeping executive order acknowledging the need for the federal government to adopt a coherent set of policies related to digital assets.7 While the announcement was welcomed by many in the crypto world,8 the executive order was light on specifics, effectively pointing out that the federal government has an enormous amount of work ahead of it as it tries to understand and oversee the market for digital assets.
The object of this paper is to identify some of the most significant areas in which regulators and/or the crypto community believe a policy response is required and the work currently being done to address those issues.
Democrats have been struggling to respond to the highest inflation America has seen in 40 years. Many on the left are pushing a bogus “greedflation” narrative that blames rising prices on corporations’ desire to maximize profits, as if that were some new phenomenon. Others have proposed to compensate consumers for higher prices with cash handouts that will likely only make the problem worse. And Republicans, who sharply criticize Democrats’ approach to inflation, have offered no constructive ideas of their own for tackling the problem. Thankfully, the moderate New Democrat Coalition (NDC) came forward today with a pragmatic 24-page Action Plan to Fight Inflation — and it’s the best inflation-fighting blueprint to come out of Congress yet.
Fighting inflation requires an understanding of what drives the problem. First, supply chain disruptions caused by the COVID pandemic reduced the availability of goods and services. Then demand for those goods and services, bolstered by excessive government stimulus, reached unprecedented levels as the world began returning to normal. The result: too many dollars chasing too few goods and services, thus driving up prices. The problem was only made worse when Russia’s unjustifiable invasion of Ukraine cut off food and fuel exports.
Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future, released the following statement on President Biden’s new budget proposal:
“The Progressive Policy Institute applauds President Biden for proposing a budget that calls for $1 trillion of deficit reduction over the next decade. After a year in which loose fiscal policy contributed to inflation rising to its highest levels in over 40 years, it’s essential that Congress uses its power of the purse to complement the Federal Reserve’s inflation-fighting efforts.
“However, it remains unclear if the specific package of policies proposed in the President’s budget would achieve his stated objective. Several major provisions are unscored or have their scores bundled together in a couple of opaque line items. There is also no attempt to focus this package on a few core policies that could get a majority in the Senate after it became clear last year that the whole Build Back Better framework could not.
“Thus, it falls upon Democrats in Congress to fill in the blanks. PPI urges lawmakers to pass an energy security and inflation control bill that meets the President’s stated goal of reducing deficits by $1 trillion without relying on budget gimmicks and funds smart investments in clean energy to reduce our dependence on fossil fuels produced by foreign adversaries like Russia.
“We also believe that the new revenue proposals included in this budget merit debate and consideration. But it is unlikely most of these policies could be sufficiently vetted and refined in time for inclusion in a reconciliation bill before the midterm elections. The focus now must be on policies that can pass before the August recess.
“Democrats cannot afford to let the perfect be the enemy of the good. It’s long past time for lawmakers to figure out what sustainable, disinflationary fiscal policies can get majority support in both chambers and send them to President Biden’s desk for his signature.”
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Launched in 2018, PPI’s Center for Funding America’s Futureworks to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. We tackle issues of public finance in the United States and offer innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.
Despite experiencing record levels of output and job growth during the first year of the Biden presidency, rising prices are casting a shadow over the economy. Inflation over the last 12 months was higher than at any point in the last 40 years and has outstripped wage gains for many workers across the income distribution. Concerns about these trends have left the Build Back Better Act, a sweeping social spending bill containing critical priorities for Democrats, completely stalled for weeks with no clear plan for revival.
As they head into President Joe Biden’s State of the Union address this week, Democrats must pivot towards aggressively tackling inflation head-on to salvage their domestic agenda and restore confidence in the economic recovery they helped stimulate.
This week, the Progressive Policy Institute hosted an event with Rep. Jake Auchincloss (MA-04) and an esteemed panel of experts on the potential regulatory options for cryptocurrency, and the merits and drawbacks of several proposed approaches.
“My job…is to uphold market integrity, to protect consumers from fraud and abuse, and to create a regulatory sandbox in which industry can thrive. In which participants in a marketplace can transact with confidence. And in which the United States can lead the world in innovation,” said Rep. Jake Auchincloss during the event.
“I’d also like to keep this pre-partisan. Right now we haven’t yet put on the jerseys about what side is what for crypto regulation. And I think that’s healthy, because there’s no need for this to become a political football. This is something that thoughtful Members on both sides of the aisle should be able to roll up their sleeves and work together on. I’m certainly working in that fashion, and would like to see that we can get Democrats and Republicans on board with a long term regulatory architecture…” Rep. Auchincloss continued.
Cryptocurrency has taken the world by storm. Depending on the day, digital currencies are now cumulatively valued at several trillion dollars. Financial and nonfinancial corporate executives, once dismissive, increasingly understand the importance of cryptocurrency and related technologies for the future. However, the federal government is only in the early stages of deciding how to regulate cryptocurrency, which could have enormous implications going forward. PPI explored these challenges and heard from thought leaders on how to navigate this new and challenging technology.
Watch the livestream of the event here:
Representative Jake Auchincloss serves as Vice Chair on the House Committee on Financial Services and the House Committee on Transportation and Infrastructure. He has a deep background in technology and cybersecurity work.
In addition to Rep. Auchincloss, this event’s esteemed panelists included Dante Disparte, Circle’s Chief Strategy Officer and Head of Global Policy; Kirsten Wegner, CEO of the Modern Markets Initiative and a PPI Mosaic Project cohort member; and Michael Katz, Director of Legal for the Digital Currency Group. The event was moderated by Dr. Michael Mandel, Vice President and Chief Economist of PPI and featured Colin Mortimer, Director of PPI’s Center for New Liberalism.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
“Dynamic democracies should periodically reconsider existing policy norms to evaluate if they continue to serve policy goals well. If MMT seeks to change long-standing policy norms, the onus is on its advocates to persuade us that old norms do not serve us well and to communicate precisely what new norms will prevail and how they will affect the economy’s performance,” writes Eric Leeper in the report. “Until MMTers are ready to take these steps, their ideas must remain in the realm of guess and conjecture. In the meantime, we should apply to economic policy the basic principle we apply to health policy: follow the science. Economic science, such as it is, provides no support for MMT’s central claims.”
“For years, advocates of MMT have argued that policymakers should only care about budget deficits when the economy is facing inflation,” said Ben Ritz, Director of PPI’s Center for Funding America’s Future. “Now that inflation has finally materialized, they’ve moved the goalposts and left policymakers seeking answers about what to do in response. Dr. Leeper’s thorough deconstruction of MMT makes clear that they have none to offer. Democrats should reject this ‘supply-side economics’ of the left that is nothing more than a recipe for economic misery.”
For several years, politicians and leaders on the Far Left argued that a monetarily sovereign nation, like the United States, can simply print more currency needed to purchase goods and services for its constituents. As more exorbitant expensive spending programs were introduced and pitched to the American public, politicians often leaned on MMT to ensure voters that the economy could remain strong, even with deficit-financed spending. The only constraint on deficit spending, these advocates argued, was inflation.
This report breaks down several flaws in the economic thought behind MMT, including the constraints that ultimately finite resources place on governments, the inability of MMT to explain the relationship between inflation and demand when an economy is operating below its resource constraint, how it would overcome the structural and political challenges that prevent elected lawmakers from responsively managing inflation, and the indiscriminate approach it takes to the impact of different tax and spending policies, among others.
Mr. Leeper calls for the advocates of MMT to persuade the economic community that the standing norms of economic theory no longer serve us well, and to thoroughly evaluate the effects of the new economic theory with an eye on the practical and political implications of the proposal. He calls for the economic community, economic journalists, and policymakers to pause on active or passive exaltation of MMT until this evaluation is made, and continue to follow the science on economic theory and history – which unwaveringly points away from MMT’s fiscal financing plans.
Eric Leeper a contributing scholar for the Progressive Policy Institute. He is also the Paul Goodloe McIntire Professor in Economics at the University of Virginia, a research associate at the National Bureau of Economic Research, director of the Virginia Center for Economic Policy at the University of Virginia, and a visiting scholar and member of the Advisory Council of the Center for Quantitative Economic Research at the Federal Reserve Bank of Atlanta.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Launched in 2018, PPI’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. We tackle issues of public finance in the United States and offer innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.
By Eric Leeper
Contributing Author for the Progressive Policy Institute
EXECUTIVE SUMMARY
Modern Monetary Theory (MMT) gained popularity at a time when U.S. inflation was benign, income and wealth inequality was on the rise, and progressive politicians saw a political opportunity to pass big-ticket spending programs. To the nagging perennial question, “How do we pay for it?,” MMT serves up a tasty answer. You don’t need to raise taxes or reduce other spending. You don’t need to secure low-cost borrowing. A monetarily sovereign nation, like the United States, can create more currency to buy the goods and services that the programs require.
Large new spending programs often invoke in U.S. voters fears of persistent budget deficits and rising inflation. MMT delivers the reassuring message that those fears are grounded in defunct “orthodox” economic reasoning that limits the federal government’s capabilities: we have nothing to lose but our outmoded fiscal bromides and much to gain by replacing historic policy norms with fresh ideas. MMT explicitly ties itself to populist policies, self-labeling their plans “the birth of the people’s economy” [subtitle of Kelton (2021)]. Any sensible elected leader, whose vision is not impaired by conventional economic thought, would happily gobble up such a fiscal banquet.
MMT is the progressive counterpoint to supply-side economics. It supplants the claim that tax cuts pay for themselves with the claim that “…[federal] spending is self-financing” [Kelton (2021, p. 87), emphasis in original]. Both claims contain a germ of economic substance. Both claims are carefully crafted to provide elected officials seemingly plausible economic grounds to support their preferred fiscal policies (though at opposite ends of the political spectrum). Both offer policy makers an ideology freed of trade offs.
Because economic policy is too important to be reduced to catchy phrases and clever marketing, this essay analyzes MMT economics dispassionately. It does not assess the worthiness of MMT’s goals. Instead, it asks if MMT can achieve its goals without doing grave damage to America’s fiscal standing and, quite possibly, its economy. The answer: probably not.
MMT suffers from several flaws:
1. It denies a fundamental concept in economics: in a society with finite resources but unlimited wants, market prices adjust to induce individuals and policy makers to make trade offs that ultimately align supply and demand. Economics quantifies the costs and benefits of those trade offs to inform policy makers.
2. That denial leads MMT to see no need to offer a comprehensive theory of inflation. It maintains that inflation gets triggered when economy-wide demand for resources exceeds the economy’s resource limit, but has little to say about inflation and its determinants when, as it usually does, the economy operates below that limit.
3. MMT’s solution to inflation from high resource utilization is to raise “taxes,” without specifying which taxes. Governments have many tax instruments at their disposal—labor, sales, capital, wealth, and inflation—and each tax affects individuals and the macro economy differently. Generic advice to control inflation with higher taxes is vacuous until MMTers provide far more detail.
4. MMT does not acknowledge that even well-intentioned policy makers face incentives to use inflation to achieve employment or fiscal financing goals. Because those incentives to inflate are especially powerful for elected officials, many countries, including the United States, have adopted the norms of (i) independent central banks tasked with inflation control and macroeconomic stabilization and (ii) fiscal policies that largely pay for government spending with current and future taxes. Those policy norms have improved inflation performance and social welfare. MMT overthrows those norms to move inflation control and countercyclical policies from the Federal Reserve to Congress, to finance federal spending by creating new currency, and to subjugate monetary policy to fiscal needs.
5. It does not appreciate the central role that safe and liquid U.S. Treasurys perform in the global financial system. Neither does it apprehend the extent to which its policy proposals may destabilize financial markets and undermine the special status of Treasurys and the dollar in the world economy, a status that strengthens the U.S. economy.
The problems begin with the basic assumptions that underpin MMT. Its advocates attribute all unemployment to insufficient demand for workers and believe unemployment should be alleviated through a federal guaranteed jobs program. Weak demand frequently underlies unemployment, particularly during economic downturns. But workers themselves have a say in their employment status. During the COVID-19 pandemic, a broad cross section of workers left the labor market and voluntarily have not re-entered. From March 2020 to October 2021, labor force participation rates were depressed relative to the previous year: 2.5% for men, 2.6% for women, and 3.8% for workers 55 and older. Employers across the country have positions that remain unfilled. COVID is surely an unusual situation, but it serves to illustrate that employment outcomes are not always driven by insufficient demand.
MMT is at its weakest when addressing inflation, how it gets determined and how policies can control it. Its most common argument reduces to: inflation control is not a problem until it is. Problems arise when resource utilization reaches some limit, at which point higher taxes can keep inflation in check. But resource utilization is not the only factor that affects inflation. In late 2021, consumer price inflation hit a 40-year high of over 6%, yet compared to their pre-COVID levels, employment, capacity utilization, and industrial production are lower, while the unemployment rate is higher. Inflation is not rising because the overall economy has hit its resource limit. To be sure, supply-chain issues have driven up some prices relative to others, but these issues are not what anyone means by economy-wide resource limits. MMT’s weak theory of inflation is stunning because the potential of the MMT agenda to trigger inflation is the most frequently voiced criticism of the theory [Summers (2019), Cochrane (2020), Hartley (2020), Mankiw (2020)].
The guaranteed jobs program points to a more general theme of MMT: the federal government can solve big problems once policy makers grasp the key tenets of MMT. Kelton (2021) identifies seven “deficits,” defined in terms of both quantity and quality, that MMT can help to close: good jobs, saving, health care, education, infrastructure, climate, and democracy. MMT promises to address each of these deficiencies by first altering policy makers’ understandings of fiscal financing matters.
MMT abandons two long-standing policy norms. The first came from Alexander Hamilton in 1790 and can be summarized as “federal budget deficits beget budget surpluses,” meaning that debt-financed spending is backed by future taxes. This norm has contributed to less costly financing and bestowed on U.S. treasurys status as the world’s go-to safe and liquid assets, enabling their critical role in global financial markets. The second norm evolved from the 1951 Treasury-Fed Accord to make monetary policy operationally independent. Legislation houses countercyclical policy primarily in the Federal Reserve with the mandate that the Fed achieve price stability, maximum sustainable employment, and low long-term interest rates, and facilitate financial stability.
MMT instead posits that a dollar of new government debt need not carry any assurance of tax backing. It regards treasury securities solely as a means for the central bank to achieve its interest rate target. MMT shifts responsibility for achieving full employment and controlling inflation from monetary policy to fiscal policy. The central bank’s primary tasks are to serve as the Treasury’s bank and to maintain zero interest rates. Despite MMT claims to the contrary, monetary policy is completely subservient to fiscal policy, tossing aside Federal Reserve independence and the social benefits that accrue from it.
Full embrace of MMT’s policy proposals and new norms—whatever they may be—carries significant risks. Those risks include higher and more volatile inflation and interest rates and financial market instability, which would disrupt and depress real economic activity and harm most the people MMT aims to benefit.
Eric Leeper is a contributing scholar for the Progressive Policy Institute. He is also the Paul Goodloe McIntire Professor in Economics at the University of Virginia, a research associate at the National Bureau of Economic Research, director of the Virginia Center for Economic Policy at the University of Virginia, and a visiting scholar and member of the Advisory Council of the Center for Quantitative Economic Research at the Federal Reserve Bank of Atlanta.*
* The author thanks Joe Anderson for many helpful discussions and insights and Campbell Leith, Jim Nason, and PPI staff for detailed comments.
Jasmine Stoughton, Program Lead for the Mosaic Economic Project at the Progressive Policy Institute (PPI), released the following response in reaction to Biden’s Federal Reserve Nominations:
“President Biden’s nomination of the Hon. Sarah Bloom Raskin, Dr. Lisa Cook, and Dr. Philip Jefferson to the Board of Governors of the Federal Reserve System is a key step toward ensuring stable economic growth that will be felt by every American, and it is a demonstration of Biden’s commitment to uplift leaders that reflect the diversity of our country.
“Raskin, Cook, and Jefferson are well-respected and highly qualified to serve on the Board. Combined, they have decades of experience in academia and government and have each shown extraordinary judgement and skill throughout their careers.
“Diversity in leadership is among the most important elements of successful governance. If the Senate confirms Biden’s nominations, the complete Board will be majority women for the first time in its 108-year history. Incredibly, Cook will be the first Black woman to serve on the Board, and Jefferson will be the fifth Black governor — representation that is long overdue.”
TheMosaic Economic Projectis a network of diverse women with expertise in the fields of economics and technology. Mosaic programming aims to bring new voices to the policy arena by connecting cohort members with opportunities to engage with top industry leaders, lawmakers, and the media.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The Progressive Policy Institute (PPI) released the following statements ahead of the Senate Banking Committee’s hearing on the nominations of the Hon. Sarah Bloom Raskin, Dr. Lisa Cook, and Dr. Philip Jefferson for the Board of Governors of the Federal Reserve System:
“President Biden has overseen a year of remarkable achievement in restoring economic growth, with steady job creation and strong evidence of wage increases. With the economy stabilized after the COVID-19 pandemic experience but concerns about inflation rising, the country needs both professional management and imaginative policy in the coming years,” said Ed Gresser, Vice President and Director of Trade and Global Markets for PPI.
“President Biden’s excellent nominations for the Federal Reserve Board of Governors demonstrate his awareness of this challenge. The current chair and nominee for vice chair, Jerome Powell and Lael Brainard, are exceptional public servants who have helped to steer the Fed through the turbulence of the Trump years and the COVID crisis, and fully merit confirmation. New nominees Lisa Cook, Sarah Bloom Raskin, and Phillip Jefferson are outstanding economists who will bring a diversity of strengths and experience to the Fed, with its dual mandate of price stability and full employment, and will help ensure that the Board of Governors takes its next steps with consideration for both macroeconomic consequences and impacts on Americans at all income levels and in all walks of life. This is a very strong group of nominees which will serve the country well during a very complex time, and deserves support,” concluded Gresser.
“The Progressive Policy Institute applauds President Biden and the Biden-Harris administration for this historic, diverse, and highly qualified slate of nominees to the Board of Governors of the Federal Reserve. At a time when our nation faces several economic challenges — caused primarily by the COVID-19 pandemic and evolving variants — this group will bring steady, competent leadership. America is getting back on track after an unimaginable health and economic crisis, and President Biden is proving his commitment to Build Back Better by prioritizing strong leadership in every facet of the federal government,” said Sarah Paden, Vice President and National Political Director.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Today, the Innovation Frontier Project (IFP), a project of the Progressive Policy Institute, released a comprehensive research deck on the threats facing American innovation. The authors of the deck, innovation experts Ashish Arora and Sharon Belenzon of Duke University, found the United States has lost a substantial amount of corporate research since the 1980s, with only a handful of present-day U.S.-based companies investing in research at a meaningful level.
This deck also lays out clear political implications for lawmakers. The Biden Administration’s top strategic economic priorities are based on a foundation of strong U.S. competitiveness and innovation, yet Congress’s percolating anti-tech antitrust legislation would undermine these priorities by impairing the ability of America’s few leading R&D performers to develop new products and enter new markets. The restrictions on these companies will reduce our national investment in R&D and hurt American economic prosperity and national security.
“America’s technological leadership is being challenged, and if we undermine our business research leaders we risk losing this fight with China. The Biden Administration has identified key priorities in emerging technologies, but Congress’s anti-tech antitrust legislation would hurt these priorities. Our policymakers need to get smart about the steps needed to regain our footing as a technological leader,” said Dr.Michael Mandel, Chief Economist for the Progressive Policy Institute.
The deck findings issue a stark warning:
America’s technological leadership is under challenge.
The United States has lost a substantial amount of corporate research since the 1980s.
Corporate research is the source of many breakthrough innovations.
American leadership in emerging technologies depends on corporate research and only a few companies continue to invest in research at a meaningful level.
The antitrust proposals will impair the ability of these few leading R&D performers to develop new products and enter new markets.
The loss of tech companies with scale and scope would reduce U.S. investments in R&D and hurt American economic prosperity and security.
This deck was authored by Ashish Arora and Sharon Belenzon of Duke University. Mr. Arora is the Rex D. Adams Professor of Business Administration at the Duke Fuqua School of Business. He received his PhD in Economics from Stanford University in 1992, and was on the faculty at the Heinz School, Carnegie Mellon University, where he held the H. John Heinz Professorship, until 2009. Mr. Belenzon is a professor in the Strategy area at the Fuqua School of Business of Duke University and a Research Associate at the National Bureau of Economic Research (NBER). His research investigates the role of business in advancing science and has been featured in top academic journals, such as Management Science, Strategic Management Journal and American Economic Review. Mr. Belenzon received his PhD from the London School of Economics and Political Science and completed post-doctorate work at the University of Oxford, Nuffield College.
Based in Washington, D.C., and housed in the Progressive Policy Institute, the Innovation Frontier Project explores the role of public policy in science, technology and innovation. The project is managed by Jack Karsten. Learn more about IFP by visiting innovationfrontier.org.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
As senators prepare to vote on the bipartisan infrastructure bill they negotiated with President Biden, they should be applauded for incorporating several provisions that would help control costs and give taxpayers the most bang for their buck.
One of the reasons infrastructure projects cost significantly more in the United States than similar ones in other countries is our byzantine permitting process. The bill directs permitting agencies to cut average approval times to less than two years for major projects and includes several provisions to help make that happen without sacrificing important social and environmental protections.
While President Biden has called for higher taxes on wealthy Americans and corporations to finance a $3.5 trillion budget agreement, some Democrats in Congress are undermining this agenda by demanding that the agreement cut taxes on their affluent constituents. These lawmakers argue that the $10,000 cap on the state and local tax (SALT) deduction created by the GOP’s 2017 tax law undermines their states’ ability to raise revenue through progressive tax policy.
But in reality, any effort to weaken or repeal the cap would simply be a pointless giveaway to the rich. Democrats should reject this regressive tax cut that would draw critical resources away from needed public investments.
