by J.D. Alt, New Economic Perspectives
In a recent essay I suggested that MMT might be applied incrementally to put people to work creating certain very special public goods. I suggested that the social norms which prevent people from “seeing” the logic of issuing fiat money to pay for sovereign spending might be placated by this incremental approach—especially if the public goods in question were something overwhelmingly and incontrovertibly beneficial to our country as a whole. This suggestion was strongly criticized by Joe Firestone. So far as I can tell, the essence of his objection is that a proposal to mint a smaller sovereign coin—to be used to achieve some specific goal—would more likely be repudiated by the status quo than a proposal to mint a very large one with the express purpose of overturning the status quo itself.
It is possible, I suppose, that Joe is correct—that a complete revolution of how we think about sovereign spending is possible all at once. If it happened, I would be among the first to applaud the revolution and Joe as well. It is also likely that he is correct that the minting of a smaller coin would be viewed by the financial industry as the proverbial camel’s nose in the tent flap—and they would pull out all stops to prevent it from happening. Nevertheless, I find it a more appealing approach than the GIANT coin that changes everything for the simple reason that “changing everything” is not something the average citizen can wrap his mind around, whereas an idea for changing something small, specific, and important might get traction on the street.
I got interested in Modern Money Theory because I saw it as a way to make the argument that we, as a society working together, can accomplish specific things which we otherwise don’t BELIEVE we’re capable of (because we’ve convinced ourselves we don’t have the money to pay for them.) As an example, the president of the Rockefeller foundation, Judith Rodin, was recently quoted in the Washington Post regarding an effort the foundation is underwriting to develop creative ways to finance the flood control infrastructure large American cities are going to require in the coming decades to weather the projected rise in sea-level. “We recognize,” she says in the article, “that there just aren’t enough dollars in government or in philanthropy to solve all these problems.” What she fails to see is the fundamental truth of MMT: if the labor, material and machinery are available in the market, the sovereign government CAN issue the fiat dollars necessary to marshal these resources—and as long as those dollars are used to pay for actual goods and services, and as long as there is underutilized capacity in the economy to absorb those dollars, the spending of them will not create inflation but, instead, will expand the economy and grow the prosperity of the private sector.
Important as flood control infrastructure will be, however, I would not propose to mint the first “Sovereign Spending Coin” for that purpose. Instead, my choice would be a coin dedicated to paying for something much more fundamental to the success and well-being of American society as a whole: I would propose minting a coin specifically to pay for a comprehensive, hands-on, all-stops-removed program to teach our young children to read. The coin would be minted with a face value equal to what would be required to hire, train, and deploy an “army” of Reading Tutors across the nation’s elementary classrooms. The coin would be deposited in the Treasury’s account at the Federal Reserve. The fiat currency thus created would then be dispersed, as needed, specifically to implement ONLY the Reading Tutors Program. No tax dollars need to be collected to pay for this. Nor would any Treasury bonds have to be issued before the spending could occur—so the national debt would not be increased by a single penny.
What would the compelling benefit be? According to the Alliance for Excellent Education, students in the bottom quartile of reading achievement are twenty times more likely to drop out of school as those in the top quartile. According to Statistic Brain, 8,300 American students drop out of high-school EACH DAY; dropouts are ineligible for 90% of the jobs in the U.S.—and most startling of all: dropouts commit 75% of the U.S. crimes. Given these statistics it should be no surprise to learn that 26 countries in the world rank ahead of the U.S. in adult literacy (Caliteracy.org).
By “all-out-effort” to teach our young children to read, I do not make reference to building thousands of computer labs and developing interactive software that will enable first and second graders to teach themselves reading skills. From my perspective, young children need to be taught to read in VERY SMALL groups by a very REAL person who is focused on their individual progress and struggles. This no-holds-barred effort is likely to cost a bit of money. Let’s do a quick, back-of-the-napkin calculation of how much.
How many “Reading Tutors” would we need to hire, train and deploy? There are about 3.5 million first and second graders in public U.S. elementary schools. If we decided the optimal Learn-To-Read group would be one specialized Reading Tutor working with three students for one hour per day in grades one and two, we’d need 194,500 Reading Tutors. If we paid them an annual salary-benefits package of $75 thousand per year, the program would cost $14.6 billion per year.
If this federal spending were proposed in the conventional fiscal framework, we could expect the usual moans and groans: We CAN’T add a new tax burden like that on the American people! Nor can we afford to BORROW those dollars either, and continue to increase our unsustainable national debt! The bottom line (we will tell ourselves) is that making a burn-the-bridges effort to teach each of our young children to be good readers is something our nation simply does not have the dollars to accomplish.
But MMT and the platinum coin seigniorage strategy seems to be saying, very clearly, that we CAN do it! All we have to do is put one foot outside the framework of economic myths that our social norms have so effectively erected around us.
Will minting a $14.6 billion platinum “Coin for Reading” cause inflation? First let’s ask if the real resources—the people who would become “Reading Tutors”—are available. There are currently around 12.2 million unemployed U.S. citizens. If we assume the 15% “full literacy” rate for the U.S. (that’s equivalent to a college undergraduate reading level and, yes, only 15% of Americans are estimated to read at that level!) that translates into 610,000 unemployed people who can read well enough themselves to qualify as an elementary school Reading Tutor. So we have a little over three candidates for each position.
But what will those 194,500 new Reading Tutors do with the dollars they are paid? If they go out and SPEND those dollars (which we assume they will, using them to buy cars, housing, food, clothes and smart-phone services) won’t that be inflationary? The answer depends on whether or not we believe American industries have the unused capacity to create the additional goods and services the Reading Tutors will be wanting to buy. If the unused capacity exists, then the result will not be inflation but, instead, will be an EXPANSION of American industries—an expansion that would reduce unemployment even further. (I believe I read recently that the current utilization factor of the U.S. economy is in the range of 78%. If the American GDP is $15 trillion, and that’s only 78% of what the economy COULD be producing, then there’s a $4.2 trillion “room” for expansion; I don’t think our Reading Tutors would take up too much of that space.)
So why would we NOT do this? To repeat: It is not costing the American taxpayer a penny. It is not increasing the nation’s debt a single dime. It has been established to be completely legal under current laws. It would not be inflationary, but instead could be expected to make a significant contribution to reducing unemployment and getting the economy back into high gear. MOST important, though, every American parent and grandparent would have the satisfaction of knowing there’s a VERY GOOD chance their child or grandchild will be on their way to becoming an excellent reader before they enter the third grade. This singular accomplishment would do more to improve the educational, employment and quality-of-life outcomes for our entire society than anything else we could imagine.