The Economic Theory That Could Fuel a Climate Change Revolution

Money printer go brrrr.
Money printer go brrrr.
Photo: AP

Addressing climate change will require massive investments in everything from shoring up dams that aren’t ready for future rainstorms to wind farms and workers. It’s a huge shift that will require reorienting the economy and the way the world works.


It’s a reflexive response to ask how the world could ever come up with the money to do all that and not go into major debt. But that reflex is wrong, according to proponents of modern monetary theory, an emerging field of economics that shows government deficits aren’t the problem for countries that issue their own currency. Instead, it’s political will and gauging the state of economic well-being beyond metrics like deficits and GDP.

The idea behind modern monetary theory (MMT) is basically that a government can never run out of money as long as it issues its own currency. The U.S. federal government can always make good on payments because it’s the only issuer of dollars. That doesn’t give it license to make the money printer go brrr with abandon since that could lead to inflation. And it’s not that we shouldn’t tax Jeff Bezos since we don’t need tax revenue to pay for things.

But the theory—which, of course, has its vocal detractors and supporters—leads to what Stephanie Kelton, a Stony Brook University and its leading proponent, calls a more holistic view of the economy that looks not just at government deficits but available resources like people, steel, ecosystems, and other serious deficits we’re starting to run up against.

Her newly released book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, lays out what the modern U.S. economy and lawmakers should be focusing on rather than deficits. The book calls for us to look for potential in “the untapped potential in our economy.”

And with respect to climate change, there is a lot of untapped potential. The longer the world burns fossil fuels, the greater the risk of climate change. Kelton, who advised Sen. Bernie Sanders’ 2020 presidential run and served as the chief economist for Senate Democrats from 2014 to 2016, calls for Congress to use its power to set federal spending as a means of eliminating that risk along with addressing other failures, including access to healthcare, education, and civic engagement. That’s what a true people’s economy (or really, a planet economy) would look like.

We’ve already seen lawmakers approve trillions of dollars in spending in response to the coronavirus, and Kelton told Earther she believes the economy has enough slack to handle quite a bit more spending without risking inflation. And with a crucial decade in front of us for climate action, that recovery money could be the seed that transforms the economy into one focused on clean energy, caring for each other, and centers justice. Earther spoke with Kelton about her book and what could come next. The interview below has been lightly edited for clarity and brevity.


Earther: What do you think the most important thing is for a layperson to really understand about modern monetary theory and our current moment?


Stephanie Kelton: I think the most important thing is, it’s meant to be empowering. It’s meant to help people see through the myth. And it’s not just one myth, it’s a web of interconnected myths that feed on one another.

The most important thing it does is clear the fog so that we can all have a more fruitful debate. It can’t be a lack of financing. That cannot be the reason that we don’t act, whether it’s to build 21st-century education or to deal with climate change or make sure every American has health care. A lack of money cannot be an excuse anymore. It’s focused on the limits that matter. What can we do to make efficient and socially useful use of the resources that we have at our disposal and respect the planet in the process?


Earther: Do we really have to completely shift our way of thinking about finances and policy to address the climate crisis?

Kelton: The real issue is about shifting the focus away from the financing to the real resources. So what do we want to do at a climate program? Should it include a job guarantee? And if so, how does that work? Should we build 11 million new homes and make them sustainable and green? Where do we get the construction workers and the architects and the engineers and the machines and all the stuff that we’re going to need to do that?


If we don’t have those things or we can’t produce them to carry out this mission, then we can’t have these things. But if we have them and we have the capacity to build and produce them, then that’s the right way to approach this.


Earther: You mention a few things in the book like a Cash-for-Clunkers program for coal plants. What else would you do to kickstart this transition to a low-carbon economy? 

Kelton: I think it’s really important to be clear that I try to stay in my lane. I’m not a climate scientist. I’m not an environmental economist. What I try to do is get together with people who are experts in that space for whom the big hurdle has always been, where are we going to get the money to do [these things]?


I accept the goal of flattening the curve and getting to net-zero carbon emissions. But I’m not the person to lay out that program.

Earther: What do you see as your lane?

Kelton: If money is one thing that stands in our way or the perception, a lack of financing is a primary barrier, then let’s at least remove one obstacle. And that’s where I think I can be useful. Obviously, there are other points of resistance like the fossil fuel industry and political and other considerations.


My concern is that I don’t see yet the kind of big, ambitious program here. The concern is that nations are going to let the window close, and it’s going to be harder and harder to address climate change, and it’s going to be more and more costly. And when I say costly, I don’t just mean GDP. I mean life. Human life. Not addressing climate change is going to lead to a lot of suffering that is avoidable.


Earther: In addition to talking about the people’s economy, you talk about the caring economy. What does that look like in the context of the climate crisis?

Kelton: For me, it starts with a recognition that we should be caring for people, caring for our communities, and caring for our planet. So if I look at a city like Flint, Michigan, I see not caring for people in that community and hundreds of communities like it across this country where you can’t turn on the faucet and safely drink what comes out of the tap.


I don’t know who doesn’t feel better about living in a world where people are treated in a way that makes us feel proud to call ourselves Americans, where communities are cleaned up and homes are habitable and people are cared for when they’re sick, and we’re not destroying our climate and filling our oceans with plastic and waste. I don’t wanna get goofy, but it’s about all of life’s creatures as well.

Earther: I don’t think that’s goofy. I would also like to see that. To change course just a bit, in the book you mention the Greek debt crisis a few times because it doesn’t issue its own currency. What about countries or states that don’t issue their own currency? Could that eventually impede their ability to financing the things they need to do on climate?


Kelton: Maybe. It depends what they want to do. Take California, which has led the nation for decades on climate. They have a vehicle emissions standard, which forces auto manufacturers—if they want access to the largest state in the country—to build cars that can be sold and driven in California. Regulations can have a material impact on the extent to which we continue to pollute the planet. But when it comes to large-scale investment of the kind that are imagined in the Green New Deal, it can’t be 50 states trying to coordinate. For that, you need a currency-issuing power.

The European Central Bank is that power, it’s not that you don’t have one in the Euro Zone. It’s just that that power rests with the monetary authority, and the fiscal authorities don’t have the capacity to do what our Congress can do.


Earther: What else do we need to be thinking of aside from who can issue money or set policy?


Kelton: If you want to do some small-ball, half-a-trillion-dollars program, we could do that tomorrow and run it to Congress without a so-called pay for, and we wouldn’t get an inflation problem. We could do a couple trillion [in response to the coronavirus], I strongly suspect.

But at some point, the bigger you want to go, the more those inflation offsets like taxes become important. Let’s take the Sanders climate plan and say let’s do that, and let’s do it fast because time is of the essence. Let’s try to spend all 16 trillion-plus in the next couple of years. The real contribution of MMT is first recognizing that a government can spend without taxing or borrowing. That the time for offsets is when that spending would otherwise carry the risk of accelerating inflation. You have to know your economic landscape. You have to know how much slack there is in the economy to safely absorb that spending before the offsets become necessary.


Earther: Given the risks of the climate crisis, it’s always a good idea to address it. It seems like you’re saying is that we will get the most bang for our buck by investing now.

Kelton: This is an enormous opportunity that has opened up around us right now where we can re-employ people. Industries are changing. There is an opportunity to have a burst of new, innovative investments and burgeoning of new industry around green everything. Not just electricity, but housing and transportation, a whole range of things. We would be foolish to let the opportunity slip through our fingers.


Managing editor at Earther, writing about climate change, environmental justice, and, occasionally, my cat.


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Great interview and timely.

Two issues hanging out that make me a bit nervous about pushing MMT at this time:

1) Holders of US treasuries must have confidence in America as a well oiled economic machine - but more importantly, debt holders have to have confidence that America won’t default on its debt payment obligations.

Which brings us to the second issue:

2) The 14th Amendment, Section 4 - servicing of debt is written in the constitution. This of course was right after the Civil war and northern states were concerned they’d get stiffed by southern states. Here it is:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

An interesting discussion on how section 4 of the 14th amendment came about:


Make that 3 issues:

3) MMT is basically a rebranding of what started as Reaganomics and continues under Trump - or “ deficits don’t matter” as Dick Cheney said. So is MMT really just nomenclature? For MMT to work there has to be buy in by both parties.

No, make that 4 issues

4) States and cities don’t have the luxury of printing money like the federal government. So for all this to work both parties would have to buy into MMT so federal dollars flow freely to states and cities. Would a republican president shower blue states with MMT dollars? Or for MMT to work would we need to have a 1,000 year reign of progressive democratic socialism?