Since the start of the COVID-19 global health pandemic, Congress has authorized approximately $3 trillion of relief to businesses, corporations, individuals, state and local governments and more. However, the largest portion of spending went toward businesses and corporations (about $1.86 trillion), more than double the amount provided for individual American citizens ($784 billion total, with only $293 billion going toward cash relief payments). Some claim the amount of money given to corporations is justified because it will increase hiring and the amount of available jobs. However, the unemployment rate is now higher than it has been in the past 70 years, meaning these hiring efforts aren’t actually being made or didn’t create enough jobs to have a substantial impact. Additionally, 25% of adults have reported that someone in their household has lost their job because of the pandemic. Many sources are even claiming that the U.S. is now in the worst recession it has experienced since the Great Depression. This, in combination with strikingly low “relief” payments (just $1,200 per eligible person to cover the seven months since April 2020), will likely deliver a devastating blow to our economy. Some economists argue we can do more for the American people through the use of Modern Monetary Theory (MMT).
What is Modern Monetary Theory?
The general idea of MMT is that governments who create their own currency have the ability to spend freely in order to grow the country’s economy, reinforce the private sector, eliminate unemployment and student debt, and fund programs such as Medicare For All and The Green New Deal. Specifically, money is created by the government for the purpose of funding federal programs, exactly like what the U.S. government has done in COVID-19 relief efforts so far. Economists argue that the government has the ability to fund these expensive programs because any government who issues its own currency cannot run out of money. This essentially means that the government could provide as much COVID-19 relief money as it wants to. MMT also proposes a new way of thinking about government spending, especially regarding the way the American people think about the national deficit. To put it simply, because the government’s deficit is the private sector’s surplus, there’s not a motivation (or need) to balance the national deficit. This means that every dollar spent by the federal government is in the pockets of the American people (i.e., the private sector) and boosts the economy by being in circulation. In short, the government has the capacity to provide more financial support to individual American residents through a large COVID-19 relief package.
Concerns About Using MMT for COVID-19 Relief
The most recent relief proposal, now passed by the House, is the revised HEROES Act 2.0 bill. This bill proposes an additional $2.2 trillion in COVID-19 relief. However, both sides of the aisle can’t come to an agreement on the relief package. Specifically, one of the main problems Republicans have with utilizing the MMT method is their concern about inflation. However, MMT accounts for inflation control and recognizes that there is a limit to the government printing money.
First, MMT posits that inflation only occurs when market demand exceeds supply, meaning there is more money in the economy than can be spent on consumer goods. If there is too much money in the economy and not enough consumer goods to purchase, prices will rise enough to reduce the demand, decreasing the value of the American dollar. Therefore, the government can continue putting money into the economy up to the point when prices must increase to combat the growing demand. Secondly, MMT proposes implementing higher taxes as a direct way of controlling inflation by removing money from circulation. Additionally, inflation isn’t a large concern right now, given the country’s low inflation rate.
How Can MMT Provide COVID-19 Relief?
To be clear, Modern Monetary Theory is already in action in response to COVID-19, as evidenced by the $3 trillion in government spending Congress has authorized since the start of the pandemic. The problem is that the current administration is putting the needs of businesses and corporations before those of American families. But what is the best way to address the needs of individual Americans through MMT? Before the Trump administration decided to close its doors to COVID-19 relief negotiations until after the election, one of the most discussed options was dispersing another stimulus check. The main debate over this option is whether we should prioritize the efficiency of sending checks to all previously eligible people, or if we should hone in and provide more relief for those who need it the most. Specifically, we need to decide whether we need money disbursed quickly or if we should take the time to distribute the money equitably rather than equally, by focusing on those who need it most.
While good points are made on both sides, it is now an unfortunate reality that we will have to wait for another stimulus initiative due to political gridlock. However, this waiting period gives us more time to seek out those families who need it most, such as those affected by unemployment, generational poverty, or those more at risk of contracting and dying from COVID-19. In addition, the government should increase funding in government programs such as SNAP (currently with only $15.5 billion in aid) and public school child nutrition programs (currently with only $8.8 billion in aid) to further fulfill the needs of the nation’s most vulnerable populations.
The government has the financial means to provide more COVID-19 relief to the American people through large government expenditures consistent with the MMT framework. However, the government has chosen instead to give businesses and corporations $1.86 trillion while only providing the American people with $293 billion in cash relief. Not only is this a grave injustice to the nation’s struggling citizens, but it is also an infuriating truth that the government has always had the means to provide assistance, but prioritizes the needs of businesses and corporations over the American people every time. To truly address the economic crisis brought on by the global pandemic, lawmakers must come together to pass legislation that prioritizes people over businesses and corporations.
Featured image: Photo by Sahand Hoseini on Unsplash.
Erin Williams lays out a clear insightful explanation of the issues and opposing arguments regarding Covid economic relief. Her discussion of inflation and deficits as not being a bar to more relief to citizens was refreshing to someone whose economic education ended in the last century. Excellent job explaining a complex issue.