Bernie Sanders is headed to Iowa. On Thursday, the irascible Vermont senator and self-described democratic socialist will kick off three days of public speaking events in the state, joining the scores of other rumored presidential contenders who have recently descended on the crucial 2016 battleground.
Like the others, Sanders has not yet said whether he is running for president. But he has repeatedly said that he is “prepared to run,” particularly if nobody else steps up to fill a left-wing, economically egalitarian vacancy in the Democratic primary field.
In the meantime, Sanders has used his position as a ranking member on the Senate Budget Committee to expound on his own vision for a political program. Last month, he put out a report advocating for a federal budget that would help “rebuild the disappearing middle class.”
Most of the policy initiatives suggested in that report — such as raising the minimum wage and boosting infrastructure spending — have been proposed before by Sanders and members of the Democratic Party. But the report also included a novel way of thinking about the federal deficit: Although Sanders said debt reduction is a worthy goal, he put far greater emphasis on reducing what he called the “other deficits in our society,” such as unemployment and income inequality.
That shift of emphasis — from an abstract, intangible economic indicator like the federal deficit to more concrete issues such as infrastructure and household income — appears to have been influenced in part by a heterodox strain of economics known as modern money theory (MMT). That school of economics has long been ignored by denizens of Capitol Hill, but it has plenty of adherents on the progressive left who are cheering Sanders's recent public statements.
The Vermont senator is not an MMT adherent, but one of its leading practitioners, Stephanie Kelton, is now his chief economist on the Budget Committee. That hire, and Sanders’s subsequent public statements, have drawn the approval of progressive journalists such as The Fiscal Times’ David Dayen.
"Sometimes, Washington backs into its best ideas without even knowing it,” wrote Dayen in late January. "Sanders’s MMT-tinged push for higher spending comes at precisely the right time, when politicians are looking to respond to inequality and economic despair."
MMT economists view money as something that is spent into existence by the state. The more money the government spends, the more money the private sector accumulates. When the government taxes in order to recoup some of that money, it does so not in order to generate revenue for itself, but to limit the supply of money and give it some stable value.
“If the government were spending $100 and recovering $90 of it by taxation, that’s leaving $10 somewhere in the economy,” Kelton told Al Jazeera. “And the question is, is that too much or too little? The way I would think about it is, the danger of putting too much into the economy and taxing out too little would result in inflationary pressures."
That’s not a danger that Kelton sees looming anytime soon. There is, she says, “a lot of slack in the economy,” which could be ameliorated through stimulative government spending on things like infrastructure and a more robust social safety net.
That’s not a view shared by the Republican Party, which currently holds the majority in both chambers of Congress and has expressed a commitment to further shrinking government spending. Democrats have shown a bit more of an appetite for increasing spending in recent months, although only modestly. Last month, President Obama unveiled a budget proposal that would increase federal spending by about 7 percent over current levels.
Sanders's ideal budget is a little more ambitious. He has proposed legislation that would increase federal infrastructure spending by $1 trillion over the next five years, and become one of the Senate’s leading advocates for expanding Social Security benefits.
Pavlina Tcherneva, an MMT economist at Bard College, praised Sanders for “focusing on real problems, not artificial financial problems.”
“I think that’s where Bernie Sanders is putting the emphasis,” she said. “He's started to think about measuring government effectiveness in other ways."
That focus on the external, tangible effects of economic policy faintly echoes the thinking behind MMT’s older cousin, the theory known as Functional Finance. First developed by the economist Abba Lerner in the middle of the 20th century, Functional Finance holds that fiscal policies can only by judged “by the way they work or function in the economy,” according to one of Lerner’s essays.
By applying the rules of Functional Finance, “the government may find itself collecting more in taxes than it is spending, or spending more than it collects in taxes,” writes Lerner. “In the former case it can keep the difference in its coffers or use it to repay some of the national debt, and in the latter case it would have to provide the difference by borrowing or printing money. In neither case should the government feel that there is anything especially good or bad about the result; it should merely concentrate on keeping the total rate of spending neither too small nor too great, in this way preventing both unemployment and inflation."
Sanders has not offered up any theories about where money gets its value, and he has continued to insist on the importance of reducing the federal deficit. But in his public statements he has treated issues like unemployment and inequality as if they are far more urgent — a position which comports not only with MMT, but with the Keynesian argument that, in Tcherneva’s words, “if we fix unemployment, the budget deficit will take care of itself."
Advocates of that viewpoint are unlikely to make very much headway in this Congress. But Kelton said Sanders hopes to use his position within the Budget Committee to shift the focus of public discussions over the budget and lay the groundwork for future policy changes.
“I think he’s just trying to remind people that while we obsess over numbers on the government’s ledger, real people are suffering,” said Kelton. “Real bridges are falling down, real kids are hungry."