One (yes, one) month ago, on February 24, during a CNN town hall, Chris Cuomo asked Sen. Bernie Sanders how he planned to pay for his free college plan. At this point, Bernie was the frontrunner in the Democratic presidential primary (yes, that was one month ago). He had been asked dozens of times, over and over and over, how he would pay for his ambitious agenda: Medicare for All, the Green New Deal, free childcare, cancelling medical and student debt. You could set your watch to it; some portion of every debate would involve 10 to 15 minutes of inane back-and-forth about how to finance Bernie’s agenda (often with former Vice President Joe Biden leading the charge.) The question — how will you pay for it? — was effectively the only substantive criticism of Sanders offered by his democratic opponents, debate moderators, and cable news pundits during the course of the campaign. And they were never satisfied with his answers.
This night in February, Bernie came prepared. Pulling a piece of paper from his pocket, he said, “I thought that question might come up. All right. Here it is. This is a list, which will be on our website tonight, of how we pay for every program that we have developed.” A few minutes later, a page appeared on his BernieSanders.com explaining — in greater detail than ever before — how he would raise revenues to pay for his programs by taxing Wall Street speculation, capital gains, and concentrated wealth. But it wasn’t enough. The following day, The New York Times ran with this headline: “Bernie Sanders Outlines Funding for His Plans, but It May Not All Add Up.” The Biden campaign put out a statement saying, “The incomplete list of the payfors he’s put forward doesn’t even begin to fully cover the costs, and relies on fuzzy accounting for what it does cover.” Biden called on Bernie to “be honest with the American people.”
Now, as Congress prepares to pass a $2 trillion aid package, the largest in modern U.S. history, one question no one is asking is: “How are we going to pay for it?” It has disappeared from the discourse entirely, sucked into the same black hole of irrelevance as our grievances against loud-chewing coworkers and handwringing about mean tweets. There are no “payfors” (i.e. offsets to make it deficit neutral) in the Senate’s aid bill, no creative sources of revenue or tax hikes, in fact, it cuts taxes for businesses and individuals alike. “Nobody will pay for anything having to do with the crisis,” Biden said during the one-on-one debate with Sanders on March 15. “This is a national emergency… We, out of the treasury, are going to pay for this.” In January, Treasury Secretary Steve Mnuchin, said the government needed to cut spending to lower the deficit to sustainable levels; two weeks ago he said, “In different times we’ll fix the deficit. This is not the time to worry about it.”
Why couldn’t Bernie have responded to Chris Cuomo’s funding question in February the way Biden did last week? “We, out of the treasury, will pay for it.”
Reasonable readers might ask: If the deficit was a problem two months ago, why isn’t it a problem now? If there wasn’t money for Bernie’s agenda in February, why is there two trillion dollars available now to fund precisely the sort of working-class relief Bernie has been advocating for years? And, perhaps most mind-bogglingly, why doesn’t it matter how we pay for it?
One answer is obvious and intuitive: We’re in a crisis! Millions of American lives are on the line, and our economy is teetering on the edge of a deep depression. As Biden put it at the debate, “This is like a war, and in a war you do whatever is needed to be done to take care of your people.” But as many leftists have quickly noted, millions of people were already besieged by poverty and neglect, already experiencing a crisis. As Bernie pointed out in the same debate, “Last year at least 30,000 people died in America because they didn’t get health care when they should, because we don’t have universal coverage. I think that’s a crisis.”
“All of these excuses that we have been given as to why we cannot treat people humanely have suddenly gone up in smoke,” Rep. Alexandria Ocasio-Cortez said in a recent live stream, “And what has been revealed is that all of these issues were really about a lack of political will.” The question was never “can we pay for it,” Ocasio-Cortez explained, but whose emergency is “deemed worthy” of intervention. When only the uninsured, homeless, and poor face mortal danger on a daily basis, that isn’t a crisis. Now that Americans of every class and color are jeopardized, it is, and the money is there.
.@AOC "And it's actually a fascinating progressive moment, because what it's shown is that all of these issues have never been about how are you going to pay for it. It's never been about whether we have the capacity to do these things or if the logistics have worked out... pic.twitter.com/kkXaIbn2hq— People for Bernie (@People4Bernie) March 22, 2020
So why couldn’t Bernie have responded to Chris Cuomo’s funding question in February the way Biden did last week? “We, out of the treasury, will pay for it.”
Stephanie Kelton, the former chief economist for Democrats on the Senate Budget Committee and an advisor to Bernie’s 2016 campaign, says he could have.
“This was always bullshit,” Kelton told me, “The last eight months of listening to Democrats in the primaries put forward ambitious ideas and always be confronted with this, ‘How will you pay for it? How will you pay for it?’ We never had a real policy discussion because we got so bogged down in the numbers and the math. It’s all a distraction.”
Why? Because the government doesn’t really pay for stuff with tax revenue. This is one of the central insights of Modern Monetary Theory (MMT), of which Kelton is a proponent. Instead of raising taxes to pay for government spending, the order of operations is flipped. The government spends money by creating it — in our day and age, with the click of a button — and it taxes it out of circulation. When Congress passes a bill, it sends instructions to the Federal Reserve (our central bank), and the Federal Reserve makes payments on behalf of the Treasury, crediting whichever accounts are beneficiaries of the spending—whether or not the spending is offset by taxes. “You write a bill, you pass the bill, you send instructions to the Fed, the Fed carries out the payments,” says Kelton. “That’s how it works. In war time, in peace time. That’s just how it works.”
When a bill includes pay-fors, a second set of instructions goes out, as Kelton puts it, effectively telling the Fed to debit certain accounts (corporate and individual taxes). But these are two separate operations. “None of the COVID spending thus far has been offset,” Kelton notes. “All of that is one set of instructions. It’s just telling the Fed how many dollars Congress wants to order up to pay for different things.”
But won’t all this spending without increasing taxes balloon the deficit? Well, yes. But if you understand that the government creates money by spending it, and destroys it by taxing it out, then you realize that a government deficit is merely a public surplus. As Kelton puts it, “when they’re in the red, we’re in the black.” And at the moment, that’s exactly what we need: as people lose jobs and income, private demand is way down; the government needs to replace that demand by putting dollars into circulation and into people’s hands. As the meme would have it, “Money printer goes brrrrrrr.”
Indeed, MMT adherents are often caricatured — by more orthodox and conservative economists — as advocating for the government to just print money, inflation be damned. But Kelton explains, MMT isn’t a proposal; it’s a description of how things already are. “All spending is financed by hitting the print key, and all taxes are hitting the delete key,” she says. The limits on government spending are not financial. The U.S., as the sole issuer of its own currency, can never run out of money to pay its debts.
Is there ever a bad time for the government to print money into the economy? Yes, of course there is: when the economy is at maximum productive capacity. If Congress passed a trillion dollar green infrastructure plan — financed by deficit spending — in a full employment economy, there wouldn’t be anywhere for that money to go; the federal government would be competing with the private sector for workers, machines, and materials; inflation would result. You’d need to free up resources first — say, by taxing fossil fuel companies into oblivion, breaking up monopolies that create upward pressure on prices, or curbing Wall Street’s generation of private credit.
When the pandemic is over, politicians on both sides of the aisle will affect (and try to induce) amnesia about what happened during the crisis.
The important question is never “will this increase the deficit?” but: do we have the productive resources to absorb this spending — and which offsets are necessary to prevent inflation.
When the pandemic is over, politicians on both sides of the aisle will affect (and try to induce) amnesia about what happened during the crisis. They will want us to forget that the government can spend whatever it needs to when it wants to. That “how will you pay for it?” is a distracting and ideological question: a cudgel for conservatives to demonize spending for the poor and an alibi for liberals who espouse egalitarian values while consistently failing to act on them. Nancy Pelosi will go back to advocating “pay-go” — a rule requiring House bills to offset all new spending with budget cuts or tax increases. And Republicans will continue squealing about deficits when Democrats are in power and ballooning them (with tax cuts and defense spending increases) when they’re at the helm.
But we can’t let them put the cat back in the bag. America’s austere fiscal discourse — this feigned anxiety about deficits and debt — has a deliberately anti-democratic purpose: to keep the public from demanding more than our leaders believe we are entitled to. We must reject it. If, as Joe Biden recently tweeted, “No one should have to pay for coronavirus testing or treatment,” then why should anyone have to pay for chemotherapy? If we can afford trillions to combat COVID-19, we can afford free healthcare and a Green New Deal.
Let me be clear: No one should have to pay for coronavirus testing or treatment.— Joe Biden (@JoeBiden) March 28, 2020
The next time we have a big public debate about spending to alleviate poverty, make college free, provide universal healthcare, or make life easier for working parents, instead of asking “how will you pay for it?” the question should be: “why won’t you pay for it?” During the present crisis, Democrats and Republicans alike are discovering the federal government’s power to spend money to help those in need. But the pandemic hasn’t created the way, only the will.
“Like Dorothy with her ruby slippers,” Kelton said, “We’ve had the power all along.”