Could capitalism change forever? Some believe so! - October 30, 2019
The 2020 United States presidential election might have a huge stake. It isn’t only about Donald Trump or the Democrats. The elections can easily be about the future of capitalism. Will the biggest economy on Earth go on as it is now, or will it take a turn to Modern Monetary Theory or to something similar?
We already wrote about Modern Monetary Theory in this blog post. Although MMT is a century old, it found new followers in the past years. Bernie Sanders’ advisor, Stephanie Kelton, for example, is a believer. Why is that important? Sanders is a huge favorite among Democrat candidates, and some believe that he’s the only one that can compete against current president, Donald Trump. It’s hard to say if that’s true or not, or even if he would become the final candidate, but his ideas are taking roots.
What is MMT exactly?
First, we should understand what Modern Monetary Theory is. The main idea behind it is that money can be endless under certain circumstances. The theory says that in fiat systems money is simply created by a state. They argue that states don’t earn money by taxing, they create it out of thin air, therefore they can create as much as they want of it. (Taxation is for controlling the economy for them.)
There’s an important catch, though: only strong economies with enough work power, raw materials and demand can print money as they wish. If a country is weak, it will default, just like Germany did before World War 2. But MMT followers (and some other economists, too) believe that the US economy has very strong fundaments.
How could it change the world?
This endless money could be used for many things. It can fund infrastructure spending, which can be important for the US, as even Trump underlined this issue in his 2016 campaign. But Democrats, especially Sanders sees other important places where this money can go.
Medicare for all (insurance coverage for all Americans) for example would need great amounts of funding. He also wants to cancel $1.6 trillion student debt for 45 million people. What’s more, he has ideas about free public and community college for all. Although these ideas might be funded through taxation (especially taxation of the elite for Sanders), it shows that there’s a growing wish to turn away from the traditional capitalism in the US.
Super low interest rates and QE programs can also fuel the demand for MMT. The reason behind this is that these low rates can hurt the everyday people, while they help the rich. There is already a huge wealth gap between the poor and the rich, so there is a growing need for something that can create greater equality in societies.
What else is there?
This change of mind isn’t only happening in the US. There are more and more countries where economists and governments are thinking about basic income. There are different ideas how to do this, but in the case of universal basic income (UBI for short) this means that every citizen would get a certain amount of money, just enough to make ends meet. This idea is getting more and more popular as automation and modern production methds will inevitably lead to people losing their jobs. (Some believe that it’s not just a popular matter, but also a pressing one.)
But the idea (just like MMT) also has strong opposers. Finland (first in Europe) has already made its first UBI trial and it had mixed results: unemployed people felt less stressed due to their income, but it did not help them to get jobs again. (The full report of the pilot will be published next year.)
UBI may also help domestic spending, which can help local (and global) economy just as well. Although it’s hard to say what the future brings, but there are some cracks on the walls of capitalism and ideas are coming on how to fix them. The US election in 2020 might be an interesting thing to watch in this matter too.
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