1. Monetary Policy for a Green New Deal
Nathan Tankus - Research Director, Modern Money Network
The Third International MMT Conference
September 27-29
Stony Brook University

2. Reframing the Budgetary Conversation
“Taxes and borrowing don’t ‘pay for’ a monetary sovereign’s government spending”
This MMT rhetoric is aimed at financial constraints
In aggregate demand terms, taxes partially “pay for” government spending, but not dollar for dollar
But so do “non-fiscal payfors”

3. What “Non-Fiscal Payfors” Are Available?
Producing more. Unemployment is common!
Savings policies- increase household propensity to save
Environmental regulation- disemploying physical resources
Financial Regulation- reducing credit restricts private sector spending
Antitrust & Corporate Law reform- freezing private investment, downsizing companies, restricting dividends etc.

4. Financial Regulation is a Great “Non-Fiscal Payfor”
Financial Sector is very large, consumes a lot of resources
It facilitates allocating resources away from “brown” sectors
Politically unpopular with the population
Shrinking finance promotes financial stability

5. Orthodoxy on “Monetary Policy as a Payfor”
Orthodoxy talks about interest rate policy “offsetting” fiscal policy all the time
CBO even **assumes** that the Federal Reserve will manage inflation
Obscured by the long term expansionary fiscal effect of higher interest rates

6. Reviewing Financial Regulation in a “payfor” Context
Capital requirements don’t reduce resource use
Liquidity requirements don’t reduce resource use
Indirect regulation, too indirect.
Easier to ‘innovate’ around constraints

7. Reviewing Financial Regulation in a “payfor” Context Cont.
Direct qualitative & quantitative credit regulation
Simpler
Directly targets reducing demand
Harder to innovate around
Require holding originated assets
Can focus on “Brown” sectors

8. Direct Credit Regulation Globally
Prominent in mid-20th century
Particularly successful in mid-20th France
Used in South Korea, Taiwan, Brazil etc. historically
Important countercyclical stabilization tool in modern China

9. Permanent Zero Interest Rate Policy
End domestic financial cycles based on capital gains/losses and/or time limited access to “cheap” finance
End global financial cycles based on exchange rate fluctuations and time limited access to “cheap finance”
End the political ‘threat’ of projected exploding interest payments

10. Direct Credit Regulation & the Green New Deal
Restricting credit directly restricts demand in the economy
Qualitative credit regulation against fossil fuels can greatly limit fossil fuel investment
Frees up resources to be redeployed
Restricting household credit forces paying down debts, a form of saving

11. Direct Credit Regulation on Non-Financial Corporations
Directly limits their leverage, limiting financial instability
Limits concerns about ‘shadow’ banking stepping into the void
Limits abuses of smaller suppliers
Helps restrict growth of big business
Restricts ability to engage in undesirable competitive practices

12. Non-Fiscal Payfors at a ‘Reformed’ Congressional Budget Office
Not ‘micromanaged’ by congress
Congress directs financial regulatory agencies to reduce demand by x amount
Can be sector and geographically specific (i.e. “allocated”)
Requires agencies and congress to develop sector specific macroeconomic expertise

13. International Monetary Policy: Central Bank Liquidity Swap Lines
Legislate a change in the conditions from “capital openness” to safeguarding democratic rights and a Green Job Guarantee
Remove discretion from the Federal Reserve
Key tool of a left wing foreign policy

14. Takeaways! Orthodox economic policy only has fiscal payfors
MMT opens the way to many more, politically popular payfors
MMT still matters at full employment! Non-Fiscal Payfors are always on the table
Non-Fiscal payfors more effectively democratize and rebalance the economy than many taxes