In 2022 Jerome Powell, Donald Trump’s pick for Chairman of the Federal Reserve, will see his term expire. At that time Joe Biden will have to decide whether to keep Powell in the position (it’s generally not thought of as a political appointment) or replace him with someone else.
The Fed Chairperson is typically the most important appointment that the president makes. Considering the level of power and influence that the Fed exerts over financial markets as well as the value of the dollar, the right person in charge can make or break an entire presidency.
Usually, the appointee is an older, steady hand from within the ranks of the Federal Reserve. This time around though, Biden has an incredible opportunity to name someone with a much more pragmatic point of view. Specifically, a person who embraces the cool new kid on the block of central banking, Modern Monetary Theory.
In a nutshell, Modern Monetary Theory (MMT) is a new way of imagining what money is in the wake of the 2008 Financial Crisis. Traditional economics says that a country cannot print money indefinitely or else it will destroy its currency through inflation and, as such, its debt must eventually be paid off. However, MMT says that, by using taxes, it is possible to control any inflation that may result from money printing.
Now, it is true that some countries have tried printing large amounts of money in the past and failed due to the resulting inflation. However, they never tried using taxes as a way to control inflation. Indeed, according to economists like Bill Mitchell and Stephanie Kelton (an advisor to Bernie Sander’s presidential campaign) by using taxes to keep inflation in check, a country can, theoretically, print money indefinitely.
The biggest implication of MMT for progressives is that it makes programs like Medicare for All and The Green New Deal instantly viable. Whereas traditionally, the cost of these programs would have been so high that it would be very difficult to pass more than one per decade, MMT makes it so that they can not only be implemented simultaneously, but at no cost to the taxpayer. As such, MMT is the only way for progressives to achieve such large parts of their agenda any time soon.
Also, while these programs are possible in a limited capacity without embracing MMT, the political pushback would be so big as to put their passage in serious doubt. Of course, America being America, funding for programs this large, no matter how low the tax burden, has its detractors (read: hypocrites).
People like Trump’s appointee, Jerome Powell, have expressed a severe dislike for the new theory. Even Obama’s Fed Chairwoman, Janet Yellen, has said she’s skeptical. And, while it’s understandable to be skeptical of new viewpoints, MMT isn’t exactly new. In fact, it pretty closely resembles the de facto monetary policy of the United States for the last 20 years.
Ever since deficit spending ballooned under George Bush to pay for the Iraq War, the United States can’t seem to print money fast enough. After the Financial Crisis, the spending really took off. In fact, it was the stimulus that the Obama administration used to get the country through the financial crisis that acted as something of a proving ground for many of the principles that MMT relies on. Were it not for that massive round of spending, MMT would be only theoretical, rather than based in observed fact.
Fast forward to the government’s response to COVID-19 and you have a situation where the Fed is printing trillions of dollars per year without any negative consequences. Indeed, as far as inflation is concerned, the Fed has said that, despite pumping $10 Trillion into the financial system since 2008, the biggest problem is actually not enough inflation.
So, while it’s understandable that some might be unwilling to officially give Democrats a blank check, and with it a HUGE political win, they should at least recognize that the US has been unofficially running MMT for two decades without issue.
While he’d be following in Obama’s footsteps by appointing a conservative chairperson, times have changed. The country has learned a lot about monetary policy since the Financial Crisis. There are also the opportunities that MMT brings.
Medicare for All would secure not only Biden’s legacy but also fulfill one of the core goals of the left for the last 50 years. Moreover, it would put an end to an issue that most American and foreign commentators alike consider to be amongst the biggest failings of the nation, the lack of guaranteed healthcare.
On top of that, it's something the people want, in huge numbers. It was his healthcare plan that won Obama a second term. There’s no reason to think that Biden wouldn’t enjoy the same fate if he was able to implement something even better than before. So in the end, the whole thing seems like a no brainer. However, never put it past an American president to take the conservative route. No matter how nicely he spoke in the election.
Will Biden finally appoint a progressive Fed Chair?