Political economy and legal analysis are two sides of the same coin. The struggle of individuals, groups, and institutions for resources occurs in the context of rules normatively crafted by legislators, judges, and bureaucrats, whether you like it or not. Such is the insight of a school of thought known as Legal Realism and its intellectual progeny. In many ways, Legal Realism is a sister paradigm to Modern Money, and to Post-Keynesianism generally, as it encourages people to investigate institutional components, but also recognize the plasticity of those pieces due to their political underpinnings. Realism holds that legal reasoning and legal institutions are inescapably political, rather than natural or autonomous, and that every legal action is soaked with moral controversy and coercion rather than a mere reflection of a neutral rule.
In this vein, one of the greatest Realists, Robert Lee Hale, a Columbia Law School professor and an architect of the New Deal, taught that every market exchange, no matter how ostensibly voluntary or unbiased, exists in the tension of power relations. There is rarely any net liberty or freedom to be gained from the implementation any particular economic policy. Policymakers mostly deal in trade-offs. Granting one person “liberty” almost inevitably entails “coercing” other people who may not recognize that individual’s alleged rights or freedoms.…
Like financial policy, fiscal policy can evolve via a synthesis of Legal Realism and Post-Keynesian insights. If federal taxes for revenue are obsolete, and the government taxes not to fund social programs, but to drive the currency, maintain price stability, and disincentive certain activities, then fiscal policy is not primarily about redistribution. More accurately, it’s about distribution of entirely new funds and subsequent draining of said funds at the cusp of inflation. This is a truly transformative realization, and as a result, there is much work to be done to integrate the Modern Money framework for distribution with Realist arguments about distributive justice. A useful starting point is to consider how the central thesis of Modern Money—that the U.S. government can and should spend money up until the point price stability is harmfully disrupted for the public—changes legal arguments for basic welfare rights.…
At the same time, dynamic, Realist changes in property law in the 20th Century indicate underlying economic concepts are more malleable than even most MMT economists are prone to note, and thus the parameters of conversation around public finance can be further eased. For example, in Goldberg v. Kelly, (1970), the Supreme Court case enshrined welfare benefits as a form of Constitutional property, opining that “Public Assistance, then, is not mere charity, but a means to ‘promote the general Welfare, and secure the Blessings of Liberty to ourselves and our posterity”, allowing people to meaningfully participate in community and political life. With that decision, welfare benefits joined a list of things, like bank accounts, that were not initially considered property via common law but have since achieved that status.
Similarly, another string of cases did not transform legal categories of the economy, but protected low-income people from discrimination in the context of public finance. In Griffin v. Illinois, (1956), the Supreme Court held that a criminal defendant may not be denied the right to appeal by inability to pay for a trial transcript, finally recognizing that laws that may not be discriminatory against low-income people on paper may be discriminatory in practice. In the striking case of Department of Agriculture v. Moreno, (1973), the Court prohibited withholding of food stamps from household based on their familial composition. Without explicitly stating such, the Court showed willingness to require a substantive reason for exclusion from basic economic guarantees.Moreno has never been overruled. It’s still “good law.”
Thus, Legal Realist arguments in context of case law demonstrate it is possible and reasonable to interpret the Constitution to include basic socioeconomic rights. Reciprocally, Modern Money grants sound economic arguments as to how the government can “afford” to ensure those basic rights, or at least cannot reasonably discriminate in the distribution of current funds due to an appeal to fiscal soundness. The deep penetrating questions mentioned at the beginning of this essay can enter the courts. For example, if there is no money scarcity, only real resource scarcity, and taxes and bond payments don’t necessarily link to outlays, who is to say they deserve monetary stimulus more than anyone else? There’s a lawsuit in the making. If there is no affordability constraint until there is inflation, what are the rational bases for excluding some people from adequate public benefits based on their level of wealth? There’s a strengthened argument for litigation. When we recognize that federal taxation and borrowing are functionally separate from expenditure, the moral landscape changes. We can go deeper and deeper. If the federal government has excess funds and there is no threat of inflation, what is the compelling argument against a right to the minimum level of purchasing power necessary to ensure a secure livelihood? If the federal government doesn’t need the money to fund other programs, what is the compelling justification for why working people should suffer from regressive taxes like the payroll tax? At the very least, Modern Money breathes new life into legal arguments against socioeconomic discrimination.…
It is worth remembering that for Legal Realists, rights do not fall from the sky. They are demanded in the face of social wrongs, sought via politics, wrought via law. They must be fought for, if not in the streets, then in the courthouses. The Equal Protection Clause is not likely to be the most important or effective tool for achieving basic economic security going forward, but an understanding of Modern Money could retool and refuel Justice Sonia Sotomayor’s opinions in ways Justices Thurgood Marshall and William Brennan could never have dreamt of.… Comprehension of the Modern Money framework would strengthen the arguments of social justice advocates and make their goals more viable than ever.Ironically, it might be a new breed of lawyers that saves us.
This is just a summary of key insights. For those interested in MMT, it's important to understand the legal rationale for a new progressive policy agenda.
To quote Johnson again, “the sheer amount of new federal money provided to states under the stimulus, and the conditions attached to some of these federal funds, raise questions about the federal government’s expanding power to shape, through spending, a broad set of institutional arrangements at the state and local levels.” Considering it’s all new federal money, that statement is even more important than Johnson seems to indicate. The scope of our discussion about public finance needs to be magnified.
For example, although at the end of the day, poverty is relative, there is now much we can do to end absolute indignities, given sufficient knowledge of the legal-financial matrix. As Emma Coleman Jordan has stated, what passes as rational conversation about economic policy choices these days is “devoid of all understanding and empathy for the choices of people who have no choice.” I’d add it is also devoid of institutional perspective and accuracy regarding modern money, functional finance, and national accounting. In the words of a recently deceased human rights activist, Yuri Kochiyama, consciousness is power, and with a revamped economic education, social justice advocates can build tomorrow’s world.…
Beyond the myths about money, beyond the intellectually impotent and incoherent conceptions of government intervention, deregulation, and redistribution, we can have that real talk about who gets what, when, where, how, and why.New Economic Perspectives
Keeping It Real: Law, Coercion, & The Frontiers of Public Finance
Raúl Carrillo | student at Columbia Law School
"This is a truly transformative realization"
ReplyDeleteObviously not for some among even those who demonstrate an understanding of mmt .
To some this is apparently " no big deal".