Peter Ireland — Modern Monetary Theory, Green New Deal Harken Us to Look Back at '70s

Thoughtful reflection on historical precedent.

These observations are particularly useful because they point to an intellectually rigorous way in which debates over the wisdom of the Green New Deal and the usefulness of MMT might be resolved: by examining more carefully the political and economic history of the 1970s. Was the high inflation of that decade a consequence of excessive money growth, engineered by the Fed to relieve budgetary pressures—the source of the “anguish” in Burns’ speech? Or was it mostly bad luck, because of shocks to imported oil and other commodity prices that had little to do with domestic economic policy, as Prof. Kelton suggests instead? MMT invites us on a trip back to the 1970s, to ask what really happened.

The inflation of the 70s has certain parallels with today, along with stark differences. Lyndon Johnson's combination of The Great Society and his and President Nixon's expansion of the Vietnam War resulted in increased government spending, which is similar to the present spending on endless war.

However, at that time the US was still on a gold standard for international settlement and there was a run to convert dollars to gold, resulting in Nixon's closing the gold window on Treasury Secretary John Connolly's advice. But this was a one-off event that likely contributed to inflationary pressure due to revised expectations.

The OPEC also imposed an oil embargo on nations supporting Israel in the Yom Kippur war. This lead to cost-push inflation as the increase in oil prices rippled through the economy. The US had recently lost self-sufficiency in oil production. Now the US has regained it. So presently, there is nothing anything like an OPEC boycott in the offing, barring a major war in the Middle East that disrupts oil production, which is, however, more than a remote possibility with the US threatening Iran.

In addition, there was a significant one-off change in employment numbers post-WWII, with women entering the workforce en masse. Moreover, the labor movement was weakening owing to both internal issues and its coming under attack from capital. Presently, labor is dominated by capital, and there is no large influx of workers in the offing, especially with immigration largely off the table.

It is always dangerous to transpose numbers across history without closely comparing situations to see how similar the context may be.

Economics 21
Modern Monetary Theory, Green New Deal Harken Us to Look Back at '70s
Peter Ireland | professor of economics at Boston College and a member of the Shadow Open Market Committee