Rethinking Fiscal and Monetary Policy for the Green New Deal

This podcast episode, featuring Nathan Tankus, Research Director of the Modern Money Network and publisher of Notes on the Crises, delves into the economic framework necessary to support the Green New Deal (GND). Tankus argues that the GND, which proposes massive public investments and a guarantee of full employment to transform the US economy, is often mischaracterized as fiscally unsustainable. He contends that this mischaracterization stems from a failure to account for the catastrophic costs of climate change and a flawed understanding of federal budgeting, which is often mistakenly equated with household budgeting. Instead, Tankus emphasizes that the primary constraint is not financial resources but rather the time available to reshape the economy and the availability of real, underutilized resources.

A central critique is leveled against the Congressional Budget Office (CBO) methodology and mainstream economic thinking, which assumes the Federal Reserve can always achieve full employment and manage inflation. This framework leads to the conclusion that any deficit spending not "paid for" will only cause the Fed to raise interest rates, leading to an explosion of interest payments. Tankus challenges this by highlighting the existence of underutilized resources, especially evident during events like the coronavirus depression, which means public spending can employ people and produce goods without necessarily triggering inflation or requiring the Fed to raise rates. He advocates for taking interest rate policy off the table for government liabilities, proposing a zero interest rate to prevent the compounding effect of high interest payments from demonizing fiscal policy.

Tankus introduces the concept of "non-fiscal pay-fors" and alternative monetary policy tools to manage demand. His report, "Monetary Policy for the Renewed Deal," focuses on these. Instead of relying on interest rate hikes, he suggests using targeted financial regulations, such as direct limits on bank credit creation, especially for carbon-intensive sectors, to free up resources for public investments. He also points to non-financial regulations, like closing carbon-intensive factories and redeploying workers, as a test case for making resources available, citing the coronavirus depression as an example of how non-fiscal measures can impact resource allocation and employment.

Ultimately, Tankus proposes a comprehensive policy program that abandons the narrow household budgeting analogy in favor of a demand-management approach. This involves a federal budgetary process that assesses resource availability rather than just dollar amounts. He distinguishes between taxing the rich for revenue (balancing dollars) and taxing to reduce inequality (balancing demand), arguing for the latter. By implementing direct credit limits and other targeted regulations, the economy can make significant public investments, guarantee full employment, and transition to a green economy without necessarily facing hyperinflation or mass shortages, provided there is sufficient time for the transition and a mission-oriented approach to innovation, as discussed by Mazzucato.