MMT to Address Global Warming: J.D. Alt's Macroeconomic System for Climate Change

Macroeconomic System for Climate Change. J.D. Alt, New Economic Perspectives. Jan. 7, 2019.

A U.S. Patent Application

Inventor:  J.D. ALT (acknowledging all advocates of modern fiat money)

Assignment:  To all citizens of democratic free societies

Abstract:

A macroeconomic system including the issuing of a fiat currency by a sovereign government; the establishment of a tax regime on the government’s citizens wherein the taxes levied can only be paid with the sovereign government’s fiat currency; the sovereign government’s debiting of its tax collection account to purchase goods and services from its citizens and their commerce; the sovereign government’s issuing of future fiat currency certificates—to be redefined as “treasury bonds”—which it trades, at a discount, for existing fiat currency held in private financial markets; the sovereign government then spending the traded-for existing fiat currency to purchase goods and services from its citizens and their commerce over and above what it is able to purchase by debiting its tax collection account; the management of the value of the said fiat currency relative to goods and services by the general means of draining the currency from circulation through the sovereign tax regime—and by the specific means of controlling the discount and time-to-maturity of the issued future fiat currency certificates (treasury bonds); and wherein the sovereign government’s spending is thereby enabled to be orders-of-magnitude greater than what the government collects in taxes—without encumbering the government with debt, and without devaluing the fiat currency with respect to the citizens’ commerce; said macroeconomic system thus enabling a sovereign government to spend whatever fiat currency is necessary to enable and assist its collective society to mitigate and adapt to climate-change.

Background of the Invention:

The present invention relates to the problem of a sovereign government paying for goods and services which are necessary for a collective society, represented by the sovereign government, to mitigate and adapt to climate-change; specifically, to the following general aspects of that problem:

1. Tasks which mitigate and adapt to climate-change are usually not tasks which generate financial profits, or are tasks which, if they ultimately have the potential to generate financial profits, are tasks with very high risk and/or very long lead-times for profitability and, for these reasons, are tasks which private, profit-making enterprise, has little or no incentive to undertake and accomplish. Therefore, if these necessary tasks are to be undertaken and accomplished, they must be paid for by the sovereign government representing the interests of the collective society.
2. The cost of the goods and services necessary to mitigate and adapt to climate-change—which must be paid for by the sovereign government—are projected to be several orders-of-magnitude greater than any expenditures historically made, for any purpose, by a sovereign government; if the mitigation and adaptation tasks are to proceed, then, spending by the sovereign government will have to increase by several orders-of-magnitude beyond current, or historical, spending.
3. Increasing sovereign government spending by several orders-of-magnitude is prevented by an existing macroeconomic system which holds that a sovereign government may only spend currency which it has either collected in taxes from its citizens, or borrowed from private financial markets, thus limiting the government spending to some percentage of the currency held by private citizens, private enterprise, and the private financial markets—while each of these groups, pursuing their own natural interests, strives to limit the government’s taxing or borrowing from their currency, thus establishing and locking in a self-regulating mechanism which makes it impossible for the sovereign government to increase its spending by the orders-of-magnitude necessary to address the challenges of climate-change.

If a collective society is to successfully mitigate and adapt to climate-change, therefore, it is advantageous for its sovereign government to be capable of spending currency several orders-of-magnitude greater than what the government can acquire by means of tax collections or borrowing from private financial markets. More specifically, it will be advantageous if the sovereign government has the means—without collecting additional taxes or borrowing—for issuing and spending whatever currency is found necessary to purchase the goods and services necessitated by collective society’s efforts to mitigate and adapt to climate change. Within the definitions, assumptions, and operations of the existing normative macroeconomic system, however, it is unobvious how to provide a sovereign government with this capability. Specifically, the needed capability is thwarted by the existing macroeconomic system as follows:

1. If required government spending is greater than currency which has been collected in taxes, the existing macroeconomic system requires the government to issue treasury bond promissory notes which are traded to the private financial markets in exchange for currency held therein which the government shall then use for its spending; it is further understood that the government will pay interest to the promissory note (bond) holder until the bond matures, at which time the government will repay to the bond-holder the principal face-value of the bond.
2. To pay the interest and principal on the treasury bond promissory notes, however, the sovereign government is required by the existing macroeconomic system to collect additional taxes which puts it, therefore, in the illogical position of having to collect greater future taxes to make up for an initial tax-collection shortfall—or, alternatively, issue another round of treasury bond promissory notes to acquire the currency necessary to pay the interest and repay the principal on the initial promissory note issue, thus creating a Ponzi scheme which necessitates a continuous expansion of the tax base.
3. Because of the necessitated and continuous expansion of the tax base, the sovereign government can only justify the issuing of additional treasury bond promissory notes with arguments that, because of the additional government spending made possible by the new promissory notes, the aggregate currency held by private citizens, businesses, and financial markets will grow—thereby enabling the government to collect the greater future taxes that will be needed to meet the obligations of the new promissory notes.
4. The need to justify new government borrowing and spending with the forecast of greater future tax revenues makes it logically difficult, if not impossible, to curtail existing private sector enterprises which generate the tax revenues—most specifically and crucially (from the perspective of the present invention) those enterprises which substantially contribute to the carbon emissions responsible for the climate-change the government is seeking to mitigate.

For all these reasons, the norms of the existing macroeconomic system make it virtually impossible for a sovereign government to spend the currency that will be necessary to assist and enable its collective society to successfully mitigate and adapt to climate-change; compounding this difficulty, the existing macroeconomic system furthermore makes it virtually impossible to curtail profit-making enterprises responsible for the carbon emissions driving the climate-change itself.

It is therefore advantageous to envision a macroeconomic system which will remove these disadvantages.

Description of the Prior Art:

It is known for a sovereign government to establish a Central Bank which issues fiat currency as necessary to enable its citizens to engage in the profit-seeking commerce they choose, the currency being provided through a central bank system which extends credit to the citizens and their profit-seeking enterprises, and which, in turn, earns financial profits itself through the accrual of interest on the debt, while the Central Bank issues the fiat currency, as necessary, to keep the system liquid. It is also known, in such a macroeconomic system, for the sovereign government to claim a share of the profits in the citizens’ commerce, for its own spending purposes, by levying taxes on those profits, and requiring that the taxes be paid with the fiat currency issued by the Central Bank—a requirement which renders the fiat currency itself the de facto unit of account for all financial transactions, public and private, within the sovereign’s realm.

It is further known, in such a macroeconomic system, where the sovereign government’s spending purposes are not met by its share of the profits of the citizens’ commerce, for the sovereign government to issue interest bearing treasury bond promissory notes, which are traded for fiat currency held by the private financial markets, the traded-for currency then being used for the government’s spending purposes. The treasury bond, in such a case, is understood to be a promissory note which commits the government to paying the interest the bond bears as well as the principal on the date of the bond’s maturity. This prior art, however, makes no provision for how the sovereign government is to obtain the future fiat currency that will be needed to meet the obligations of the promissory note—other than through the collection of future taxes, or the issuing of future treasury bond promissory notes—thus creating a Ponzi scheme which can only be maintained by continually expanding the aggregate size of the citizen’s profit-making commerce and, thus, the government’s future tax-claim on those profits (as well as the ability of the citizens’ commerce to purchase the future treasury bonds).

This prior art poses grave disadvantages to the sovereign government, to the citizens’ commerce, and to the well-being of the collective society the government represents, when a condition arises that imposes new, and very large, spending requirements on the sovereign government—as is specifically the case with the challenge of climate-change that now confronts modern human society. The prior art makes no provision for the government to spend additional fiat currency without dramatically growing the citizen’s profit-making commerce, while it is the most profitable components of that commerce itself—fossil energy—which most contribute to the onset of the climate-change being mitigated. Thus, the prior art sets in motion the operations of a macroeconomic system which is in direct conflict with what the system must undertake to accomplish.

Summary of the Invention:

It is the object of the present invention to overcome the above disadvantages of the prior art by describing a strategic modification to the known macroeconomic system which will enable it to accommodate the orders-of-magnitude increase in sovereign government spending necessitated to meet the challenges of climate-change—and to do so without committing the government to the repayment of an unsustainable debt requiring it to envision and justify a Ponzi scheme of profit-generated financial growth which, perversely, encourages the continued use of the fossil energies driving the climate-change collective society is seeking to mitigate and adapt to.

Specifically, it is the object of the present invention to describe a macroeconomic system which utilizes the principal features, components, and operations of the known system, but which strategically alters the normative understanding of just one of those components: namely, the treasury bond: Specifically, that a treasury bond shall not be understood, or operationally treated, as a promissory note committing the government to the payments of interest and future principal, but instead shall be understood and operationally treated as a direct issuing of future fiat currency which is traded, at a discount, for existing fiat currency in the private markets; said existing fiat currency received in trade for the treasury bond then being spent by the government to enable and assist the collective society in mitigating and adapting to climate-change. Thus, the private financial markets, because they can obtain the future fiat currency at a discount, are able to fully pursue their profit-oriented commerce, while the sovereign government is able to spend the appropriated existing fiat dollars in pursuit of climate change mitigation and adaptation without encumbering itself with a Ponzi scheme debt obligation.

Detailed Description of the Invention:

It will be noted that the present invention, in the interest of minimizing the difficulty of affecting change to social norms, makes the smallest modification possible to the existing macroeconomic system in order to achieve the stated goal of enabling a sovereign government to increase its spending by the orders-of-magnitude necessary to enable and assist the collective society it represents to mitigate and adapt to climate-change. Accordingly, it can be understood that the present invention assumes that the following normative operations of the existing macroeconomic system remain unchanged:

1. The sovereign Central Bank issues fiat currency as necessary to maintain the liquidity of the private banking system, the operation of which enables the profit-making efforts of private commerce to proceed.
2. The sovereign government levies taxes on the profits of the private commerce, which taxes can only be paid to the sovereign treasury with the fiat currency issued by the sovereign Central Bank, thereby rendering that fiat currency the unit of account for all financial transactions, public and private.
3. The legal representatives of the sovereign government direct the sovereign treasury to purchase goods and services from the citizens and their private commerce for the purpose of providing public and/or collective benefits which cannot suitably be provided by the profit-making business models of private commerce.
4. The said purchases of goods and services by the sovereign treasury are paid for by debiting the treasury’s tax-collection account of fiat currency.
5. Where the said treasury purchases, directed by the legal representatives of the sovereign government, exceed the amount of fiat currency available for debit from the treasury’s tax-collection account, the treasury makes up the short-fall by issuing treasury bonds:

At this point the present invention is inserted in the macroeconomic system, by establishing a modified normative understanding of what the said treasury bond represents; namely that the treasury bond is a certificate of future fiat currency, issued by the sovereign treasury, with a pre-established and specified date upon which the fiat currency, thus certified, shall become acceptable as payment for all debts public and private.

The existing normative operations of the macroeconomic system, then, continue unchanged:

1. The private financial markets trade existing fiat currency for the treasury bonds issued by the sovereign treasury; the treasury bonds are traded at a discount, the said discount representing a calculated interest rate-of-return, thus enabling the private financial markets to realize a profit when the specified date of maturity of the bond arrives, and thus providing an incentive for the private financial markets to trade—as well as providing the sovereign treasury the means to control that incentive by adjusting the discount.
2. The sovereign treasury (as directed by the representatives of the sovereign government) spends the existing fiat currency received in trade for the treasury bonds to purchase goods and services from the citizens and citizens’ commerce to undertake and accomplish desired benefits for the collective society—specifically (but not limited to) the mitigation of and adaptation to climate-change.
3. The future-currency treasury bonds, acquired by the private financial markets, are then traded within those markets as collateral for the issuance of and payment of leveraged debts within the private banking system for the purpose of profit-making commerce, with the sovereign Central Bank issuing fiat currency, as necessary, to maintain the liquidity of the system as profits are realized and debts retired.
4. When the specified date of maturity of the treasury bond arrives, the future fiat currency certified by the bond becomes acceptable payment for all debts public and private—i.e. becomes existing currency.

It can now be understood that the modified macroeconomic system described above has the following advantageous and beneficial results:

1. The representatives of a sovereign government, without encumbering that government with the debt of treasury bond promissory notes, can elect to direct the sovereign treasury to spend fiat currency at a rate orders-of-magnitude greater than what is collected by the government in taxes.
2. Because the sovereign government incurs no future payment obligations requiring its profit-making tax-base to expand, a policy of curtailing the existing commerce responsible for the carbon emissions driving climate-change becomes both rational and feasible.
3. The sovereign government’s appropriation and spending of existing fiat currency does not reduce the amount of capital available for the purposes of private commerce: not only is the appropriated fiat currency spent back into private commerce, but the tapped reserve positions of the financial markets are immediately replaced with future fiat currency; thus the government’s spending is not mathematically limited to some percentage of the existing currency in the private financial markets, but can expand as necessary to meet collective society’s needs to mitigate and adapt to climate-change.
4. Because the existing fiat currency appropriated by the representatives of the sovereign government is exchanged for future fiat currency, which does not become “spendable” for a specified number of years, the government’s increased spending does not immediately expand the quantity of currency circulating in private commerce—except in-so-far-as private commerce, itself, decides to increase its profit-seeking debt; thus, the value of the currency in relation to the goods and services available in private commerce remains relatively stable; further, the stability of the currency’s value can be controlled by the sovereign treasury by means of manipulating the time to maturity of the future currency certified in the treasury bonds; and further, the sovereign Central Bank, in collaboration with the sovereign treasury, can establish and maintain the desired base interest rates in the private banking system by means of manipulating the discount at which the treasury bonds are initially traded.

Claims

1. A method of modifying the existing macroeconomic system by revising the normative understanding of what is represented by a “treasury bond.”
2. The method of claim 1 in which a “treasury bond” is understood to be the issuance, by the treasury of a sovereign government, of fiat currency which shall become acceptable as payment for all debts public and private at a specified future date.
3. The method of claim 2 in which the “treasury bond” shall be traded at a discount for existing fiat currency.
4. The method of claim 3 in which the sovereign government shall spend the existing fiat currency, received in trade for the “treasury bond,” to buy goods and services which assist and enable collective society to mitigate and adapt to climate change.

see also:

MMT: Report from the Front. L. Randall Wray. NEP. Oct. 7, 2019.

... The way forward. The global challenges we face will push MMT forward. While climate change is the most obvious challenge, it is linked to rising inequality, marginalization of displaced workers, ruthless austerity policy, growing waves of refugees, and the take-over of national governments by neoliberals and even fascists. Our “progressive” friends will push for market-friendly solutions: taxes on financial transactions, taxes on pollution, taxes on rich folks to pay for goodies. None of those helps. We have to return to the WWII mobilization to see how to tackle the current challenges—so MMT will eventually win out. It is all about resource mobilization, not finance. And we must include all the necessary social programs in the Green New Deal: jobs for all, healthcare for all, food for all, shelter for all, education for all, decent retirement for all. Bernie, AOC, and Naomi Klein recognize the scope of the challenges. The climate crisis cannot be resolved without taking on the social crisis—the financialization of the economy, the financialization of housing, food, healthcare, education, the electoral process; the entire society.

We probably are not the first intelligent life form to go through this. Any advanced alien species on other planets that survived 10,000 years of civilization have already successfully navigated a crisis similar to the one we face. They discovered fossil fuels and smoked their planet. Their financial sector took over the economy and produced intolerable inequality. But they greened the economy, overthrew their Wall Street, and took back their societies and economies and put them to work for the benefit of their species. Otherwise, they would not have survived.

We can take comfort and inspiration from that. We might just survive, too.