Out on the fringes of monetary policy, a merger of sorts is taking place between the debt jubilee and Modern Monetary Theory (MMT). The result — likely to emerge sometime in 2016 — will make the past decade’s bank bailouts and QE programs look like kid stuff.
Let’s start by defining these terms:
The debt jubilee — an idea from biblical times in which debts are periodically forgiven — involves the government creating a lot of new currency and giving it to debtors, either through stepped-up public spending, tax cuts, or some sort of direct transfer. A more recent term for this is “helicopter money,” which reflects a central bank’s ability to simply drop newly-printed bills out of an aircraft if necessary.
Modern Monetary Theory asserts that in today’s world there’s no reason for governments to borrow money and levy taxes. Armed as they are with fiat currencies and unlimited printing presses, they can just fund themselves directly, without having to tax their citizens or issue bonds.
The synthesis of these two concepts calls for government to eliminate the current debt overhang through some form of jubilee, i.e., by creating a bunch of money and giving it away with the proviso that the recipients use the windfall to pay off debt. Borrowers get out from under, creditors get paid in full, and a new monetary age begins with a relatively-clean slate. Then the government abolishes taxes and starts self-funding via the printing press, creating as much money as it needs to do what has to be done.
Australian economist Steven Keen is one of the highest-profile proponents of this idea. Here he is on a recent Max Keiser:
This is obviously a big change, but because it promises to solve so many problems so painlessly it’s attractive in a world where leverage has run amok and the number of governable countries is shrinking fast.
The first tentative step towards a jubilee/MMT fusion is now being debated in Finland:
Finland is taking a new approach to lift its economy as it faces record-high unemployment. The nation is moving toward offering its citizens a tax-free payout of 800 euros, equivalent to $868 USD per month, in place of current social welfare payments, child benefits, and state pensions.
The proposal that’s being designed by the Finnish Social Insurance Institution would benefit all citizens, regardless of whether or not they receive any other income. A final proposal will not be presented until November 2016, Quartz reports. If it’s approved, Finland would become the first to implement universal basic income. Giving every Finn 800 euros per month comes with a pretty hefty price tag. Based on the country’s population of 5.5 million, it will cost a total of 52.8 billion euros a year.
So far, the plan seems to be gaining support. A survey commissioned by KELA…