(MMT – JG) + Medicare = MMT

As you’ll recall from the Dylan Matthews piece in the Washington Post, James K. Galbraith was described as, “part of a small group of economists who have concluded that everyone — members of Congress, think tank denizens, the entire mainstream of the economics profession — has misunderstood how the government interacts with the economy. If their theory — dubbed “Modern Monetary Theory” or MMT — is right, then everything we thought we knew about the budget, taxes and the Federal Reserve is wrong”.

Anywho, Galbraith was at FireDogLake today plugging his new book and the question was asked:
How do you feel about the MMT policy of government as employer of last resort — a job guarantee (JG) — when the private sector is not hiring?…

Galbraith responded:
To come back to the job-guarantee approach, I think asking the government to create jobs directly is not a robust solution. The problem is that the program goes right into the budget firing line, where it will get chopped up. That was the experience with CETA, the Comprehensive Employment and Training Act, back in the 1970s.
So I prefer to think in terms of how to get decentralized institutions doing useful things, with their own funding streams, so that you can create jobs that endure. Education, health care, social services, home care, neighborhood conservation… [and in response to a related question] But I think there are ways to get jobs funded — you just have to put a few degrees of separation between the program and the budget-cutters.

I chimed in to ask Galbraith what he meant with his “degrees of separation” line.
He responded:
Well, I like the non-profit sector in this country a lot. Health care, education — these are useful things. Paul Samuelson once said to me “Health care is 15 percent of GDP, and it’s the best 15 percent of GDP.”The thing about these sectors is, they have multiple funding streams. Higher ed has state money, federal money, tuition, philanthropy… This buffers the institution from cuts. If you go to (say) France, and look at what happens when you rely entirely on state funding for universities, you’ll see what I mean. That said, the federal government handles *insurance* extremely well. Social Security and Medicare are functional, efficient programs. That is why they are so hated by some people – and prized by others.

I rather agree with his last point. As I’ve suggested before, Congress should dump universal healthcare funding onto the Fed’s lap. This would have the side benefit of providing the Fed with a fiscal policy tool; they could periodically adjust the rebate’s ratio of segniorage vs transaction fee revenue depending on economic conditions.

To take a few minutes to unpack my last paragraph (you can punch out if you don’t want to go into the weeds)… While Obamacare was being debated in 2009, Anthony Weiner went on the Morning Joe show to make a ridiculously strong case for a single payer system (Part I, Part II). Congressman Weiner was promised a floor vote on a Medicare for All bill he drafted but Pelosi and/or the White House pressured him to drop it so people would pay less attention to how flawed Obamacare really was (but I digress). Unlike the HR 676 Medicare for All bill that you often see touted, Weiner’s bill was actually vetted by the CBO so its additional expenditures were matched by additional taxes… A LOT of new taxes (approx $1 trillion a year, that’s over and above current govt health spending that’d roll over into the new system). Raising taxes seems rather unnecessary since Congress could accrue this revenue without taxes or inflation simply by mandating the Fed deposit an equivalent amount in TGA every year.

The Federal Reserve Act was amended in 1980 to give the Fed governors (and NOT the FOMC) the authority to levy and adjust bank transaction fees. Of course this is completely different from bank transaction taxes, after all, only Congress can levy taxes! In 2005, UW-Madison Econ professor Edgar Feige proposed to President Bush’s tax reform panel a bank transaction tax (of approx. half of one percent) that would generate $1.8T in revenue (in 2002 dollars). My reading of the FRA is that the Fed could enact Feige’s plan on its own (though Congress can always push them if they won’t jump). In perhaps the most wonderful example ever of “its a feature, not a bug”, economist Bruce Barlett complained of Feige’s plan, “Since GDP equals the money supply times the turnover of money—what economists call velocity—a fully effective transactions tax will presumably reduce velocity. Consequently, it would be severely deflationary unless the Federal Reserve​ substantially increased the money supply to compensate. It also means that the tax base will shrink as soon as the tax is imposed.”

So this is the plan, the unstoppable force of $1 trillion in inflationary Medicare spending would meet the immovable object of $1 trillion in deflationary transaction fees. Of course we only need spending and revenue to match at full employment (and even that assumes no trade deficit demand leakage). At other times, The Fed could use this as an adjustable fiscal policy tool (the Board of Governors can amend their fee schedule at any time). When the economy falls short of full employment with balanced trade, the Fed could fund Medicare by cutting transaction fees and filling the deficit by way of the Mint with coin seigniorage (I’ll just note in passing that ordering, say, a $1 billion platinum coin seems less wasteful than a billion $1 coins, reasonable minds can differ). :o)


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54 Comments on "(MMT – JG) + Medicare = MMT"

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Not a bad idea, although it will force a huge spike in lobby dollars from HC insurance companies to fight this “socialist” idea.

Nationalizing HC funding would require a solid foundation of oversight and regulation to ensure Waste, Fraud and Abuse is minimized through tough enforcement policies.


It’s certainly an interesting idea, with lots of implications to sort through. If it really does put sufficient degrees of separation between funding and the ability of congress to cut funding, it does seem that it would serve the purpose of keeping healthcare safe from the budget-cutters.

By that same logic, the same mechanism would be equally effective for preserving a job guarantee from the budget firing line.

Following it through to its logical conclusion, once congress got a taste of this elixir would it become the go-to funding method for every measure that might be controversial? Would that be a good thing?


We report, you decide and all that. :o)
I thought Galbraith’s take was interesting in that instead of citing MMT macro theory, he harkened back to the political reality he faced as a congressional aide. Its almost shocking to read an economist who believes what he sees instead of what his map says he should see.

Incidentally, Marshall Auerback and Randy Wray had an excellent piece last week discussing the economic advantages of a universal Medicare system.
“Reform” measures actually promote the status quo by pulling more people into an expensive healthcare system that is managed and funded by insurers. Since two-thirds of household bankruptcies are due to healthcare costs, forcing people to turn over an even larger portion of their income to insurance companies will further erode household finances and exacerbate the problem. This is despite the fact that research by, among others, David U. Himmelstein and Steffie Woolhandler, demonstrates that single-payer reform could save about $380 billion annually that’s currently wasted on insurers’ overhead and the unnecessary paperwork (and screen-work) they inflict on hospitals, doctors and patients.

Michael Sankowski

Yes, Warrens on this too. He has his own typically awesome Mosleresque version of how to do it.


Give out $5000 to every person in the U.S., every year. It’s really a fiscal stimulus combined with medical care, similar in some ways to your proposal to give the Fed responsibility for Medicine.

300M * 5K = 1.5T.


MMT’s most famous proponent doesn’t even fully support MMT. Am I reading this correctly? Maybe MMT needs to change their position on the job guarantee being an essential part of MMT. Otherwise, they just lost their leading voice.


“government to create jobs” vs. government to fund jobs

Cullen Roche

Galbraith is saying the govt shouldn’t even be the prime funding source. Which is obviously what a JG would require. Besides, I know for a fact that Galbraith doesn’t support the idea of MMT with the JG embedded in it as a necessary piece. But you guys have used his name to push your policy agenda nonetheless. Bizarre really. It’s not surprising that a guy as bright as Galbraith finds it odd that a policy proposal is embedded as a necessary piece of an economic theory. It’s a rather irrational position to take. And it’s interesting to me how MMTers rip Market Monetarists for doing this, but love to obscure the fact that the JG is THE central piece of MMT….

Cullen, is there any writing/links to back up your claim that you “know for a fact” that James Galbraith doesn’t support direct job-creation? I ask because my reading of his comments was very different to yours. Further down the comments, a person called TomThumb defended direct government job-creation against Galbraith’s claim that “you just have to put a few degrees of separation between the program and the budget-cutters”, saying: “No. I disagree. I enjoyed it when you used to call for a direct frontal attack on their weasel words about creating jobs. Anything else is caving. In my opinion. Call them out for being do nothings. That is better than watching people get hurt every day and not making any changes.” Galbraith then responded: “Point taken. It’s a tactical issue and there are mornings when I agree with you.” As i read those comments (although it’s entirely possible you are more familiar with his broader views), Galbraith’s concerns regarding the JG are extremely different to those typically brought up by MMR, and appear to center mostly around the frailty of perpetual JG-funding in the face of misguided political pressure of the type Galbraith himself faced while working in government with CETA in the 1970’s. As he states, this is a tactical issue, not a criticism of the validity of the underlying idea, and I imagine one that MMTers are well aware of and do not dismiss lightly – hence their tireless educational and PR efforts. Moreover, as he also states, this is a value judgment based on his own understanding of political operations. It’s entirely possible that changes in technology, demographics, the overton window, etc in different time periods may affect the feasibility of such a program. Alternatively, perhaps we are destined to have cycles in which WPA/CCC/CETA like direct… Read more »
Cullen Roche

Disingenuous? I am never surprised by the comments some of you make. I speak to Dr Galbraith on rare occasion. He’s always incredibly responsive and generous. He has specifically told me on multiple occasions that he does not understand how a theory can have a specific policy proposal embedded in it. And it’s quite clear from the above comments that he does not support a fully govt funded JG. That doesn’t mean he doesn’t support govt created jobs. He very clearly does, but does he support the JG as it’s embedded in MMT. No. From our discussions it sounds like he takes a fairly similar position to me on the JG. The JG is no slam dunk so it’s silly to box ourselves in around a single policy that may or may not work….

So the only thing disingenuous here is the fact that MMTers have taken a great economist and attempted to leverage his name to promote their own theory. Of course Dr. Galbraith supports many of the operational understandings. MMT doesn’t have a monopoly on understanding the world of fiat money. But ask him yourself if he considers himself a “member” of MMT. He’ll tell you he prefers to keep his distance from being a member of any specific group. I’m sure he agrees with much of MMR, but I would NEVER try to claim he’s an MMRist….That would be disingenuous…

Ok, apologies for suggesting ulterior motives – i should have said inaccurate. I have a lot of respect for all of you here and appreciate your work. It’s probably not worth rehashing already-argued points, but i think MMT doesn’t imply that the JG is a slam dunk either – as evidenced by posts such as Wray’s below regarding healthcare, as well as their broad financial reform proposals. I also think MMT has clarified that there are other buffer stocks one may choose, such as a reserve army of the unemployed, but they choose to emphasize those policies that promote full employment and price stability; those being generally acceptable standards in economics, much as market monetarists emphasize NGDP targeting in their writing. By an economist’s very choice to focus on certain ideas, policy levers and options (such as beowulf’s fascinating proposal above), economists make normative claims about what is relevant and worth considering (i believe Wray has also made this point). I did not mean to imply you were calling Galbraith an MMRist – I also appreciate the importance of not ascribing dogmatically to one school of thought. However, my question was more concerned to where MMR and Galbraith saw the major problems in the JG proposal, and whether they resembled each other. In particular, MMR emphasises the third prong of full employment and price stability – productivity – and questions it in regards to the JG, based on the concerns i articulated above. I was interested whether based on your experience with Dr. Galbraith (cheers for sharing those insights, by the way), you thought that his concerns – which seemed to me to be largely tactical – resembled your own, which seem to me to be directed at the operational/productivity sides of the proposal. In my mind, it could be… Read more »
Cullen Roche
Look, the last thing I want to do again is get in some semantic back and forth with MMTers about what specific words mean and what they don’t mean. You guys are confident enough in the JG that you’ve essentially bet MMT on it. Whether you call that a “slam dunk” or not is unimportant. It’s “central” and “crucial” to MMT. Without it, you aren’t MMT. And Galbraith is very clearly not MMT. He might agree with a whole lot of it, but he does not agree with the idea of embedding a policy proposal in the theory. Yet you all constantly claim him as your leading voice. That’s fine, but it’s just one of many many inconsistencies that have become apparent in MMT over the last few months. I can’t speak for Dr. Galbraith, but my discussions with him lead me to believe that he’s skeptical of the govt’s ability to manage and sustain such a large program as well as its general efficacy as a superior buffer stock. I won’t disclose the direct quotes from our discussions, but since he’s made his position relatively clear I think it’s now very safe for me to say that he’s not a full bore supporter of the MMT that many of you claim allegiance to. Like me, I think he’s taking a more cautious approach regarding a program that really would change the way our govt and our economy operates. It’s a very reasonable position to take and I am still surprised at the back lash that many of us were on the receiving end of when we made our concerns public. Personally, I think it was a huge mistake to build MMT around the employment buffer stock and the JG, but that’s just my opinion. If you can’t even get… Read more »
Cullen Roche

Yes, certainly an interesting development. 🙂


You are a creative guy, beowulf.


Thanks for the kind word! I forget to mention a 2009 California Nurses Association study Joe Firestone brought to my attention:
“Establishing a national single-payer style healthcare reform system would provide a major stimulus for the U.S. economy by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the U.S. economy… The number of jobs created by a single-payer system, expanding and upgrading Medicare to cover everyone, parallels almost exactly the total job loss in 2008.”