For the past 40 years, there has been a global macroeconomic consensus that mon- etary policy—and specifically interest rate management policy and financial asset purchase/sale policy—should take the lead in stabilizing the domestic economy. As a factual matter, this consensus has accompanied rising inequality, weak nominal wage growth and intensifying ecological devastation. In this framework, fiscal policymakers have been told to focus on balancing the federal budget, based on the alleged failure of fiscal policy or that interest rate policy would simply “react” and eliminate any possible positive effects of increasing spending. This assignment of roles has hand- icapped fiscal policy and has contributed to the reluctance of policymakers to pro- pose fiscal solutions to policy problems. Only the global recession following the Great Financial Crisis of 2007–2008 has fractured this policy consensus, and only because of the limited ability of monetary policymakers to respond.

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Part I of this report provides a historical overview of U.S. economic policymak- ing and how the orthodox consensus came to be dominant. Part II defines monetary policy and financial regulation from a Modern Monetary Theory (MMT)-informed perspective. Part III introduces direct credit regulation as an alternative policy tool for mission-oriented price stability. Part IV provides policy recommendations on how direct credit regulation could be used for President Biden’s Build Back Better eco- nomic program and a Green New Deal industrial policy. Part V concludes with reflec- tions on the implications of the proposed program.

 

Nathan Tankus, The New Monetary Policy: Reimagining Demand Management and Price Stability in the 21st Century, ed. Michael Brennan (Modern Money Network, 2022), available at https://files.modernmoney.network/M3F000001.pdf.