How to Pay for Saving the World: Modern Monetary Theory for a Degrowth Transition

Abstract

Degrowth lacks a theory of how the state can finance ambitious social-ecological policies and public provisioning systems while maintaining macroeconomic stability during a reduction of economic activity. Addressing this question, we present a synthesis of degrowth and Modern Monetary Theory (MMT). We advance two arguments. First, we draw on MMT to argue that states with sufficient monetary sovereignty face no obstacle to funding the policies necessary for a sustainable degrowth transition. Increased public spending neither requires nor implies GDP growth. Second, we draw on degrowth research to bring MMT in line with ecological reality. MMT posits that fiscal spending is constrained only by inflation, and thus productive capacity. We argue that efforts to deal with this constraint must also pay attention to social and ecological limits. In wealthy economies MMT policies should be used not to stimulate more growth, but rather to achieve sustainability. Based on this synthesis we propose a set of monetary and fiscal policies suitable for a stable degrowth transition, including a stronger regulation of private finance, tax reforms, price controls, public provisioning systems and an emancipatory job guarantee. Such a policy program has the potential to support broad democratic mobilization for a degrowth transition.

Keywords: Modern Monetary Theory, degrowth, ecological macroeconomics, ecosocialism, fiscal policy, universal public services, job guarantee