A Hedge Fund Guy Lefties Can Love
(Bloomberg Businessweek) -- He ran a hedge fund, lives in a Caribbean tax haven, and loves fast cars and yachts—not obvious qualifications for a left-wing guru. But that’s what Warren Mosler is rapidly becoming.
More engineer than ideologue, he likes to figure out how things work, then try to make them work better. He’s done so for interest-rate swaps and racing cars. To cut travel costs in the U.S. Virgin Islands, where he’s running for governor, he built a passenger ferry. Mosler is convinced that he’s identified a fix for economics, too. He’s been explaining it for decades to whomever would listen.
Which, for most of that period, was hardly anyone. But now his home-brewed doctrine is gaining an unlikely foothold in the Democratic Party. Several candidates in the midterm elections, and a few who have an eye on 2020, are coming out with plans that draw on his ideas—even if they’ve never heard of the man or the doctrine, known as Modern Monetary Theory, that he once promoted in early internet chat rooms.
Its main argument is that governments with their own currencies can’t go broke. They have more room to spend than is usually supposed and don’t need to collect taxes (or even borrow) to pay for it. One thing they can, and should, spend money on is a jobs guarantee—offering work to anyone who wants it.
In the U.S., where fear of budget deficits and national debt is widespread, and unemployment is near record lows, that’s a hard sell. But it may be getting easier. President Trump has helped: By injecting massive stimulus into an already growing economy, he’s sidelined the fiscal hawks in his own party.
Meanwhile, progressive politicians such as Bernie Sanders and Alexandria Ocasio-Cortez argue that the Democratic Party failed to grasp the lasting trauma inflicted by the Great Recession, a key reason it was beaten by Trump eight years later. On that wing of America’s opposition party, more interested in offering voters bold (and expensive) leaps forward than business as usual, MMT ideas are catching on.
“I see it as a moral imperative,” says Mosler, 69. With all the resources at America’s command, there’s no good reason why people should be out of work, infrastructure run down, or wages depressed, he argues.
Conventional economics teaches that a government collects money by taxing and spends part or all of the take. When it spends more than it collects, it has to borrow. Modern Monetary Theory stands this on its head. The government doesn’t need tax dollars to fund spending, because it has a monopoly on creating the money. For almost a half-century, the greenback hasn’t been pegged to gold or anything else. America can’t run out of dollars any more than a department store can run out of its own gift vouchers.
When Ocasio-Cortez, in an early TV appearance following her surprise win in a New York primary in June, called on Congress to use “the power of the purse” to fund social programs, she was nodding at this idea.
Critics say Modern Monetary Theory is a recipe for reckless spending and runaway prices. “They’re too optimistic,” says Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington. If the government borrows on the scale advocated by MMTers, he says, “the outcome, I believe, will be inflation. And they don’t believe that.”
“I don’t know anyone who takes them seriously besides themselves,” Gagnon says. But he’s not wholly unsympathetic, agreeing that MMTers were right to dismiss the risk of a sovereign currency-issuing nation like the U.S. suffering a Greek-style fiscal crisis.
Mosler and his allies don’t advocate deficit spending always and everywhere. When the economy is fully employing its resources of labor and materials, they say, then more spending will just create inflation, so don’t do it. Nor are they calling for the abolition of taxes, which are an important tool to regulate demand, distribute wealth, and achieve social goals such as discouraging smoking.
To counter those who say printing money breeds inflation, MMTers often point to Japan, where a quarter-century of deficits hasn’t sent prices soaring or discouraged investors from buying government bonds. The national debt is a phantom problem, runs their argument, while there are plenty of real and urgent ones.
When Mosler spots a problem, he finds it hard to resist throwing himself into the search for a solution. That’s what happened with the ferry. Despite having zero engineering qualifications, he designed the lightweight 50-seater as an affordable way to travel between St. Thomas and St. Croix, the two largest Virgin Islands.
It’s a rough two-and-a-half-hour crossing in late July, and it leaves many passengers queasy (Mosler himself eventually dozes off). But it’s cheaper than flying, the only other option. The boat that used to make the trip was ill-equipped for the choppy waters and eventually crashed. The local government wasn’t going to replace it, and private companies weren’t interested because the service isn’t profitable. Mosler says he loses money if there are fewer than 10 people on board.
After disembarking, he watches employees hose down the ferry’s windows on the landing dock at St. Croix. Lanky and tanned from a daily tennis routine, he’s wearing beige khaki pants, scuffed white sneakers, and a T-shirt emblazoned with his campaign slogan: “It’s not about getting the job. It’s about getting the job done.” Says Mosler: “No one else would build this boat.”
Would anyone else have built MMT? Mosler has drawn extensively from the work of economics giants such as John Maynard Keynes and Hyman Minsky. And he had collaborators from early on, notably Bill Mitchell, an economics professor at the University of Newcastle in Australia who’d arrived independently at similar conclusions. Mitchell sees signs that “the tide is turning” for MMT, but says there’s still a long haul ahead—especially in economics departments. “There's incredible resistance to an intellectual shift,” he says. “Politicians today are able to advance more than the academy.”
Still, Mosler was the pioneer—and his finance background left him with funds to promote his ideas. After stints trading mortgage-backed securities at Bankers Trust and fixed income at William Blair & Co., he co-founded broker-dealer AVM L.P. and investment firm Illinois Income Investors, which oversaw about $3.5 billion by the time he left in the late 1990s.
Mosler, who has an undergraduate economics degree but not a Ph.D., joined the message boards where economists who call themselves post-Keynesians, skeptical of the free-market consensus, used to hang out in the days before blogs.
“Most people thought, ‘Oh, this guy’s from finance, he doesn’t know what he’s talking about,’ ” recalls L. Randall Wray, now a professor of economics at the University of Missouri at Kansas City, who became an early convert.
By Mosler’s own admission, MMT didn’t catch on broadly. He couldn’t get his papers published. But he used his money to fund graduate studies and research institutes that fleshed out his ideas. He also worked his business connections to make his case to influential people, at one point snagging an appointment with former Federal Reserve Chair Janet Yellen. (“I sent her an email asking if she had time to meet,” he says.) He also hosted Paul Krugman and his wife on a sailing trip.
“I don’t think MMT is right,” Krugman says in an interview, then promptly qualifies the remark. “A lot of it is right, but the parts that are right are perfectly consistent with a smart take on ordinary Keynesian macroeconomics.” While he has reservations about the theory, the Nobel laureate is fine with MMT’s practical goals. “It’s time for the progressives to stop being the deficit nannies, worrying terribly about what things cost, and then have conservatives blow $2 trillion holes in the budget,” Krugman says.
Heterodox economics isn’t the only hobby into which Mosler has poured money. In 1985 he launched a side venture making electric and racing cars. He kept it running for almost three decades before concluding the business wasn’t scalable. The same holds for Tesla Inc. today, he believes. Mosler drives a Nissan Leaf, a low-budget electric hatchback that he’s ironically plastered with Tesla stickers, but he’s somewhat admiring of Elon Musk’s powers of persuasion. “I don’t have that whatever-it-is that gets thousands of people to believe me instantly,” he says.
Which is a problem in electoral politics, another Mosler sideline. He unsuccessfully ran for Connecticut senator as an independent in 2010 and for lieutenant governor of the U.S. Virgin Islands in 2014, before dropping out of the race over differences with his running mate. This time he’s challenging the incumbent governor, Kenneth Mapp, with a platform that includes free college education for all of the territory’s residents.
Mosler may have better success propagating his economic theories. Second-generation MMTers include Stephanie Kelton, a professor at Stony Brook University who, as an adviser to Sanders, can claim to be one of the more influential economists in American politics now.
“He can see that it’s possible to make the vast majority of people better off without necessarily having to make anyone else worse off,” Kelton says of Mosler. And when it comes to deficits, she says, “Democrats are beginning to see that all the stories they’ve been told, and that they in fact even repeated themselves, weren’t good stories.”
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