A Productive Mashup

I’ve mentioned previously that I have trouble only reading one thing at a time. Sometimes that results in productive mashups, where two texts written independently of each other are stronger together than they were separately. That happened again this weekend, with “Want Anti-Racist Policy to Work on Today? Adequately and Equitably Fund Community Colleges,” by Nikki Edgecombe, Kate Shaw and Jessica Brathwaite, crashed into The Deficit Myth, by Stephanie Kelton. Taken together, they offer a refreshing sense of possibility.

Edgecombe, Shaw and Brathwaite make the point clearly that community colleges as a sector are home to disproportionate numbers of black and Latinx students, and that as a sector, it’s by far the most poorly funded area of higher education. Constant and worsening resource shortages at community colleges limit the good those colleges can do, despite heroic work by dedicated people who work in them. Years of cutting by attrition have left many colleges without much fat left to cut when COVID hit; now, things are getting drastic. Edgecombe, Shaw and Brathwaite cite CUNY’s ASAP program as an example of what it takes to double graduation rates: in simple terms, it takes a lot more money. Providing the intensive advising and counseling, small class size, and help with books and transportation characteristic of ASAP works, but it costs money.

Public higher education has suffered generally over the last couple of decades, though Edgecombe, Shaw and Brathwaite rightly point out that the public flagship universities -- which tend to have much whiter and more affluent students -- get far more instructional money per student than community colleges do. (I’d quibble with their use of FTE as the relevant measure, given that part-time students often require as much support as full-time students do, but that quibble actually makes their argument even stronger.) Rather than constantly berating community colleges for low graduation rates, it would make more sense -- both practically and ethically -- to fund them at least at parity. Figure out what it would take to allow them to do their jobs well -- quite a bit more than they get, for starters -- and then provide the money.

Edgecombe, Shaw and Brathwaite note correctly that state budgets are zero-sum, so an increase to one sector means either cuts to another one or increases to revenue, neither of which is terribly popular. Legislators often point out that K-12 and corrections don’t have alternative revenue sources, but higher ed does (in the form of tuition). So when something has to get cut, higher ed gets it. And given the profiles of the students involved in the various sectors and the realities of structural racism, we should be appalled but not surprised that the whitest institutions get the most money.

This is where Kelton comes in.

She’s an economist at Stony Brook University -- admittedly a public flagship -- and a popular proponent of modern monetary theory. I’m about halfway through the book now, and I already consider it one of the most important books of the last decade. It’s extraordinary.

As she tells it so far, MMT holds that “monetary sovereigns” -- meaning governments that issue their own currencies, like the U.S., Japan or Canada -- can’t go broke. They can always create more money. Budget deficits at the federal level can be thought of as investments in the economy. The relevant constraint on public spending isn’t deficits per se; it’s inflation. If too much money chases too few goods and services, prices will rise. But as long as there’s productive slack in the economy -- unemployment and underemployment, for instance -- then the monetary sovereign can run large deficits without meaningful negative consequence. In fact, too little investment results in terrible missed opportunities. We naturalize the sacrifice of human productive capacity through the concept of the NAIRU -- the nonaccelerating inflationary rate of unemployment. Bluntly, we use unemployed people as sacrifices to keep the economy humming.

The rhetoric of Washington “deficit hawks” relies on a faulty metaphor of a household budget. The metaphor is faulty because households don’t issue their own currency. States and counties don’t issue their own currency. They can’t run deficits at length. They’re currency users rather than currency producers. The household budget analogy applies to them. It doesn’t apply to the feds.

Once you embrace the idea of a monetary sovereign, a whole bunch of what look like anomalies suddenly make sense. If government borrowing actually “crowds out” private investment by driving up interest rates, for instance, then how is it that interest rates have trended downward for the last 20 years while public debt has snowballed? The gloom and doom about “when the bill comes due” is unfounded. It survives because it gives political cover for other agendas. Help community colleges? Gee, we’d love to, but the deficit …

Yet somehow, when the chance for a regressive tax cut or a war comes along, the deficit barely comes up. That’s because, at some basic level, many of the people using it as an excuse know that it’s just an excuse. The hand-wringing that’s valid at the state or county level is utterly invalid at the federal level. At the federal level, we could easily spend more than enough to improve public education, K-16. All we have to do is choose to. The “how are you going to pay for it?” objection simply doesn’t apply, unless and until we’re at true full employment nationally. With unemployment currently the highest it has been since the Great Depression, there’s no credible argument that new spending would be inflationary.

(I’m hardly doing justice to a remarkable book. Kelton goes on to argue that monetary sovereigns don’t tax in order to spend. They spend, and then they tax, and that taxing creates demand for, and therefore legitimacy in, the currency they issue. They can’t run out of money any more than a scorekeeper at a basketball game can run out of points to award. What looks like debt on the government side registers as an asset on the private side; that’s literally what Treasury bills are. From there, it follows that governments can generate demand whether they “borrow” or not. There’s much more to it -- and I’m still only halfway through -- but it’s a game-changer.)

Edgecombe, Shaw and Brathwaite point out that by increasing community college funding to a more realistic level, we could make a meaningful dent in racially disparate outcomes. Kelton points out that we could easily afford to do that, if we focus on the federal level. States are genuinely broke -- my own among them -- but the feds can’t be, by definition. The only thing stopping us from investing in a more equitable and productive future is a choice, and we can make that choice differently.

If the last few weeks have taught us anything, it’s that we need to start making some choices differently. We know how; we just need to do it. Investing in the sector where it would make the most difference strikes me as an excellent way to start.