“THE PARTY SEEKS POWER ENTIRELY FOR ITS OWN SAKE. WE ARE NOT INTERESTED IN THE GOOD OF OTHERS; WE ARE INTERESTED SOLELY IN POWER, PURE POWER. WHAT PURE POWER MEANS YOU WILL UNDERSTAND PRESENTLY. WE ARE DIFFERENT FROM THE OLIGARCHIES OF THE PAST IN THAT WE KNOW WHAT WE ARE DOING.”1
– 1984, GEORGE ORWELL
We’re living in remarkable times. New economic and philosophical theories and technological achievements that were once totally unthinkable have become mainstream. “Smart” homes featuring voice-controlled appliances and services allow people to control the temperature on their oven, dim lights, water their lawn, and order a product made on the other side of the world—all without ever leaving the couch. More than 20 million homes now even feature small robots that clean floors and vacuum rugs.2
Today, people of every economic class walk around with smartphone supercomputers in their pockets that allow them to communicate with friends and family, watch television, listen to podcasts and radio shows, find information on virtually any topic imaginable, and even order from peer-to-peer car services like Uber, which will pick up and drop off riders in nearly every city in America, all at a moment’s notice.
Medical innovations are helping people live longer than ever. For the first time in human history, people residing in even some of the poorest countries are expected to live to at least 60 years of age. According to Jane Barratt, Ph.D., the secretary general of the International Federation on Aging, “Worldwide, 901 million people are over the age of 60 today. That number is projected to reach 1.4 billion by 2030 and nearly 2.1 billion by 2050.”3 (By the way, these projections don’t bode well for the British cataract surgery crisis I told you about in Chapter 5.)
Innovation and the proliferation of knowledge are dramatically improving many aspects of our lives, and change is only going to ramp up in the coming decades. We’re already seeing a doubling of technological innovation every decade, and noted scientist and futurist Ray Kurzweil—the same guy who anticipated the emergence of the internet years before most people had ever heard of it—predicts that over the next half-century, the world will experience 32 times more progress than humanity enjoyed in the twentieth century.4
While much of this innovation will improve human life, it will also force the world to deal with some complex ethical issues and economic disruptions. For example, in China, artificial intelligence has already displaced countless workers. As June Javelosa reported for Futurism.com, in 2017 “a Chinese factory replaced 90 percent of its human workforce with automated machines, resulting in a 250 percent increase in productivity and 80 percent drop in defects. Foxconn, an Apple supplier, also cut 60,000 jobs and replaced them with robots.”5 Javelosa also reported “137 million workers across five Southeast Asian countries are in danger of being displaced by automated systems in the next 20 years.” China is working to become the world leader in AI technology. China expects that by 2030, its AI industry will be worth $148 billion, and AI-related industries will be worth more than $1 trillion.6
Today, socialists argue—as they have for more than a century, going all the way back to Marx himself—that these advancements will create a tremendous need for centralized economic planning and wealth redistribution. Because technology could force millions of people out of their jobs over the next few decades, socialists argue someone or something is going to have to take care of them, and who would be better equipped to do that than the federal government’s vast army of supposedly benevolent bureaucrats? And who better to pay for all of the government’s new social programs than the “greedy” capitalists who chose to rely on robots and AI, rather than humans, to make and distribute their goods and services?
Other socialists say we shouldn’t allow companies to replace workers with AI in the first place, or that the federal government should offer a guaranteed job to anyone who has lost his or her job because of technological advancements—or because of any other cause, for that matter.
This thinking has been going on for centuries. In the early nineteenth century, in the midst of the Industrial Revolution, textile workers and weavers in England broke into factories to smash the machines that had made many of their jobs obsolete.7 These “Luddites”—a name these anti-technology protesters gave themselves to honor another, likely mythological machine-smashing worker named Ned Ludd—argued that the jobs displaced by technology might never be replaced, and thus that they should be destroyed to protect their employment. (Either that or Terminator’s John Conner overshot by a hundred years or so when time traveling and decided to crush the cybernetic uprising in its crib.)
Of course, the Luddites eventually found other jobs and stopped smashing machines. New markets opened, spurred by the immense wealth created by the Industrial Revolution—just as it had in previous eras and in the generations since the Luddite protests. When entrepreneurs and innovators are empowered to operate in a truly free market, technology creates opportunities for other economic developments. In free markets, it’s natural for industries to develop and jobs to change, not disappear—and that’s usually a good thing, too. Who do you know who would actually be willing to work in a nineteenth-century factory?
That doesn’t mean we aren’t heading for disruptive times, though. We absolutely are, and Americans need to start having some important conversations about the role technology and government will play in our future, rather than spending all of their time at each other’s throats on Facebook and Twitter.
Even more important, though, than the economic disruptions that are sure to come over the next century because of technological advancements is how technology could be used—and, indeed, already is being used—by progressives and socialists to control, force, and manipulate societies. Socialists failed to implement peaceful, successful socialist systems in the past in large part because it became far too difficult to control people. All the indoctrination and reeducation camps in the world can’t teach people to fundamentally alter their human natures—a lesson that took many socialist and communist regimes a century of failure and hundreds of millions of dead bodies to learn. But socialists have more tools than ever now to monitor, track, and control behavior, making it easier than ever to build their perfect little “utopias.”
When coupled with protections for individual liberties, technological innovation can be very beneficial for human society. But without those protections—which, let’s not forget, don’t exist in collectivist countries—technology can be exceedingly dangerous.
Market economies in places like India are already using technology to lift hundreds of millions of people from extreme poverty. (See Chapter 9.) Socialist governments, on the other hand, have a long history of using technology to control people and enhance their own power. The reason for this is that when socialist systems inevitably break down, as they have every single time they’ve ever been tried, socialist governments are left with two options: They can relent and institute free-market reforms—as Sweden and other Scandinavian countries have done (see Chapter 5)—or they can resort to force and coercion as a means to achieve their collectivist goals. As described in Chapter 4, this force and coercion routinely results in unimaginable horror and bloodshed.
We don’t need to turn to history books to see how socialist and authoritarian governments use technology in truly terrifying ways, either. All we need to do is look around the world today, especially to what’s going on in China. Exhibit 1: Xinjiang province.
Xinjiang is the largest province-level division of China, constituting about 640,000 square miles of the northwestern portion of the country.8 The subdivision is officially considered an autonomous region and is home to ethnically diverse populations. One of the largest populations is the Uighurs, a Turkic-speaking, mostly Muslim demographic.9
The region has a long history of government control involving various tyrannical rulers. Xinjiang officially became a part of China in 1949 after the Chinese Civil War. Numerous separatist conflicts followed. At one point, separatists declared independence of East Turkestan, the Uighur name for Xinjiang. This movement was short-lived, however. China established Xinjiang as an autonomous region in 1955.
When Xinjiang became a part of China in 1949, China began a campaign to integrate the region into the greater Chinese economy while largely leaving the population free to continue operating with its well-established cultures still in place. This arrangement, while never perfect, has since deteriorated.10 Violence in the region has increased in recent years, including knife-wielding attacks and suicide bombings. These attacks are attributed to the region’s large Uighur population. In response to these attacks, the Chinese government began to crack down on Uighurs, separatists, and other political dissidents in the area. In the name of pursuing greater safety and security in the region, the Chinese government substantially increased its growing surveillance state on everyone, not just those considered to be dangerous.
While surveillance by its most general definition has existed in China for decades, the technological age ushered in an era of surveillance in China that even the most prolific dystopian authors of the twentieth century could not imagine.
During a Congressional-Executive Commission on China hearing in 2018, the then U.S. ambassador to the United Nations Economic and Social Council, Kelley E. Currie, described the “highly intrusive” system established by China:
In 2005, the Chinese government launched a program called “Skynet,” a national security network composed in part of hundreds of millions of cameras across the country. (If you weren’t scared enough already, “Skynet” is the same name given to the killer artificial intelligence system in the Terminator movies.) Building upon this, in 2015 China launched another surveillance program called “Sharp Eyes,” which aims to obtain coverage of every inch of “key public areas” and “key industries” by the end of 2020.12
You’ve got to hand it to the Chinese, they don’t bother coming up with cute names for their authoritarian surveillance systems with typical Orwellian doublespeak. “Let’s name our massive, all-encompassing, AI-enhanced national surveillance program after the genocidal artificial intelligence system in the Terminator franchise. When our citizens hear about surveillance, we want them to think of murderous robots. What a great idea!” (But maybe I’m being too hard on the Chinese. I guess it’s possible they’re just big Arnold Schwarzenegger fans.)
HONG KONG PROTESTERS DESTROY LAMPOSTS?
If you have seen any footage of the 2019 protests in Hong Kong, you’ll notice many of the demonstrators are hiding their faces. They cover their faces with surgical masks, bandanas, and more. This is mainly because of the fear of the Chinese surveillance state and the potential for government retribution.
These protesters have also been filmed cutting down lampposts with saws due to the fear these posts contain cameras, audio surveillance systems, or even facial-recognition sensors.
Of course, government officials deny any such technology is being used to collect data on Hong Kong citizens. The protesters aren’t so sure.a
If this type of monitoring sounds time- and resource-intensive, it’s because it is. In just the Xinjiang region, there are more than 1 million officials in place to oversee this gargantuan surveillance system.13 The plan is to further implement artificial intelligence to automate some of the work. AI would be used to look for patterns, track social media activity, and identify suspicious behavior.
Chinese technology firms are supplying the technology to go much further. iFlyteck Co., a Chinese firm that specializes in speech recognition software, is helping the government “build a national voice pattern database.” Theoretically, this database would allow the Chinese Ministry of Public Security to be able to identify individuals as they speak over the phone.14 CloudWalk, another Chinese technology firm, supplies facial recognition software that identifies specific individuals or groups of people.15
Additionally, Xinjiang citizens are required to install surveillance software onto their smartphones. This software sifts through a person’s data and “flags” them for Chinese officials to investigate if certain patterns are found.16 Citing a New York Times investigation, the U.S. Commission on International Religious Freedom noted in a 2019 report how Chinese officials are using these smartphone applications to potentially track millions of people, including travelers listening to “mainstream and nonviolent” religious recordings:
Together, these vast surveillance systems allow the government to keep a close eye on everyone and everything going on in the Xinjiang region. With a click of a button, a person’s personal data can be pulled up in an instant, including government records, information on education and family relations, and even where that person has traveled to in the past. The goal is for absolutely nothing to go unnoticed.18
But what, you might be wondering, happens when something does go noticed. Well, that’s when the real fun begins. The Chinese government uses its long list of surveillance tools to identify whomever they consider to be “dangerous” or “radical”—which is pretty much anyone who doesn’t toe the Communist Party’s line. But don’t worry. If you’re one of the millions or tens of millions—no one really knows—who have been “flagged” by China’s surveillance systems, you’re not dragged before firing squads like the communist regimes of old, you get to take a luxurious, all-inclusive trip to one of China’s many stunning “reeducation” centers.19 It’s like commie summer camp for grown-ups, complete with sing-alongs and group bonding activities.
Those who enter China’s reeducation centers have the privilege of being “deradicalized” by receiving a steady stream of communist propaganda.20 Visitors are also given vocational training so they can, upon release, reenter society as productive members of the community. (I wonder if this is what Bernie Sanders has in mind when he talks about “free” higher education.)
United Nations estimates suggest there are at least 1 million people detained in these centers,21 which human rights organizations have labeled “concentration camps.” U.S. Secretary of State Mike Pompeo referred to the mass detentions in China as “one of the worst human rights crises of our time” and the human rights “stain of the century.”22
“CHINA’S REPRESSION OF RELIGION IS NOT NEW, BUT ITS ABILITY TO HARNESS THESE TECHNOLOGIES HAS EXPANDED THE SCALE AND SCOPE OF THE THREAT TO RELIGIOUS FREEDOM IN THE COUNTRY.”
– TENZIN DORJEE
CIRF COMMISSIONER
The power of the state is not solely directed at the Uighurs, either. According to a report compiled by the U.S. Commission on International Religious Freedom (CIRF), the Chinese government has used this intrusive surveillance state to oppress various religious minority groups. According to CIRF, China has:
China isn’t only using its nationwide, all-seeing surveillance system to control the behavior of Uighurs and religious minorities, it’s also in the early stages of rolling out a national points-based credit system that it’s hoping will turn all the citizens of China into good, subservient little boys and girls. I present to you, Exhibit 2, China’s “social credit” system.
The purpose of the Social Credit System—which currently exists as a patchwork of regional systems across China—is to measure the trustworthiness and value of a citizen. Government officials apply points to each citizen based on his or behavior. Officials have chosen a variety of factors to take into account when assigning a social credit score, including one’s financial history, legal infractions, driving habits, social media presence, what websites one visits, whether you spread “fake news,” how critical one is of the government, how much time one spends playing video games or watching TV, and numerous other factors.
Citizens start out with an established number of points—in the city of Rongcheng, it’s 1,000 points24—but as citizens engage in behaviors the state deems to be undesirable, points are taken away. As one report by Foreign Policy notes, “Get a traffic ticket; you lose five points. Earn a city-level award, such as for committing a heroic act, doing exemplary business, or helping your family in unusual tough circumstances, and your score gets boosted by 30 points. For a department-level award, you earn five points. You can also earn credit by donating to charity or volunteering in the city’s program.”
Based on his or her score, each citizen is assigned a letter grade, ranging from A+++ (yes, three pluses) down to D. Apparently, no one receives an F grade. That’s too bad, though. I think it would be really useful to finally have an objective way to determine who is a “Failure” in life and who isn’t.
The scores are then used to reward or punish citizens. “Some offenses can hurt the score pretty badly,” Foreign Policy reported. “For drunk driving, for example, one’s score plummets straight to a C. On the other hand, triple As are rewarded with perks such as being able to rent public bikes without paying a deposit (and riding them for free for an hour and a half), receiving a $50 heating discount every winter, and obtaining more advantageous terms on bank loans.”
Those with low scores might be prevented from using public services, enrolling their child in a private school, or even restricted from purchasing train or airline tickets. The Associated Press reported that in 2018, 17.5 million air travel ticket purchases were blocked due to low social credit scores.25
Although the program is still in its infancy—dozens of pilot programs are in various stages of development26—the end goal is spelled out in a planning document released by the Chinese State Council in 2014:
The government wants to achieve the goals of “raising the nation’s overall competitiveness” and improving civilization not by allowing free association and voluntary transactions, but by developing a massive system of government surveillance and coercion. The plan is to have a fully implemented system up and running by the end of 2020.28
As the Chinese State Council’s planning document noted, the Social Credit System is perfectly in line with socialist principles. In the past, socialist regimes had to resort to authoritarian tactics merely to identify those who could be violating state laws by doing things like engaging in unsanctioned economic activity or speaking out against the ruling government. But now, it’s easier than ever for the Communist Party in China to identify and punish troublemakers and reward their most loyal comrades.
It should be apparent that China’s surveillance state, reeducation camps, and social credit scores are extremely dangerous and open the door to a tremendous amount of abuse. They are already helping the Chinese government violate human rights on a daily basis—all in the name of benefiting the collective. This is how socialists often use technology—not to improve people’s lives, but for control and manipulation.
If by “never” you mean hundreds of millions of times per year, at minimum, then we’re in complete agreement.
Although it’s true the U.S. government has not conducted a surveillance campaign comparable to the size and scope of China’s “Skynet” or “Sharp Eyes” programs, it has engaged in numerous surveillance activities that violate civil liberties and could easily be expanded as part of a much larger surveillance system.
In 2013, former National Security Agency (NSA) contractor Edward Snowden revealed that federal officials had been secretly collecting billions of records of communications made by American citizens, all without obtaining a warrant.29 Whatever you think of Snowden, this violation of Americans’ privacy rights should shock you. Two of the most important and far-reaching of the Snowden-identified NSA spying programs, Prism and Upstream, were renewed in 2018, with support from members of both major political parties and President Trump.30,31
According to technology news website CNET, “The Prism and Upstream programs exist to collect online communications of foreigners outside the US. Prism takes the communications directly from internet services like email providers and video chat programs, and Upstream taps into the infrastructure of the internet to pull in the communications while they’re in transit. The programs collect the communications of Americans ‘incidentally,’ such as when Americans communicate with targeted foreigners overseas. For technical reasons, the NSA also scoops up Americans’ internet traffic that can’t be separated from the bits and bytes that contain the communications of intended spy targets.”32
Patrick Toomey, the senior staff attorney for the ACLU’s National Security Project, noted that although federal officials say the Prism program is only meant to target foreigners, “that’s only half the picture.”33
“In reality,” Toomey wrote in 2018, “it [federal government] uses PRISM as a backdoor into Americans’ private communications, violating the Fourth Amendment on a massive scale. We don’t know the total number of Americans affected, even today, because the government has refused to provide any estimate.”
Members of Congress and federal officials who support the NSA’s spying efforts say it’s necessary to fight terrorism, but in the process of spying on foreign suspects, government is also amassing a gigantic trove of innocent Americans’ communications. And in some cases, the government has been caught using that information in various other investigations of U.S. citizens.34
Toomey notes, “One of the most problematic elements of this surveillance is the government’s use of ‘backdoor searches’ to investigate individual Americans. Although the government says PRISM is targeted at foreigners who lack Fourth Amendment privacy rights, it systematically combs through its PRISM databases for the emails and messages of Americans. Indeed, FBI agents around the country routinely search for the communications of specific Americans using their names or email addresses—including at the earliest stages of domestic criminal investigations.”
In 2017, the Electronic Frontier Foundation described one such example: “The case centered on Mohammed Mohamud, an American citizen who in 2012 was charged with plotting to bomb a Christmas tree lighting ceremony in Oregon. After he had already been convicted, Mohamud was told for the first time that information used in his prosecution was obtained using Section 702. Further disclosures clarified that the government used the surveillance program known as PRISM, which gives U.S. intelligence agencies access to communications in the possession of Internet service providers such as Google, Yahoo, or Facebook, to obtain the emails at issue in the case.”35
Now, let’s be clear: By all accounts, it appears Mohamud is truly a terrorist who deserves to rot in prison (and hell) for his attempted Christmas bombing. But this case isn’t about Mohamud. It’s about whether the federal government should have the power to use the billions of communications agents have “incidentally” collected of Americans to spy on people who have done absolutely nothing wrong. So far, courts have largely defended the federal government’s power to use such surveillance data and communications collected through programs like Prism, as the Ninth Circuit Court of Appeals did in the case against Mohamud.36
For every terrorist caught using these mass surveillance programs, there are tens of millions of people whose privacy rights are violated—and private tech companies are helping federal officials do it. Because the NSA and other government agencies don’t on their own have direct access to Americans’ email and social media accounts, photos, and videos, they have pressured private companies into giving them access to Americans’ personal data. In 2013, when Snowden first went public with information about the federal government’s spying programs, several major tech companies had already started cooperating with federal officials, including Apple, Facebook, Google, and Microsoft.37 Which means the feds basically have access to everything.
In 2016, Reuters reported, “Yahoo Inc last year secretly built a custom software program to search all of its customers’ incoming emails for specific information provided by U.S. intelligence officials, according to people familiar with the matter. The company complied with a classified U.S. government demand, scanning hundreds of millions of Yahoo Mail accounts at the behest of the National Security Agency or FBI, said three former employees and a fourth person apprised of the events.”38 Wait, people still use Yahoo?
Reuters further reported that in 2017 alone, the NSA “collected 534 million records of phone calls and text messages of Americans… more than triple gathered in 2016.”39 No word yet on how many of those records were cat GIFs.
It’s not hard to imagine how a socialist government, even in America, could use this information to advance collectivist goals. For example, how long will it be before government starts combing through its vast record of communications to identify potentially troublesome Americans who are guilty of “hate speech” or “religious zealotry” or spreading “fake news”? Perhaps government agents wouldn’t be able to imprison Americans on the basis of finding someone engage in “hate speech”—that darn Constitution is always getting in the way of authoritarianism—but they could use that information for further investigations or perhaps as part of some future American social credit scoring system. We already have a vast credit score-tracking industry—how hard would it be to tack on the “social” part?
Other new technologies that have recently been rolled out by private companies could also be used to ensure people are being “good citizens” or “paying their fair share” or properly contributing to society. For example, business magazine Fast Company reports:
What would stop a socialist-led federal government from using machines like these to track people’s behavior in restaurants, bars, and other public places across the country, punishing those deemed to be irresponsible with fines or tax increases? What would stop a government agency tasked with fighting against “hate speech” from assessing higher taxes on people deemed to be sexist or racist? Or perhaps the government could create a program that gives tax breaks to Americans who wear devices that track whether people are living a healthy lifestyle. People who run, lift weights, and eat green things—you know, crazy people—would get financial rewards, while the good ole’ fashioned American steak and Twinkie eaters like me would be forced to pay more to cover our increased costs to society. If you think this is crazy, consider all the sugar and soda taxes that are imposed or being proposed in cities across the country. This scenario would likely seem particularly appealing with a single-payer health care model in place. If government is paying your health care bills, why shouldn’t you be required to live healthier or have a little less privacy?
HARPA & RED FLAG LAWS
After the 2019 mass shootings in Dayton, Ohio, and El Paso, Texas, proposals for “red flag” laws were offered as potential solutions to American gun violence.
“Red flag” laws are intended to look for signs of potential violence in gun owners. If a “red flag” is raised, then authorities could remove firearms from a person without due process.
This concept was taken much further in a proposal to use HARPA—the Health Advanced Research Projects Agency—to help target potential violent actors. Under this proposal, HARPA, which was originally designed to coordinate health information, would use information from the government, academia, and the private sector to identify “neurobehavioral signs” of “someone headed toward a violent explosive act.”
The proposal listed private-sector technologies that could be used to collect data, including “Apple Watches, Fitbits, Amazon Echo and Google Home.” Can you image the government using data collected by your Amazon Echo to take away your firearms without any due process? The potential for abuse is terrifying.b
And if you think social credit systems couldn’t exist in the United States, then think again. Similar social scoring systems are becoming increasingly more common in various industries, including in those heavily tied to government, like higher education. In May 2019, College Board—the nonprofit organization that administers the SAT college entrance exams as well as Advanced Placement testing—announced it planned to include an “adversity” score as part of its future SAT testing.41
According to College Board, the “adversity” score was designed to allow college admissions officers “to view a student’s academic accomplishment in the context of where they live and learn.” The score “doesn’t provide information about the student. It provides information about the student’s environment.”42 I suppose “adversity score” sounds better than “excuses list.”
Inside Higher Ed reported, “Among the factors that would go into the adversity index are some that are economic (proportion of students at a school who are eligible for free or reduced lunch), that reflect economic challenges (housing instability) and educational status (percentage of students who go on to college). A score would be on a scale up to 100.”
As Inside Higher Ed noted in its report, “The SAT has been criticized for years because wealthy students earn higher scores, on average, than do those who are middle class, who in turn earn higher scores, on average, than do those who are from low-income families.” The “adversity” score is meant to right this perceived wrong by helping admissions departments give an advantage to students from more difficult socio-economic environments. It’s not fair, they reasoned, that students who actually performed well on the SATs and in their classes be rewarded for their hard work because they go to good schools and live in good neighborhoods.
The backlash College Board experienced after rolling out its plan forced it to abandon its plan for an “adversity” score later in 2019,43 but this example displays exactly the kind of social engineering socialists are hoping to achieve through the use of technology, testing, and centralized control that in previous generations has been difficult or impossible to fully implement.
Every authoritarian government that has ever existed makes the argument that government restrictions on freedom, especially mass surveillance, is only meant to target those who are breaking laws or engaging in “undesirable” behavior. The tyrants in China who have rounded up millions of religious minorities and “political dissidents” and forced them into “reeducation camps” are saying exactly that. And this “greater good” argument is precisely what President Franklin Roosevelt said during World War II, when he imprisoned 120,000 Japanese Americans merely for committing the crime of belonging to the wrong racial group. (See Chapter 3.)
This presents a good illustration of why socialism is so dangerous: “Good,” “bad,” and “undesirable” are largely subjective ideas that can change with every new election. Surely you’ll agree that what President Barack Obama thought was “good” for America was not the same as what President Donald Trump insists is “good” for the country today. By giving government the power to take away people’s rights, privacy, property, and wealth in the name of the “public good,” you’re empowering the majority of people in society to have total control over the minority, which inevitably leads to abuse. You can’t have a truly free nation and socialism, in large part because socialism concentrates too much power in the hands of government. The technological advancements made in recent decades would only make that problem significantly worse.
Actually, since government abandoned the gold standard in 1973, the poverty rate has largely remained unchanged.44 What has changed, however, is that the United States has run up a $23 trillion tab and indebted Americans to numerous foreign nations around the world, putting our economy, society, and national security in grave danger.45
Well, we can agree on one thing: Without the gold standard, government can spend as much money as it wants, and it often does. That’s why America is running a trillion-dollar deficit with nearly full employment. But just because government can spend a seemingly infinite amount of money doesn’t mean that it should, or that the effects of massive deficits won’t be incredibly detrimental—and potentially disastrous—in the years to come.
The growing wave of so-called “economists” claiming that government can print a seemingly infinite amount of money without any negative economic consequences, a view commonly called “Modern Monetary Theory,” presents one of the most significant threats to the long-term survival of the United States—and no, that’s not an exaggeration.
According to Modern Monetary Theory (MMT) proponents, policymakers have not properly taken advantage of government’s ability to print its own money. They think lawmakers are spending far too much time worrying about “fiscal responsibility” and balanced budgets. Instead, they say government should print the money it needs to accomplish important public policy goals, regardless of how much debt is being incurred. (Now that I think about it, MMT could also stand for “Monopoly Money Technique.”)
Modern Monetary Theory is rapidly gaining support with many well-connected economists and far-left politicians. Among the theory’s most ardent supporters is L. Randall Wray, a professor of economics at Bard College who has in recent years been running around Washington, D.C., trying to convince lawmakers that debt doesn’t matter. In fact, as recently as November 2019, Wray was invited to testify on behalf of MMT in front of the Democratic Party–led House Budget Committee.
MMT has also grabbed the attention of socialist Alexandria Ocasio Cortez, who stated in a 2019 interview the theory deserves to be “a larger part of our conversation.”46
But perhaps the most vocal, and arguably the most influential, advocate of MMT is Stephanie Kelton. In recent years, Kelton, a professor of public policy and economics at Stony Brook University, has appeared on dozens of leading media outlets, where she regularly preaches the alleged benefits of Modern Monetary Theory. She has also served as the chief economist of the Democratic Party’s staff on the U.S. Senate Budget Committee and as a senior economic adviser to Bernie Sanders’ 2016 and 2020 presidential campaigns.47
In a 2019 interview with CNBC, Kelton explained why she believes deficits don’t mean all that much:
Sounds awfully convenient, right? U.S. politicians have long operated this way, that “government doesn’t have to behave like a household.” Now they just have a fancy-sounding academic theory to justify their behavior.
That doesn’t mean MMT supporters like Kelton think debt and deficits are totally meaningless, however. According to Kelton, the deficit matters, “It’s just that it matters in ways that we’re not normally taught to understand.” According to Kelton:
Kelton’s view is that as long as an economy isn’t experiencing inflation, a government can continue to print as much money as it desires to pay for as many government programs at it wants. But as she stated in her CNBC interview, Kelton—as well as other MMT advocates—also says that one of their priorities is to keep interest rates low, because lower interest rates encourage lending, which in turn encourages economic activity.
This strategy presents a big problem, however, as anyone with even a shred of familiarity with economics knows. Printing money to increase the money supply eventually causes inflation, and the more money that’s printed, the more inflation that inevitably results. The reason for this is simple: If you have more dollars in an economy but the same number of people, goods, and services, introducing more money decreases the value of all existing money, which means you’ve got to spend more cash to get the same goods and services.
When inflation does occur, central banks have historically raised interest rates—the amount charged to pay back loans—to reduce inflation by effectively taking money out of the money supply. So, it seems like Kelton wants to have her cake and eat it too. She wants the government to print money to pay for new social programs, but she doesn’t want to raise interest rates to control the inflation that often comes when money is printed.
As we’ve already seen, Kelton does acknowledge that inflation creates a lot of economic problems, so how do she and other MMT supporters plan to prevent runaway inflation? When Kelton was asked a similar question, she responded, “I think the first question is to understand what the source of the inflationary pressure is and then to move forward with a policy tool that you think is going to help you get at that inflation. If you’ve got inflation resulting from energy price increases it’s probably not going to do much to have the Fed raise interest rates or even to have Congress raise taxes. You’ve got to do something else that’s going to work.”50
What, exactly, is that “something else”? For Kelton, inflation isn’t typically driven by the money supply per se, but rather by specific inflationary drivers in certain sectors of the economy. Kelton’s solution for preventing and managing runaway inflation isn’t to increase interest rates to discourage lending and encourage savings, it’s raising taxes, which MMT supporters would use to take money out of the economy, and expanding the authority of a centralized government to control markets through regulations, price controls, and other top-down measures. Or, as Matthew Klein wrote for Barron’s:
It’s not hard to see why socialists would be attracted to an economic theory that advocates for an “increase [of] government control of economic activity,” but any monetary scheme based on the idea that we should be greatly expanding our already large national debt to spur economic growth is completely devoid of reality, or even common sense.
Oh, really? Let’s a take a close look at some of the biggest reasons why the Modern Monetary Theory strategy would be absolutely disastrous—we’re talking Howard Dean screaming at the Iowa caucuses disastrous.
First, any “growth” created by printing money isn’t real economic expansion, but rather a gigantic illusion, a figment of the imagination—you know, like Beto O’Rourke’s chances of becoming president or the idea that Hillary Clinton has an actual human heart. (Mark my words, someday, we’re going to find out Hillary is mostly machine.)
By printing huge sums of money to twist and turn the economy in the way central planners see fit, they would be doing nothing more than creating big, fat market bubbles, just like they did with the housing market prior to the 2008 financial crisis. The reason for this isn’t complicated: By printing cash and funneling it into industries that wouldn’t otherwise be growing based on real market forces, people end up making really bad economic decisions. They overextend themselves and make investments they ordinarily would never make. This is what created the financial crisis in 2008. The entire housing market and much of the financial services industry were nothing more than a gigantic house of cards. Many of the key players involved—investors, real estate agents, mortgage companies, banks—were acting irresponsibly because government created perverse incentives for them to do so. (See Chapter 2.) When their bad, risky decision-making caught up to them, the whole house of cards collapsed, dragging the world economy down with it.
Under Modern Monetary Theory, government would constantly be creating these bubbles, but it wouldn’t merely incentivize people to make poor economic choices, it would essentially force people to act against natural market forces by pumping so much money into the industries the central planners want to prop up that they become the most affordable or attractive option.
Second, Modern Monetary Theory advocates say they could prevent these bubbles from developing in the first place, as well as inflation, by putting government agents in charge of the economy who would effectively manage the various industries so well that the dangers posed by printing too much money could be avoided entirely. “Just put the right people in charge and make the right decisions, and everything will be fine. Trust us.”
When Kelton was asked about controlling inflation under MMT, she explained this concept in detail:
This might be the most delusional part of Modern Monetary Theory, which is really saying something. Kelton’s grand plan to control inflation is for politicians to make really smart economic decisions—which they almost never do—and for agencies like the Congressional Budget Office to make extremely accurate predictions about costs and inflation years into the future—which it rarely does. Sounds like a great idea. Now, just add it to the socialism stew and let simmer. Smells wonderful.
When have government bureaucrats and central planners ever proven they can manage anything effectively, never mind the largest economy in the world? In fiscal year 2018, the U.S. Postal Service (USPS) lost $3.9 billion.53 Amtrak, which is run by the government, had in 2018 its best year since 1973—and it still lost $168 million.54 If the government can’t deliver the mail or run a train system without losing billions of dollars every year, why would it be able to effectively manage nearly every important industry in the country?
Third, if MMT supporters like Kelton were to print trillions upon trillions of dollars in additional cash and federal bureaucrats were to fail to effectively manage the economy, which history has shown would undoubtedly occur, then the country would inevitably enter a period of high inflation. Normally, well-functioning central banks would try to control inflation by imposing interest rate increases, which typically slow economic growth, but MMT supporters like Kelton deny this strategy. They say they could use government to solve inflationary problems by better managing the parts of the economy spurring inflation. So, for example, if higher energy prices are determined to be one of the causes of inflation, government could simply create energy-related regulations or price controls to slow the inflation.
Although this “theory” has been treated as something revolutionary, it’s actually not much different than the monetary policies enacted by socialist governments throughout the past 100 years. For example, after Venezuelan socialist leader Hugo Chavez died in 2013, socialist Nicolas Maduro took over the South American country and continued many of the same expensive government programs Chavez enacted. Unfortunately for Maduro, the high oil prices Chavez’s regime enjoyed for years crashed, forcing Maduro to decide between printing obscene amounts of money to keep those programs afloat or scaling back the national government’s numerous socialist policies.55 Maduro chose to print money, and the results were cataclysmic. The government’s commitment to printing currency to pay for services it couldn’t afford caused hyperinflation, with rates surpassing 100,000 percent in 2018 and 10 million percent in 2019.56
Chavez and Maduro had enacted numerous regulations, price controls, and other mandates to limit inflation, but none of them worked. Why? Well, Modern Monetary Theory apologists would say the problem is Venezuela borrowed some of its money in other currencies, so it couldn’t manage all of its debt as easily as other countries might be able to.57 But that’s a very weak answer. Venezuela could have cut government spending, reduced the size of its numerous welfare programs, and then used the savings to make loan payments and cover essential services—all commonsense approaches—but it didn’t. Why? Because the political motivations of those in charge outweighed their desire to make good economic choices. That’s a problem that exists in every political system, not just in countries like Venezuela.
Government’s failure to effectively control economies has led to hyperinflation throughout world history. During World War I, Germany’s Weimar Republic printed trillions of marks and took on massive loan debt in an effort to help fund its effort to conquer Europe.58 By 1923, things had become so bad that it took 200 billion marks to buy a single loaf of bread.59 Germans had to use wheelbarrows full of cash to purchase basic goods. Money became so worthless, women made dresses out of marks, and some people even used money to wallpaper their homes.60 (Using marks was actually cheaper than buying wallpaper.)
From 2007 to 2009, Zimbabwe also experienced tremendous hyperinflation due to economic mismanagement and socialist policies that included land confiscation. In 2008, inflation became so extreme—peaking at 500 billion percent—the country was forced to abolish its currency.61 A decade later, in June 2019, Zimbabwe experienced another bout of high inflation, surpassing 175 percent.62
Although the United States has never experienced the kind of hyperinflation we’ve seen in other parts of the world, it has suffered through periods of relatively high inflation. Under the Jimmy Carter administration, Americans endured annual inflation rates of 9 percent or higher from 1978 to 1980, with inflation reaching as high as 13.3 percent in 1979.63 This crippled the economy in the late 1970s and early 1980s and forced the Federal Reserve to raise interest rates as high as 18 percent.
U.S. DOLLAR: THE WORLD RESERVE CURRENCY
The U.S. dollar became the world’s dominant reserve currency during the 1944 Bretton Woods Agreement. This designation means the U.S. dollar is used by central banks across the world in transactions, investments, and for other monetary purposes. This system simplifies transactions carried out by central banks by not requiring them to constantly convert their currency.
This status provides the United States economic system with great stability. If countries around the world all use and accept the U.S. dollar, it creates a global appetite for U.S. treasuries.
This does not mean, however, that the dollar will always be the world’s premier reserve currency. Many countries also use the euro and/or China’s renminbi for reserve proposes.
The concept of using a basket of currencies has also been floated from time to time. Called “Special Drawing Rights (SDR),” this supplementary currency could replace the dollar if instability were to occur in the future.d
There’s absolutely no reason to believe that we can’t see the high inflation rates of the 1970s return to the United States, especially if the country pursues monetary policies in line with Modern Monetary Theory. In fact, if MMT theorists have it their way, Americans would be lucky to experience the kind of inflation that occurred in the 1970s.
Okay, but that’s only part of the story. Japan is often held up by Modern Monetary supporters as the prime example of the validity of their whole “debt doesn’t matter” theory. It’s true that Japan has a much higher debt-to-GDP ratio—about 240 percent64—than we have in the United States. (Debt-to-GDP ratios are commonly used by non-MMT economists to determine how fiscally responsible a country is.) But although Japan has printed trillions of dollars without suffering from high inflation, that’s not a guarantee that it won’t face runaway inflation in the future. Eventually, the deflationary forces that have been at work in Japan will subside, and when they do, Japan will likely face crippling inflation rates.
“A CRASH IS GOING TO COME AT SOME POINT, AND THEN WE’LL SEE THAT M.M.T. DIDN’T HAVE ANY MERIT AFTER ALL.”
– KOHEI OTSUKA
OPPOSITION MEMBER OF JAPAN’S UPPER HOUSE FINANcE cOMMITTEE
But I’ll play along and assume that Japan will defy hundreds of years of history and everything we know about economics and continue to print trillions of dollars’ worth of yen without suffering runaway inflation. Even if that were to occur, all that would do is guarantee the continuation of Japan’s long, agonizing record of nonexistent economic growth. Despite spending trillions of dollars on government programs, “construction-related public investment,” and other expenses over the past three decades, Japan’s GDP (in current U.S. dollars) has barely increased. Even more stunning, from 1995 to 2018, Japan’s GDP actually decreased by more than 8 percent. Over the same period, America’s GDP increased by 168 percent.65 This is a direct result of Japan’s spending policies, which allow its government—which is just as incompetent as the central planners here in Washington, D.C.—to have too much power over the economy.
If Japan’s floundering, nearly dead economy is the best example MMT theorists can come up with for why we should trust them to take over the entire U.S. economy, then that should tell you everything you need to know about Modern Monetary Theory.
Okay, let’s get back to the list…
The fourth reason Modern Monetary Theory should be avoided at all costs is the most important: At the end of the day, the primary purpose of the theory is to centralize economic control in the hands of a relatively small group of people, not to improve economic growth. MMT is nothing more than socialism with a shiny new coat of paint, as some of the biggest advocates of the theory have openly admitted.
In reaction to an article critical of Modern Monetary Theory, Pavlina R. Tcherneva, a program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute, wrote for the socialist publication Jacobin that one of the primary goals of MMT is to engage in “class struggle” by using Modern Monetary Theory to “render the wealthy obsolete.” According to Tcherneva:
The more you listen to supporters of MMT, the more obvious it is that their real motivation isn’t to improve the economy, but rather to punish the rich and use the government as a tool to redistribute wealth. This notion was probably expressed most bluntly by economist L. Randall Wray, another professor at Bard College. (What the heck are they putting in the water over there at Bard?) In reaction to the very same article criticized by Tcherneva, Wray wrote:
For many of the leading MMT theorists, taxes aren’t meant to raise revenues or even primarily to take money out of the economy; their primary purpose is to punish the wealthy and create a more “just” and “fair” society—assuming, of course, you believe that taking people’s money away from them and burning it can ever be considered “fair.”