Disaster Capitalism or the Green New Deal: COVID-19 and Possible Futures


A pandemic, we have learned, has three phases. There is an emergency phase when a wave of casualties threatens to overwhelm the medical system. The immediate priority at that point is to forestall disaster, to succor the ill, and to provide essential supplies – in this case protective equipment, hospital beds, ICU units, and ventilators.1

Then there is containment, the goal of which is to break the chain of transmission and bring the epidemic under control. In this phase the social priorities are two-fold: to maintain a large share of the population in secure quarantine while ensuring a steady flow of essential supplies (especially food) and basic public services (such as electricity, water, and sanitation) for as long as required to subdue the virus, or until there is an effective therapy or a vaccine.

Finally, there will be an aftermath – a third stage when the economic consequences will unfold. These will demand that we make far-reaching decisions, for good or evil; that we choose between disaster capitalism, maintained by violence, and a radical social and economic renewal.

Fragility of Western Systems

Having narrowly handled the first phase, the West faces the still uncertain difficulties of the second. China and a handful of other places have so far progressed to the third stage, and with impressive speed and skill. In contrast, the longer travails of the West, and our peculiar social and economic conditions, all but guarantee that the aftermath here will force us to make stark and dramatic choices.

The COVID-19 Pandemic has underlined the advantages of strong publicly-funded health systems, of compact medical supply chains, of advanced information and monitoring networks, of social organization, of credible leadership, and above all of unity and common purpose across the whole population in the face of the crisis.

These are qualities that most western societies now lack to one degree or another – and the United States lacks almost entirely. We have degraded the public sphere in favor of lean, “efficient” but lethally fragile market structures committed to maximum profit and minimum cost. And we have tolerated the development of a politics dominated by lobbies and self-serving oligarchs surrounded by knaves and fools.

The fragility of western systems seems to have shocked even the elites in charge. But at least it motivated them to rapid action in defense of their own interests, along with measures that range from effective support to mere gestures for the broader population. In the United States, the first response was massive loans to the corporate sector and semi-hidden tax breaks for the very wealthy, along with an expansion of unemployment insurance, cash payments to ordinary taxpayers, and some loans to small businesses, as well as theoretical moratoria on evictions, foreclosures and utility stoppages for the duration of the crisis.

But the crush of unemployment claims caused the state enrollment systems to crash; promised cash payments were largely token and haphazardly targeted; money for small businesses quickly ran out and evictions went right ahead, bans largely unenforced and often disregarded by aggressive landlords. The emergency measures included almost no assistance to state and local governments caught between collapsing revenues and soaring demands for public services, nor to the poor, the homeless or the undocumented. Thus private debts incurred in the crisis are accumulating, and the entire decentralized federalism of the United States is threatened with a profound fiscal crisis, bordering on collapse, once the third stage is reached.2

Managing a long and successful containment phase would pose a challenge even to a competent government dedicated to the public purpose. For an accidental ruling class of self-absorbed oligarchs and predators—like that which currently rules in in the US, the UK, and elsewhere—it has been a practical impossibility. Moreover, it is not desirable to them from a straightforwardly ideological point of view.

A successfully-managed containment would show the possibility of a better-organized, mutually-supporting, socially-coherent community and a responsive, responsible, competent state. Like a successful war effort, it would feed the impulse to broader reforms. And that, in turn, could spell the demise of predatory power.

An Illusory “Return to Normal”

And so the conversation turned to an “opening up” under conditions that threaten an even more rapid and uncontrolled spread of the epidemic. The promised “return to normal” may be punctuated by periodic crises, and by new shutdowns that cannot work because they will again be undermined by incompetence and inconsistency. All this lead inevitably to long-term quarantines for the elderly and those at risk for other reasons, condemned to their rooms until the epidemic fades on its own or the virus comes for them in their turn.

But a rapid return to normal, however illusory, is the only way for the ruling class to preserve the legitimacy of debt contracts, the capital structure of many banks and businesses, and the rights of creditors and landlords, and thus the foundations of their economic power. It is therefore the political-economic strategy of the ruling elites.

The very failure to manage the containment phase competently plays into this strategy, for it increases pressure to end it before the job is done. We now learn that the mismanagement of containment is not a bug, but a feature of policy – at least in the United States. We see this explicitly in the refusal of the White House and Senate to add fiscal support for state and local governments; the openly-admitted objective is to force an end to quarantines, lock-downs and the social distancing necessary to save lives. Thus, the illnesses and deaths still to come are the fully-foreseen price of maintaining the existing system.3

Progressives and all decent people thus face imperatives on three levels. The first is to fight for competent management of the containment phase, in every country on its own terms but above all in the United States, now an epicenter of the pandemic and the principal policy battleground.

It is necessary to fight it out on this line for as long as it may take, win or lose. It is necessary to make the political price of reckless reopening as high as possible, and to reward every effort, at the local and state levels, to manage the consequences so as to minimize the damage as best one can. For this, all support must be given to dedicated and competent officials, beleaguered and overmatched though they are, while opposing and exposing the willful incompetence, amounting to sabotage, of predators at the federal level and in some of the statehouses.

Things Will be Different

The second imperative is to drive home the fact that the post-pandemic future cannot resemble the immediate past. In every sphere of economic life, things will be different. Some industries – airlines, hotels, resorts, cruise ships – will shrink because their clientele will be poorer, more careful about risk, and less interested in distant diversions. Events formerly requiring large crowds – sporting events, concerts, movies and plays – may go largely online or disappear.

Many other sectors – restaurants, bars, cafés, service establishments – will adapt via new health protocols, social distancing, or they too will disappear. Perhaps most important, crucial utilities, and public services like education, health care and public safety will not be financially sustainable on their present funding models.

So we come to the third and most encompassing imperative.

Two Possible Paths

This is to frame the choice that will govern the character of the world to come. There are two possible paths. They are as different as European fascism and the American New Deal. They are as different as the brutal suppression of organized dissent, and the social reconstruction of an entire system on grounds of public purpose, meeting the challenges of health, environment and security for the whole population.

One path would preserve the existing hierarchies and the burden of existing contracts. Along this path, debts will be enforced, vulture funds will prowl for cheap assets, transforming homeowners into renters and renters into the homeless. Foreclosures and evictions will mount to the millions, armies of the jobless will roam the streets, encampments will become the new Hoovervilles. Unable to survive on public funds, public schools, public universities and public services will be privatized; they will become expensive, exclusive, and unavailable to the majority. Health care will be largely uninsured, and even less accessible than before. Elections will be so disrupted, and so dominated by monied propaganda, as to lose their meaning. For the richest few, life will go on as before. But no one apart from the well-armed and well-isolated will be safe.

On the other path, there will be a general relief from unpayable debts. Families will be secure and safe in their homes, rents and mortgages will be written down, health care will finally become a universal public good, utilities will be maintained and the federal government will come to the financial support of schools, universities, and the public services of states, cities, and towns.

In this world, millions will be hired and trained to provide the public health services – temperature monitoring, contact tracing, sanitization – that are necessary to keep the virus at bay and to confront successors as they arise. Millions more will be put to work in crucial services, maintaining the supply chains for food and other essentials, in conditions that are as safe as possible, and paid a living wage. In this world, there will be strategic direction toward social and environmental goals, led by a state determined and able to ensure that key sectors and companies serve the public. Through public investment in national laboratories and support for non-profit research centers, science and technology will again become the servants of public purpose.

The Common Good

These are the effective measures that can permit us to survive. In practice, getting there requires fighting and winning a political battle. For this, progressives must come to grips with the core of the neoliberal dispensation. Economic neoliberalism and the cult of free markets did not arise and take hold strictly on their own; they were buttressed in the West by genuine gains in personal and social freedoms. The predatory economic model was tolerable for many people precisely because the focus on individualism lifted barriers of repression and conformity and created at least the impression of opportunities, of freedoms previously denied but now permitted and mediated by the market.

This alliance is now untenable, and it is necessary to move beyond it. What the market appeared to provide, a material base for cultural diversity, the collapse of markets has yanked away. So it will be necessary for those attracted to that alliance for its recognition of long-denied rights to detach themselves, and to join, as a matter of common survival, an economic program founded on two critical points. Cultural diversity can be preserved, and it can be extended – but at this juncture only through a new alliance for radical progressive economic reform.

Let us recognize that our goals are social. They are about the common good and the common wealth. Equality is part of this. But economic inequality under money-market capitalism, though undoubtedly a scourge in itself, is only a symptom of a deeper problem. Laments about inequality recently fashionable even in elite circles have a hidden premise: they accept that the right measure of social health is the fairness of the distribution of private goods, and of the means to acquire them. This is not so and has never been so. No distribution of purchasing power, however improved, gives anyone the capacity to guarantee the elements of health or access even to safety and to food – let alone hope for a long life and a secure retirement. These things must be provided socially, by collective effort, for the benefit of all. The deeper enemy is not inequality, but precarity, insecurity, instability, anxiety and fear.

Public Purpose and Democratic Aspirations

More broadly, let us recognize that free-market capitalism is not the key to prosperity, nor to freedom. What drives prosperity are science, technology, engineering and effective organization, including public investment and social insurance. What drives freedom is a commitment to tolerance, to the rule of law and to human rights. These can be combined without ceding power to the oligarchs who have come to control the capitalist world. There are better models in the history of the United States—the New Deal and Great Society—as there are in the social democratic Europe of the postwar years. Capitalism did not dominate those societies: public purpose and democratic aspirations were the great motive forces. What was possible once can again be made to happen as the conditions demand. Some call it socialism. Some call it democratic socialism. Some call it social democracy. Some call it pragmatism. We call it what it is: necessary, now.

So the task is – as at the start of Franklin Roosevelt’s New Deal – to conquer fear, anxiety, instability, insecurity, and precarity. The task is to find the right solutions to our problems, and to pursue them with all the imagination and resources we can together command. This, and this alone, will open the door to the next task, which is to build a just and sustainable economic and social system for the next generation.

The Green New Deal calls for precisely this transformation. The program of the Green New Deal lays out a path toward energy that is renewable and sustainable, toward patterns of consumption within the carrying capacity of the planet, toward systems of mutual support, towards guaranteed jobs for those who want them and guaranteed security for all.

In the world to come, there will be many millions seeking useful work. And there will be opportunities for many millions to undertake the transformation of energy systems, to build out an advanced information infrastructure, to reconstruct education and culture and free time, to restructure our lives to make them decent and rewarding and safe and secure on a planet that may yet, for a time, provide a livable home.

The task is to bring these two things together, and to make a better world happen. Science, technology, and engineering can tell us how best to proceed. The economics are possible; as Keynes wrote, what we can actually do, we can afford. The politics will be a struggle, but it is a struggle that must be won. The pandemic has dislodged the old system. And so it has presented us all with the stark necessity of new thinking, political struggle, and the hard work of radical reform.

Dr. Albena Azmanova is Reader (Associate Professor) of Political and Social Thought at the University of Kent’s Brussels School of International Studies. Her research ranges from democratic transition and consolidation to the dynamics of contemporary capitalism and its effect on ideological orientation and electoral mobilization. She was an active participant in the dissident movements that brought down the Communist regime in her native Bulgaria in 1987-1990, and has remained engaged with transnational progressive social movements. She has also served as policy advisor to a number of international institutions such as the United Nations, the Council of Europe, the European Parliament, the European Commission, and Transparency International. Her latest book is Capitalism on Edge: How Fighting Precarity Can Achieve Radical Change Without Crisis or Utopia (Columbia University Press).

Dr. James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the LBJ School of Public Affairs and a professorship in government at The University of Texas at Austin. A co-winner of the Leontief Prize for Advancing the Frontiers of Economics, he is also a senior scholar at the Levy Economics Institute of Bard College and managing editor of Structural Change and Economic Dynamics. He has served as executive director of the Joint Economic Committee of the U.S. Congress (1980s), chief technical advisor on macroeconomic reform to China’s State Planning Commission (1993-97), chair of the Board of Directors of Economists for Peace and Security (1996-2016). He is the author of many books – most recently, Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe (Yale University Press) and Inequality: What Everyone Needs to Know (Oxford University Press).


1. Acknowledgments: This article was originally published at progressive.international and in shorter form on opendemocracy.net. The present JPRI Critique mainly follows the streamlined format of the openDemocracy version of the article, while reintroducing passages from the longer Progressive International version into the concluding section and endnotes.
2. As the containment stage proceeds, logistical challenges are becoming more severe. The most urgent needs include large-scale testing, an effective mechanism for monitoring the infected and quarantine enforcement, and measures to preserve food and other essential supply chains. These supply chains are critical, and stressed by contamination and by labor shortages, by difficulties of adjustment from commercial to retail channels, and by other hazards including desperation on the part of beleaguered households. At the bottom of the chain, food banks are hit by soaring demand, declining donations and a shortage of volunteers. All this comes in addition to the impatience of families and breadwinners stuck at home, the stress of confinement and the increasing realization that many jobs will not return once the containment stage ends – and that incomes lost will never be fully recovered and debts will not be repaid.
3. As the United States takes this route of [mismanaging containment] – and barring immediate development and dissemination of a therapy or a vaccine or the attenuation of the epidemic on its own – the containment strategies of more sensible countries, however imperfect in themselves, will be exceptionally hard to maintain.



Two Worlds Collide: Common Law Norms in the Service of a National Security Regime

Vol. 27 No. 2

Enforcing Hong Kong’s new National Security Law may not be so easy after all. On the face of it, political life here has been turned upside down in just six months. The new law was promulgated by the central government in Beijing on June 30 last year. But trying to enlist Hong Kong’s existing common law legal system in the service of the political order being created by the new law is proving easier said than done.

The new law targets the crimes of secession from China; subverting state power; terrorism, meaning violence in pursuit of political aims; and colluding with foreigners as a form of political protest.

The list of crimes seems reasonable enough. Most countries have laws that criminalize such acts. But Hong Kong’s new law has created the very clash of political and legal cultures that many feared when the “one-country, two-systems” idea was adopted as Hong Kong’s governing principle. The new construct was intended to ease Hong Kong’s transition across the 1997 divide – from British colonial rule to that of a very different Communist Party-led sovereign.

The new design did initially fulfill its purpose. Hong Kong’s 1997 transition went smoothly, but in recent years Beijing’s current leaders have begun defining “two-systems” more strictly than before. And the new law seems to have more in common with China’s ancient draconian codes of justice than with today’s liberal democratic norms.

Under National Security Rule: Progress to Date

Beijing officials are in command. Hong Kong is defenseless, its leaders dare not disobey, and the promises of 1997 are in tatters. Hong Kong’s democracy movement has been decimated and prospects for a return to any semblance of its pre-June 30 political life are dim to non-existent.

All the leading pro-democracy candidates have been disqualified from contesting the next Legislative Council election via retroactive application of the new national security standards — even if the law itself is not retroactive. Official planning also anticipates structural changes in the council itself that will reinforce its current convoluted designs and further restrict democrats’ ability to win seats in future elections. [1]

Teachers are being retroactively investigated in search of those who might have previously violated the new standards. Leading activist Benny Tai Yiu-ting has lost his job as a law professor at the University of Hong Kong, following the same retroactive application of the new national security standards.

Jimmy Lai, owner of the one remaining anti-communist newspaper and media organization, is paraded in chains moving between court and prison. Initially granted bail, the Secretary for Justice, Teresa Cheng protested on grounds he was a flight risk. He has the motive and the means, declared former Chief Executive Leung Chun-ying on his blog site.

The judge who approved Lai’s bail application was subjected to a media blitz led by the official People’s Daily in Beijing. The judge felt obliged to issue a public statement that detailed his reasoning. In short order the bail case was taken up by Hong Kong’s highest Court of Final Appeal where a three-judge panel reconsidered. The panel included Hong Kong’s Chief Justice Geoffrey Ma. Lai was returned to prison forthwith. He is being held on multiple counts. Most serious is the new national security crime of colluding with foreign forces in opposition to the current political order.

Young activists with the most promising political futures before June 30, are seeking safety overseas. Others have been given stiff prison sentences administered in such a way as to publicly humiliate as well as to punish. The police seem to be willing accomplices in all respects. [2]

The Courts, the Judges, and the Law

Yet still the authorities are not satisfied. In pursuit of their objectives, they want to avoid the “go directly to prison” approach. The route must be legitimized, and justice must be seen to be done. But the new security regime’s officials are frustrated by the complexity that stands in their way –an obstacle that is proving difficult to surmount or circumvent.

They complain that the British common law system inherited from pre-1997 colonial days is not disinterested and does not administer justice independently, as its proud boast claims. The judiciary has a built-in political bias, say the new guardians. Why else would its rulings always seem to tilt in one direction, rather than another? Within the range of decisions and punishments permitted in any given case, the judges seem too inclined to prefer leniency. Justice tempered with mercy, but why be merciful when something as grave as national security is at stake?

Although no one understood the full implications at the time, Beijing was drafting the new law last spring when the “preparing public opinion” phase began. It entailed yet another revival of the “division-of-powers” debate. Hong Kong democrats have been struggling to keep the pre-1997 concept alive against constant reminders from their opponents that the separation of powers – executive, legislative, and judicial – cannot exist here. This is because all such powers as are exercised in post-1997 Hong Kong, derive from a single issuing authority, namely, the central government in Beijing. [3]

The controversy last spring ended inconclusively as usual but has now revived in the pro-Bejing media as headlines proclaim the new campaign’s tagline: “The judiciary must reform! “ [4]

Retired top judge Henry Litton has lent his voice to this cause, although he has yet to clarify whether he and the official critics are talking about the same thing. They are talking about in-built political bias.

He seems to be more concerned about the negative effect of British style mannerisms and conventions, the extensive use of precedents set in other common-law jurisdictions, too many judicial reviews, elaborate explanations, and deferential courtesies — all well beyond the ability of ordinary Hong Kongers to comprehend. [5]

So far no one has mentioned the old-fashioned wigs that are still mandatory in Hong Kong courtrooms. [6] But perhaps Litton believes that if the external manifestations of the inherited system can be dispensed with, the core of Hong Kong’s common law legal system will be spared.

In any case, he continues to assert that his chief aim is to rescue the common law system from oblivion because he assumes that Beijing aims to abolish it altogether come 2047. That’s when the 50-year shelf life of the “one-country, two-systems” construct is due to expire, according to the promises Beijing made before 1997. But the officials, for their part, are not just talking about mannerisms and courtly conventions.

Hong Kong’s representative on the National People’s Congress Standing Committee has authored a New Year message published in the latest issue of Bauhinia Magazine. In it he spells out all that is expected. The NPCSC is the central government’s issuing authority for all the recent decisions that are redefining Hong Kong’s status.

Tam Yiu-chung is a long-time pro-Beijing loyalist and for many years headed Hong Kong’s largest political party, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB). His article blasts Hong Kong’s judiciary for its elite posturing.

Like Litton, Tam targets the arcane language and British-style courtroom conventions. But Tam also wrote that Hong Kong’s courts should show more deference to the authority of China’s constitution and to the central government. He is suggesting, in effect, that they move in the direction of China’s courts where division of powers and judicial independence are alien concepts. [7]

Perhaps not by coincidence, Beijing has just issued a lengthy document outlining plans for the reform of China’s own legal system. It is a Communist Party document and says that while the National People’s Congress has a role to play in the process, leadership exercised by the party center must be paramount. Titled “The Plan to Build the Rule of Law in China (2020–2035),” its aim is to perfect a socialist party-led rule of law system with Chinese characteristics. [8]

Round Up the Usual Suspects… But What Crime Did They Commit?

The laws are nevertheless what they still are and despite overturning Jimmy Lai’s original bail ruling under pressure from on high, Chief Justice Geoffrey Ma issued a final declaration of judicial independence on January 5, to mark his long-planned retirement.

The next major challenge occurred within 24 hours of Ma’s farewell remarks. It began at dawn on January 6, in the form of police raids all over town. Over a thousand members of the force were involved. By the time their task was completed, they had rounded up and arrested 53 pro-democracy activists and aspiring politicians.

They were all accused under the new National Security Law and their alleged crime was subverting state power. The maximum penalty for subversion is life imprisonment, according to Article 22 of the law.

Until then, only a few individuals here had been formally charged under the new law, despite the growing use of its standards to investigate, sanction, and disqualify. A few individuals no longer in Hong Kong have also been charged in absentia. But before the raiding parties set out on their mission, it was unclear as to the range of actions that might be defined as secession, subversion, terrorism and collusion with foreigners.

In fact, the definitions and boundaries are no clearer now than before. The 53 individuals were all associated in some way with the informal poll democrats held last July, in preparation for the Legislative Council election, then scheduled for September 6. [9]

The purpose of the exercise had been to combat the endemic problem of factionalism within Hong Kong’s pro-democracy camp and allow interested citizens themselves to winnow out the weakest candidates before the actual election took place. All candidate hopefuls had to agree to abide by the results or they weren’t allowed to participate.

The Legislative Council election itself was later postponed for at least a year, ostensibly for health reasons due to an upsurge of coronavirus cases — but more likely to allow the time needed to make the changes that will further disadvantage democrats. [10]

According to the government’s explanation for what happened on January 6, the July polling exercise was subversive in nature because its goal was to promote democrats’ long-standing dream of winning half the seats in Hong Kong’s Legislative Council. It currently has 70 seats; 35+ was the get-out-the vote slogan for the July poll.

Additionally, Benny Tai as the chief promoter advertised the possibilities. They were ambitious. The Legislative Council actually has little power. Its members cannot even initiate substantive legislation on their own — without permission from the Chief Executive.

But according to Hong Kong’s post-1997 Basic Law constitution, drafted and promulgated by all the proper authorities in Beijing, Hong Kong’s Legislative Council can veto the government budget. The associated procedures for eventually forcing a Chief Executive to resign are also spelled out in the Basic Law (Article 52). Good law professor that he was, Benny Tai explained all this in the many opinion pieces he wrote to drum up interest in the democrats’ July straw poll.

Ultimately, it was a great success. Interest and momentum held from the 2019 protests, to democrats’ landslide win in the November 2019 District Councils election, and on to the July poll. Over 600,000 people turned out to cast a vote for their preferred candidates.

The entire pro-democracy camp pitched in. Benny Tai was the lead promoter. Robert Chung’s new Public Opinion Research Institute took care of the on-line election technology. Power for Democracy, the old group set up by Reverend Chu Yiu-ming in 2002, was involved, so was former legislator Au Nok-him in the role of organizer and coordinator, with no dearth of volunteers.

Friendly shop owners allowed their store fronts to be used for the ID verification procedure before voters were granted access to the online polling site. Most of the pro-democracy political parties and political groups were involved since most of them had entered their candidate hopefuls in the competition.

All the top-tier winners from the July exercise had already been disqualified before the election was postponed. The vetting officers had ruled that candidate hopefuls were not sincere in their declarations of loyalty to Hong Kong’s new political order. So, the police swoop on January 6 must have been a follow-up maneuver, designed to target a full representative sample of the democracy movement’s most active leaders, organizers, and candidate hopefuls.

The round-up thus made perfect sense – from a mainland perspective – to those intent on enforcing the new public security rules. It was only after the round-up was completed and the arrestees were being processed that Hong Kong’s law enforcement authorities realized they had 53 suspects in search of a crime. All were granted bail, ordered to hand in their passports, and released without charge. National security and common law principles had collided head on.

Officials have spent the last several days defending the round-up. Acting with intent to overthrow the government is most certainly a serious national security crime, they say. But democrats have only to hold up their copies of the Basic Law and point to Article 52, where the procedure for “overthrowing” the government — as mainlanders see it — is carefully spelled out.

Executive Councilor and barrister Ronny Tong found himself unable to resolve the contradiction. It was an appropriate dilemma for Tong who, in 2006, was a founding member of the pro-democracy Civic Party. But he eventually decided that attempts at political conciliation were more to his liking than confrontation. He left the party in 2015 and joined Carrie Lam’s Executive Council of ranking advisers two years later.

During a radio interview on January 6, Tong said vetoing all government funding requests could be illegal and could constitute subversion. But vetoing the budget is allowed under Article 52 of the Basic Law. Therefore, Tong thought that only if subsidiary requests — just to keep the government running — were also rejected, would a national security crime have actually been committed.

Nevertheless, he also said that he could not see how organizing a primary election as democrats did last July was an illegal act. Article 22 of the new National Security Law defines subversion as organizing, planning, or participating in acts by force or threat of force or other unlawful means, with the intent of subverting state power. But Tong said holding an informal primary election was not unlawful. Therefore, he could not see how the crime of subversion had been committed. [11]

In its defense, those speaking for the government said the primary election organizers had been warned that their action was “illegal.” But the organizers had no reason to be concerned. In 2018, officials had said the same thing about a pre-election poll to determine a pro-democracy candidate. It was organized in advance of a special election to fill the seat vacated by a disqualified Kowloon West legislator during the oath-taking saga.

At that time, it seemed just another case of officials and democrats talking past each other on different wavelengths. The pre-election custom began years ago and was allowed to proceed without hindrance. No one ever even tried to suggest that it was a legal feature of Hong Kong’s electoral system with enforceable consequences.

Democrats have always had too many candidates chasing too few seats and came up with the idea of pre-election selection when the original candidate coordination routines didn’t work out so well.

Their only fault was that the organizers might have used some other term to describe their candidate selection effort. For example, had they insisted on calling it a straw poll, instead of allowing the more formal “primary election” term to slip into popular usage, all of this might have been avoided. The Hong Kong government’s mainland advisers might have been less confused by the unfamiliar local political custom that had evolved in Hong Kong’s old political order, as they go about their task of trying to create a new one based on national security rules.


[1]Pepper, Suzanne."Covid Or Covert? how Beijing Concocted an Election Delay to Reshape Hong Kong’s Legislature." Hong Kong Free Press, Jan 2, 2021. [Return to Text]

[2]Pepper, Suzanne."A Whole New Hong Kong: How Beijing Put Down a Rebellion in its Unruly Southern Border Region." Hong Kong Free Press, Dec 13, 2020. [Return to Text]

[3]Pepper, Suzanne. "Hong Kong’s ‘high Degree of Autonomy’ Wilts Under New Version of Basic Law." Hong Kong Free Press, May 24, 2020. [Return to Text]

[4]Pepper, Suzanne. "How Judges Became the Last Front Line in the Battle for Hong Kong’s Freedoms." Hong Kong Free Press, Oct 24, 2020. [Return to Text]

[5]Pepper, Suzanne. "Henry Litton’s Law: Hong Kong Judges must Put Common Good Above Individual Rights." Hong Kong Free Press, Oct 31, 2020. [Return to Text]

[6] Huan, Cheng "Why Wigs should Go in Judicial Reform." The Standard, Jan 18, 2021. [Return to Text]

[7]Kang-Chung, Ng. "Hong Kong Not an ‘independent Judicial Kingdom’: Pro-Beijing Heavyweight Doubles Down on Reform Calls." South China Morning Post, Jan 1, 2021. [Return to Text]

[8]Zheng, William."China's Legal Reforms Seek to Cement Party Leadership's Role." South China Morning Post, Jan 12, 2021 [Return to Text]

[9]Pepper, Suzanne. "Combating Factionalism and Annoying Beijing – Hong Kong’s Benny Tai has a Plan for Electoral Success." Hong Kong Free Press, July 28, 2020. [Return to Text]

[10]Pepper, Suzanne."Covid Or Covert? how Beijing Concocted an Election Delay to Reshape Hong Kong’s Legislature." Hong Kong Free Press, Jan 2, 2021. [Return to Text]

[11]Stephanie Kelton (2019), "Vetoing all Govt Funding Request can be Illegal: Ronny Tong." The Standard, Jan 6, 2021. [Return to Text]


Modern Monetary Theory and the Case of Japan


Modern monetary theory (MMT) has gained prominence in light of doubts about the effectiveness of monetary policy in addressing economic shortfalls. This paper, which first appeared at VoxEU.org, assesses the implications of implementing the theory’s policy prescriptions, and the challenges it presents in the case of Japan – an economy that some have argued has already been subject to such policy. Japan’s labor shortages and low inflation mean modern monetary theory’s fiscal stimulus suggestions may be harder to implement than they initially seem. The author is a professor of economics at Keio University and a former member of the Bank of Japan Policy Board. [1]


“Modern monetary theory” (MMT) has become a much-discussed topic in policy recently. While MMT has been known for some time, it has captured a lot of attention after U.S. Congresswoman Alexandria Ocasio-Cortez of New York stressed its importance to boosting public spending for education and medical services. [2] The growing emphasis on expansionary fiscal policy reflects the disappointing performance of unconventional monetary easing – including lower-than-expected economic growth and inflation performance, as well as various adverse side effects. Moreover, the global economic slowdown, rising relative poverty and inequality, and limited opportunity for additional monetary easing all support the case for fiscal expansionary policy. 


MMT is consistent with the pro-fiscal policy view, but provides unique views about the role of government spending as well as zero-default risk on domestic currency-denominated government debt. It claims that governments never default on their own currency-denominated debt because the monetary sovereign government is the monopoly supplier of its currency (for example, Tymoigne and Wray 2013). Thus, government should increase public spending in the correspondent domestic currency – namely, reserve balances of designated financial institutions with the central bank – to achieve full employment as an employer of last resort and price stability without worrying about rises in the fiscal deficit and public debt. [3] As the government is never financially constrained, neither taxes nor bond issuance to the market are necessary in order to finance public spending. MMT holds that expansionary fiscal policy can be sustained until substantial inflationary risk emerges, which in turn could be controlled through a tax hike. Taxes are not only treated as an inflation adjustment tool, but also used as a tool to increase public demand for the currency. 



Salient Features of MMT: Dominance of Fiscal Over Monetary Policy


The most salient feature of MMT is [its contention] that fiscal policy is effective while monetary policy is ineffective for several reasons. 


For starters, monetary accommodation or a cut in interest rates in a downturn does not necessarily generate sufficient private sector demand for credit when the outlook on firm profitability and household income remains weak. 


Second, a cut in interest rates could be economically contractionary, since reduced interest income discourages active private sector spending. A cut in interest rates also promotes an unfair transfer of interest income from creditors to debtors, causing distortions in income distribution. For these reasons, a negative interest rate policy is dismissed by MMT. Similarly, monetary tightening or an interest rate hike in an expansionary phase does not necessarily contain credit growth and excessive inflation if domestic demand could be boosted by increased interest income. 


Third, monetary easing tends to promote an accumulation of private sector debt and thus reduce private sector net wealth, as mentioned below.


Some of these points – especially those related to the effectiveness of monetary policy – seem to partially align with the fact that unconventional monetary easing conducted by major central banks after the Global Crisis generated disappointing results in terms of addressing aggregate demand, inflation, and long-term inflation expectations. In contrast, the government is able to increase employment directly by conducting various public projects. Another distinctive feature of MMT is that expansionary fiscal policy lowers interest rates rather than raising them – contrary to the widely shared view of the crowding-out effect in the loanable funds market. This feature could prevail if increased government spending raised reserve balances and place downward pressure on market interest rates. 


Regarding the role of monetary policy, MMT emphasizes that a central bank should support fiscal policy by maintaining interest rates at around 0% persistently and passively to maximize the effectiveness of the fiscal policy. Maintaining the low interest rate is conducted by an open market operation with commercial banks using government bonds. This means that the objective of monetary policy should be shifted solely to making fiscal policy as effective as possible – the conventional active role of stimulating/containing aggregate demand and inflation. This leads to a provocative conclusion that monetary policy cannot control inflation but can only control interest rates, which poses a major challenge to modern central banking practices that emphasize the price stability mandate and central bank independence.



Three Conditions to Justify MMT


These views or conclusions embedded in MMT have been controversial and have invited a lot of criticism, including the risk of hyperinflation, and the over-simplification of inflation dynamics and other elements of the actual economy in the model (such as an exchange rate depreciation), and the lack of political economy perspectives concerning the use of taxes as an inflation adjustment tool (Palley 2013, 2019, Summers 2019). Critics argue that the MMT claims are not consistent with the fact that many countries engaged in debt monetization have historically experienced significant inflation or hyperinflation.


In my view, at least three conditions are necessary to justify MMT’s conclusions. 


* First, public spending should intensively prioritize productivity-enhancing infrastructure, human capital, and innovation, which would raise potential economic growth and thereby prevent substantial inflation. 


* Second, a government should issue its own currency rather than issue bonds through capital markets that are sensitive to investor sentiment and subject to volatility. To do so, dollarization or the prevalence of a foreign currency in economic and financial transactions domestically should be avoided. The public needs to build up trust in a central bank and its issuing currency. 


* Third, the private sector is able to increase corporate or household debt, but must achieve debt sustainability in the long run to avoid the banking and private sector debt crises in the future that would require painful debt restructuring. This reflects MMT’s view that government debt is more desirable and sustainable than private sector debt. This is because growing government debt could raise net financial wealth within the private sector and thus enhance wellbeing by allowing future consumption through saving today. In contrast, growing private sector debt reduces net financial wealth within the private sector and amplifies default risk. Monetary easing may promote an accumulation of private sector debt, possibly leading to future private sector debt and financial crises. Indeed, this point appears to be consistent with the reality that private sector debt crises occurred frequently globally in the past while public debt crises rarely happened in advanced economies in the contemporary era, where mature physical and social infrastructure are already in place and most government debt held by foreign investors are denominated in their own domestic currency.



Implications of MMT for the Case of Japan 


Professor Stephanie Kelton of Stony Book University, an MMT proponent, is of the view that Japan has been conducting MMT for some time. [4] This statement invited discussions in Japan and is now viewed widely as a misunderstanding of the Bank of Japan’s monetary policy (Table 1). The misunderstanding appears to have stemmed from the seemingly-familiar circumstances such as the Bank’s large-scale holdings of government bonds and associated reserve balances, as well as the long-term interest rate stabilization policy at around 0% under the yield curve control (Figure 1). Professor Kelton’s view was also rejected last year by then Prime Minister Shinzo Abe and Governor Haruhiko Kuroda because of the government’s commitment to getting its fiscal house in order [5] – even though the government goal of achieving a primary fiscal surplus has been long unfulfilled. It should be noted that the Bank of Japan purchases many government bonds from the market at negative yields – losing money by purchasing bonds at higher prices than face value.



Table 1: Features of MMT and the Bank of Japan’s Monetary Policy

(Source: Prepared by Sayuri Shirai)




Figure 1: Bank of Japan’s Balance Sheet

(Source: Bank of Japan)



Assets (trillions of yen)




Liabilities (trillions of yen)





What would be the implications of MMT for the Japanese economy if it were to be adopted? Japan’s level of household consumption has remained weak over the past two decades, reflecting stagnant real salary growth – mainly arising from low productivity growth. Households’ nominal disposable income has increased moderately in recent years but has remained below the 2000 level. Weak consumption is also attributable to concerns related to the rapidly-growing aging society, with an average life expectancy of 84 years as of 2018. The public has been worried about limited pension benefits. Many people have questioned the sustainability of the national pension system – as evidenced by the relatively low non-payment ratio of compulsory pension premiums (about 30% currently) – especially among the young generation. It is associated with inter-generational cost-benefit imbalance problems, where current pensioners receive more in benefits than they paid while the younger generation is expected to pay more than current pensioners but receive less in benefits than current pensioners, since the national pension is basically a social insurance PAYG scheme (partially funded by government taxes and reserves). 


To deal with weak consumption and low inflation issues, MMT proponents might recommend that Japan’s government increase pension and other social security benefits (for example, support for single mothers and aged widows) more generously and reverse the consumption tax hike. Also, the government should increase productivity urgently by spending more on information networks, occupational training and engineering- and computer science-intensive education, as well as more R&D on healthcare, new drugs, and labor-saving medical treatment methods. MMT proponents might think this could work despite public debt accounting for 240% of GDP. The persistent current account surplus of over 3%, signaling excess production over domestic spending, could be another rationale for the government to spend more to increase domestic absorption and thus improve domestic living standards. Meanwhile, the Bank of Japan would be instructed to maintain the current 10-year yield target set at around 0% under the yield curve control. 



Is MMT Really Useful for Japan?


What are the blind spots in applying MMT in Japan? First, little economic slack is left in Japan due to the serious labor shortage coming from unfavorable demographics while underlying inflation (excluding volatile food and energy) remains weak and well below the 2% price stability target. Increased government spending may only exacerbate the labor constraint and squeeze private sector economic activities. The recent liberalization policy to accept more temporary foreign workers is welcome but will not be enough to offset the labor shortage. Thus, MMT may not be a solution to Japan’s complex problems. 


Second, adoption of MMT by the government would require good communication skills to convince households that the social security system will always be sustainable despite mounting aging-related costs and the generous provision of pension benefits and health/elderly care services. However, should inflationary risk emerge, the government might be compelled to cut social security benefits as the sustainability of such a generous social security system diminishes. If households anticipate this event, concerns about aging problems and the sustainability of the social security system will always persist. 


Third, substantially low interest rates, long a fixture in Japan, may be sustaining zombie firms and discouraging vital corporate restructuring, exerting downward pressure on productivity growth. According to the Bank of Japan’s estimates, Japan’s potential economic growth has already declined from 1% in 2014 to less than 0.7% today, mainly due to a decline in total factor productivity (TFP) growth. [6] The decrease in potential economic growth is likely to move toward 0.5% in the medium term due to tighter labor constraints. It is thus unclear whether current low interest rates, which do not necessarily reflect the credit worthiness of borrowers, would be good for Japan’s economy even though the crowding-out effect is eliminated.


Fourth, the adverse impacts of unconventional monetary easing on financial repression and market distortion are not well covered by MMT. Japan’s bond market has been distorted due to heavy intervention by the Bank of Japan, which already holds half of Japanese government bonds. The yield curve has been very flat, at low yield levels, and liquidity has become shallow. Profitability in the banking sector has declined due to lower lending-deposit interest rate margins and low yields on government bonds. Small banks have increasingly extended credit to lower quality borrowers and real estate projects in the face of the rising share of nondebt households and nondebt viable firms (Bank of Japan 2019). Housing prices have surged in metropolitan areas due to increased real estate development projects, scarce land, and increased construction costs arising from a shortage of construction workers and imported construction materials. Higher new home prices have reduced their affordability for general households, exerting downward pressures on aggregate demand. The risk of a real estate bubble in prime metropolitan areas is high and might occur after the upcoming Olympic Games, given the growing number of vacant old houses and apartments. 





MMT provides the pro-fiscal policy view but provides unique views about the role of government spending as well as zero default risk on domestic currency-denominated government debt. MMT’s challenges center on the implementation of its views, as the case of Japan demonstrates. One important issue is whether Japan’s government is able to keep increasing public debt and the Bank of Japan continues to stabilize the 10-year yield at around 0% for the future as long as the current low inflation and low interest rate environment continue to prevail. 



Dr. Sayuri Shirai is professor of economics in the Faculty of Policy Management at Keio University in Tokyo, Japan. Beyond the academy, she has served as policy advisor to the Minister of Finance of Zambia (2019), visiting scholar at the Asian Development Bank Institute (2016-2020), and member of the Bank of Japan Policy Board (2011-2016). Prior to her faculty appointment at Keio, she served as staff economist at the International Monetary Fund (1993-1998). She is a graduate of Keio University and holds a Ph.D. in economics from Columbia University. She is the author of numerous articles and books on macroeconomic and monetary policies, Japan’s economy, China’s exchange rate system, the European debt crisis, etc. Her most recent books are Growing Central Bank Challenges in the World and Japan: Low Inflation, Monetary Policy, and Digital Currency (2020) and Mission Incomplete: Reflating Japan’s Economy Paperback (2017). A popular media commentator, she has appeared on Bloomberg TV, CNBC, Channel News Asia, and many Japanese television programs and newspapers.





[1] This policy paper was originally published at VoxEU.org – CEPR’s policy portal that was set up to promote “research-based policy analysis and commentary by leading economists.”

[2] See here in Business Insider on Alexandria Ocasio-Cortez (2019).

[3] Stephanie Kelton’s website and her explanation on CNBC Live TV on 4 March 2019, “Modern Monetary Theory Explained by Stephanie Kelton”. See also Bill Mitchell’s blog, “Bill Mitchell – Modern Monetary Theory”.

[4] Stephanie Kelton (2019), interview with Nikkei Newspaper (in Japanese).

[5] See article on Prime Minister Shinzo Abe’s comments (2019) and Haruhiko Kuroda (2019).

[6] Bank of Japan website.





Bank of Japan (2019), Financial System Report, April.


Tymoigne, E, and L R Wray (2013), “Modern Monetary Theory 101: A Reply to Critics”, Levy Economics Institute of Bard College Working Paper no. 778, November.


Wray, L R (2012), “Introduction to an Alternative History of Money,” Levy Economics Institute at Bard College, Working Paper no. 772, May.


Summers, L H (2019), “The Left’s Embrace of Modern Monetary Theory is a Recipe for Disaster”, Washington Post Opinion, March 4.


Palley, T (2013), “Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory”, IMK, FMM Working Paper no. 109.


Palley, T (2019), “What’s Wrong With Modern Money Theory (MMT): A Critical Primer”, IMK, FMM Working Paper no. 44, March.

     Holy Names University  

     3500 Mountain Blvd

     Oakland, CA 94619