|Think of this when folks tell you federal deficits are unsustainable. Or, ask them when we paid off the World War II debt. We didn't.|
Saturday, July 2, 2016
Submitted this to Albuquerque Journal. Wow, Journal published on July 6 with title "US must embrace federal deficits, denounce austerity." I like my title better.
Austerity foments discord. The discord that drove Brexit, the vote for the United Kingdom to leave the European Union. The discord that led to the rise of Donald Trump and his fear mongering over immigrants. The discord that led to the groundswell of support for Bernie Sanders, who highlighted wealth inequality.
Austerity is the way countries around the world manage their economies. Based on outdated gold-standard thinking most people believe that there is a limited amount of money in our economy. When we had an actual gold-standard monetary system the amount of money depended on our supply of gold reserves. If the government spent too much, private business investment would languish, interest rates would rise and ruin business profits. When government spending is curtailed, we have austerity.
Everybody “knows” that government deficits are unsustainable. But, that is just not true. Politicians, pundits, the Peterson Foundation, and all who profit from gold-standard thinking tell us that austerity is necessary. Long ago, in the gold-standard days of 1863, the London Rothschild brothers wrote their New York conspirators:
“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”
At last, people are comprehending their disadvantage and are looking for alternatives to relieve their burden. Feeling our discord, we lash out at the establishment, and our tribal instincts make us suspicious of anyone not like us. The behavior is natural but both unproductive and unnecessary.
Every two years we have elections and can vote against the politicians in power, but nothing changes. Changes can’t happen when both political parties sing from the same economic songbook. The only difference is that one sings, “We have a spending problem;” the other sings, “We have a revenue problem.” Both are wrong.
There is an alternative. But, it has taken a long time for enlightened economists to realize it. President Nixon took the world off the gold standard in 1971. In 1973, nations abandoned the Bretton Woods Agreement that tied international trade to gold. But, it wasn’t until 1976 that our government gave up all pretense of tying our currency to gold.
That was the dawn of our present fiat currency with a floating foreign exchange rate. It took almost another twenty years to realize the significance of this momentous change.
That change made a huge difference. A fiat monetary system turns a gold-standard system upside down. A fiat currency is limited in quantity only by our productive capacity not a commodity. Government has the ability and responsibility to employ the productive capacity left idle by the private sector. That means, we need not endure high unemployment.
When the economy struggles, government must increase deficits. These deficits provide income and private sector consumption, which stimulate the economy. Federal deficits are always sustainable when they put idle resources to work for the public good like infrastructure and health care.
A sovereign nation must live up to its means, which includes its work force and facilities. Households and businesses must live within their means, which is what they can earn.
Any accountant can tell you that the national debt, which is the total of US Treasury securities, represents assets in the private sector. The famous National Debt clock could just as well be called the Private Savings clock. Deficits are the only source of private-sector financial savings.
Our broken economy and its resulting discord will not recover until we make full use of our fiat currency and embrace federal deficits. That is to say, denounce austerity.