If we can do it; we can afford it!

There is something fundamental that most people fail to understand about our monetary system. The federal government has a lot more fiscal power than one might think.

While households must limit debt according to their ability to pay it off, our federal government has no such limitation!

The difference is that our government issues the dollars that households use. Households can go broke, but government can always pay obligations denominated in the dollars it issues. It is commonplace to think that the federal government must tax or borrow to obtain what it alone issues.

When government “borrows” dollars from the domestic or foreign private sectors it issues Treasury securities to the buyers in exchange for dollars. The private sector has given up nothing; it has exchanged dollars for securities. And, those securities constitute the so called “National Debt,” although we could call it our national private savings.

 

That’s the debt that many people think our children and grandchildren will have to pay back. Actually, it gets paid every day! According to the September-3-2020 Daily Treasury Statement government Redemptions to date were $109 trillion, and Issues were $113 trillion.

Private banks want their loans paid off on a time scale of individual lifetimes, decades. Federal government debt is rolled over continually, as the nation will live forever. 

Let’s look at how private entities gain possession of the government dollars in the first place.

Government issues dollars to people or firms that provide goods and services to it. The private sector provides these goods and services to earn the dollars necessary to pay taxes that only the government can levy. 

Other private entities need to earn dollars to pay taxes by providing goods and services to those employed by the government.

Fines are taxes that can help enforce government regulations. 

So, taxes are essential to validate our dollars and stimulate or regulate commerce.
Politicians and economists debate how many dollars government can create? The answer is straightforward. Government can spend until all the nation’s productive private and government resources are employed. Too much spending will induce inflation; too little will waste potential productivity.

Many economists refer to the debt to GDP ratio. But, no one knows the best value for that. So, it’s a useless metric. A better metric would be the ratio of employed workers to the total labor force.

The last 40 years of trickle-down, austerity economics has resulted in the greatest maldistribution of wealth since the 1920’s. It’s time to put the people first.

In line with Modern Monetary Theory, our great country has the productive capability to maintain full employment, a robust progressive agenda, and a first-rate military. This applies especially during the current economic devastation of the pandemic.

Opponents of a people-first, progressive agenda will have to argue other than claim, “Unemployment is necessary” or “We can’t afford it!”

The ultimate question is not what can we afford, but what can we do?

America’s Great New Challenge

Duane and I worked on this piece together. Duane submitted it to a Montana Newspaper.

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The rampaging COVID-19 pandemic is America’s greatest challenge since WWII. As then, the defining challenge of our time is: Will the federal government provide the leadership, commitment, and funding to conquer the pandemic and provide for the future health and prosperity of all?

Some worry about spending money the government does not have thus increasing the national debt. Others claim the federal government must provide the funding needed to address the pandemic, climate change, and infrastructure crises as we met the demands of WWII.

The recent New York Times best seller, “The Deficit Myth” by Stephanie Kelton supports massive federal deficit spending. Indeed, modern monetary theory, as explained by Kelton, was at play when President Roosevelt responded with unprecedented federal spending first to the Great Depression in the 1930’s and WWII a decade later. 

 

 Striking similarities define the two periods separated by almost a century. First a depression threatening the lives and livelihoods of Americans followed by a massive federal jobs effort to build out infrastructure and fight a war. 

Why is our government so hesitant to step up to the funding required to finish our fight against the COVID-19 pandemic?

By the 1970's Milton Friedman and the Chicago school of economics raised the fear of inflation that ushered in President Reagan’s "Trickle Down" theory. Reagan claimed private enterprise was more efficient than the government. Therefore government should just stop spending on public infrastructure programs, get out of the way, and cut taxes on the wealthy. The private sector would provide the money to do the investing to create jobs. The wealthy would do a better job of investing than the government.

Forty years of Reagan’s federal austerity policy practices has led directly to wealth inequality that is larger than the Gilded Age of the 1920s leading to the Great Depression. 

We won WWII, built a great national highway system, and sent a man to the moon. America was the envy of the world. We sat at the top of the world’s technological and manufacturing powers.
We must remember how to fight a war and win it.  

Professor Stephanie Kelton reminds us how our once great America did it. We can do it again, if voters elect representatives who will accept the challenge to again do big things. 

Only our lack of resources and political will limit us. The US government does not lack money.  The federal government can legislate all the money it needs to mobilize the nation’s resources to meet its objectives.

The national debt is nothing more than an accounting record of private sector surplus.  It is not a debt to be paid off by our progeny. The US government is the source of all US dollars in circulation. US dollars spent by the federal government is public money, not tax payer money.

America must live up to its means, not within its means like a household.

It is up to the citizens to become educated, learn about candidates’ values and agendas, and make sure that they register and cast their ballots. True patriots vote and this is the most important election of our time.

 

We are at war with corona-virus

Letting off a little steam I sent this to the Raleigh News and Observer yesterday. Maybe their new ownership will like it. 😅
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 It’s as if an enemy had sprayed the virus over the country. Instead we did it to ourselves by not responding vigorously to the assault. The CDC experts told us what to do. We didn’t do it. Now we face crises on biological and economic fronts. The casualty rates and economic costs are comparable to warfare. We responded more effectively to World War II. This war is here not “over there.”

Like WWII we need the federal government to take control of both the frontline war effort and the economy. Government had to spend lavishly to conduct the war effort. As a consequence we had to impose rationing and price controls to forestall inflation.

It is madness to ignore the war and try to open up the economy and schools in the hope that all will be well when all indications are to the contrary. We need to protect our people, especially children, rather than send them all to the front line.

We know that corona-virus will decay away in a few months if we just shut down except for essential food and health services. Put the military, General Milley perhaps, in charge. The government can handle the finances and pay people to stay home. The military can muster the forces necessary to accomplish testing and contract tracing. Government can also replenish funds in state unemployment offices so people can can acquire life’s necessities.

This war supersedes our disgust with both civil war relics and deficiencies in civil policing. Also, we must disregard the inevitable grumbling of federal deficit hawks.

We were stupid not to follow the example of European countries. Don’t minimize the threat as our government would have us do. This could be the end of us as a major world participant, if we don’t step up. 

Found on Twitter for Seminole County Florida posted by Dave Gorman