By Dan Kervick
Matt Yglesias has described three popular contemporary political approaches to the challenge of maintaining our national commitment to “providing health care services to the elderly, the disabled, and the poor and also to bolstering the general incomes of elderly people.” One is Congressman Paul Ryan’s approach of reducing the level of the future commitment in order to bring it in line with “historic norms about the level of taxation.” The second is the liberal approach of preserving our existing level of commitment into the future, even if that means raising taxes in the aggregate. The third is “the hazy Obama/Simpson-Bowlesish center that wants to raise taxes and cut programs.”
Perhaps this short list characterizes the main political answers reasonably well, if the main political question is how to tame the budget, and shrink or control the deficit. But I would like to point out that all three answers have something in common: Not a single one of these approaches, as usually presented, contains any call for the national government to engage seriously in what one might call “investing in our future”. All three of them reflect the defeatist mindsets of different camps of worn out oldsters, each promoting a different way of giving up, making do, or just hanging on. They are all pathologies of the dismal “No, we can’t!” era in which we now live.
The promoters of these three variations on the theme of austere, hard news pessimism no doubt fancy themselves realists and responsible grownups. But they are nothing of the sort. They are burned-out casualties of neoliberalism, afflicted with dead imaginations or ideological blinders, who have forgotten what it means to grow a country and build a society. We need to move beyond their miserable and dismal trilemma. If the die-hard adherents of these schools of thought want to mope around the shuffleboard courts at the End of History Home for Final Surrender, let them. But it’s time for the rest of us to reject all three approaches and reignite our history.
We have all learned in recent years to draw that invidious distinction between “developing countries” and “developed countries”, and we generally count the US among the fortunate developed few. But now that we have spent several decades blowing up our economic system, expanding the gap between rich and poor, wasting trillions on foreign wars, throwing millions of our citizens out on the street or into jail cells, and falling further behind in so many of the measures used to calculate relative levels of prosperity and happiness, perhaps the time has come get out of the lazy and self-stultifying habit of calling the United States a “developed country”. Wouldn’t it be better to get back to the chip-on-the-shoulder outlook that has characterized us Americans throughout most of our history? We ought to think of ourselves as a developing country whose future should be far brighter than our extremely unsatisfactory present.
Consider China: it clearly thinks of itself as a developing country, and acts like one, even though the Chinese civilization is thousands of years old. It has a clear and ambitious vision of a more prosperous future for its young people and the generations to come. As a result, the Chinese have been pouring national resources into building the future of their dreams.
But President Obama has informed us that we are “out of money”. He appointed the egregious Bowles-Simpson commission to underline that point, and has empowered and vindicated Pete Peterson, the Concord Coalition and the other miserly apostles of parsimony who are draining the ambition and laming the vigor of the nation. Even worse, the administration’s instinctive budgetary conservatism and austerity-mongering has played into the hands of people like the Kochs, the patrons and heroes of greedy bastards everywhere, whose sole political aim is to put progressive democratic government out of business for good, and whose social philosophy can best be summed up as “Keep your hands off my wallet!”
But we have tremendous material and human resources in the United States, many of them currently unemployed and unutilized, others used wastefully and stupidly. We are not “out of” anything essential. And we certainly can’t be out of money. Money is a mere financial instrument, a public utility manufactured by the national government in whatever quantities are needed at virtually zero cost, and that exists for the purpose of moving real resources around the economy. If we want to get very busy moving our real resources around our economy once again, and mobilizing them for high-powered productive purposes that serve the public and build the future, we can do just that – whenever we want. And we can always create whatever financial instruments we need to accomplish our goals.
But what is missing is the political will, since the instinctive energies of a naturally optimistic nation have been locked up in the dreary, cobwebbed vaults of two moribund political parties that have outlived their natural usefulness and are crippling the country with their negativism. I sincerely hope the rising next generation, once they get over their current distractions with the politics of camping out in public squares and dodging police, will be able to shake off this national degeneracy and get busy commandeering the vast unemployed resources of the country to start building a future again.
The primitive and benighted politics of stinginess and self-shrinkage are afflicting Europe as well. In a recent post at New Economic Perspectives, Bill Black reported the words of a Dutch citizen who argued that “austerity is necessary for our children.” It is hard not to sympathize on one level with the sentiment expressed in this statement. Every parent understands the ongoing moral conflict of parenthood: How much of their income should parents devote to the pursuit of their own comfort and the satisfaction of their own personal desires; and how much should be devoted to the pursuit of their children’s well-being and happiness?
But viewed in the context of what is happening in Europe right now – massive youth unemployment across the continent – the Dutch citizen’s statement is almost cruelly ironic. How are Europeans fostering the well-being of their children by throwing their children into mass unemployment, or by permitting them employment only in a stagnating economy in which their children’s skills are increasingly wasted and poorly rewarded? How can the next generation prosper if the current generation lets the continent’s industrial capacity and human capital waste away under a fanatical and blisteringly stupid regime of continental austerity?
Resources can be used for consumption, saved for future use, or invested in productive activity, and households often choose mainly between saving and consumption. But a nation – or a continent for that matter – is not a household. It does not provide for its children simply by saving current income so the children can have more later. Like a business, a nation needs to spend money to make money. It needs to invest in the development of national capital and build productive capacity. And healthy levels of consumption, far from robbing the future, are necessary to spur industry. The great Scottish philosopher David Hume understood the role that the pursuit of what he called “luxury” played in the development of nations; and cited the enthusiasms of puritanical parsimony as one of the chief causes of the failure of nations to develop. The industrial capacity that is built now to supply the consumption needs of the present generation adds to the productive capacity of the society and extends that productivity well into the future. The capacity we build now is capacity our children can enjoy and don’t have to build themselves. And where private enterprise falters either from waste, private debt, fear, thievery or a simple lack of effective consumer demand due to excess household debt and saving, public enterprise must step in and energetically pick up the slack. Austerity on a large social scale is not saving; it is the destruction of capacity and failure of investment. Europeans are stealing from their children by stifling private and public investment in the present to practice a misguided religion of penny-pinching.
MMT understands that public deficits under monetarily sovereign governments play an entirely different function than private sector debt. Governments that issue the national currency are not mere users of that currency. They do not have to borrow or tax back the currency they issue from the public in order to spend that currency. They always have the capacity to create more money via public spending than they destroy via taxes, without charging a real debt on the future. It is true that too much public sector money creation can be inflationary if it merely chases the goods and services produced at existing levels of productivity and output. But if the money is spent effectively to promote industry and the production of new goods and services, the monetary expansion is just absorbed into the expansion of the economy without sending price levels higher.
Recently the economists Lawrence Summers and J. Bradford DeLong have argued for increased public spending. They have cited low public borrowing costs and claim that public spending can pay for itself by returning an equal or greater amount of tax revenue to the public treasury. But whether or not that is true, the focus here on tax revenues and borrowing costs is misplaced. An expansion of public spending pays for itself with the real goods and services that are produced by the spending, and the value that is added to the society as a result. Whether some of that value is then drained back into the public treasury in the form of tax payments is a secondary question related only to the use of taxation as a tool for price stability. Recently I have argued that the US Treasury should probably get out of the business of borrowing altogether. If we moved in this direction – and simply permitted the US Treasury to spend more money into the economy than it taxes out, without issuing debt – Americans would have a better understanding of the actual nature of the federal deficit. The feeling that excess expenditures had to be “paid for” by budget balancing tax revenues would dissipate. Europeans should take the same course, either by withdrawing from the Euro altogether if their fellow European neighbors fail to act intelligently, or by politically mobilizing the continent to authorize the European Central Bank to credit national government accounts with sufficient balances to power a massive fiscal expansion.
European nations are older than the United States. But they too are developing nations. There are no developed nations. We are all developing nations. It’s time to start acting that way again. History is not over; social change and revolution are not finished; the human spirit and the drive to innovate, create and improve are not dead; art and the revelation of beauty are not over. We are not in a post-everything era; we are in a pre-something era where the something that awaits us is so great we can barely imagine it. But it is our job to try to imagine it, and then move toward the object of our vision with purpose and drive. We are all children just starting out; even those of us who are older children.