An Alternative Meme for Money, Part 5: A Spending Meme

By L. Randall Wray

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

Let me repeat and clarify my purpose in this series. I am attempting to initiate a discussion among progressives on how to frame discussions about money and related issues. My perspective is MMT. To be sure, on one level MMT is a description. It provides a correct description of the operation of a sovereign currency system. Some commentators have objected to my progressive framing; they assert that one can accept MMT without the progressive bias. Sure they can. One can understand how money “works” but prefer NOT to use money in the public interest.

Science is necessarily a progressive endeavor. Or, as Stephen Colbert puts it, reality has a well-known liberal bias. Of course it does. From global warming to the problems of unemployment, the liberal perspective is based in reality, while the conservative view necessarily denies science.

But one can accept the MMT description and still pursue a reactionary policy agenda. The conservative is willing to take the “technology” of a modern money system to use it against the public purpose. Technology can be used in highly anti-progressive ways. Tear gas to put down civil rights demonstrators. Nuclear weapons to vaporize humans. Concentration camps and gas chambers.

Science, however, is progressive.

Paul Samuelson said that we need the “old time religion”, the magic, the mysticism, the outright lies about the way money works in order to dupe the population. This is a fundamentally anti-progressive position. It is based on a fear that democracy might lead down the wrong road, and so our anointed “leaders” need to obfuscate the truth in order to confuse the population. As I discussed, the belief that payroll taxes “pay for” Social Security benefits, and that paying taxes justifies one’s receipt of benefits, is a good example of the fear of democracy to which Samuelson was referring.

Policy must go beyond description. It must deal with “ought”. As Lakoff says, that necessarily brings up morality. All policy and all politics involve morals. Progressives can take the moral high ground—they are on the right side of science. Unfortunately, they have (mostly) adopted the conservative framing—which is morally inferior, and is not consistent with the progressivepolicy agenda.

The purpose of this series is to develop a progressive meme for money. I have no desire to provide advice to conservatives. First, they’ve already got the meme—the dominant framing of money. As I said, they tie money to “free markets” and all the other hot-button conservative frames. Second, I’ve got no desire to help them. They are winning, without my help.

Progressives need a new meme for money. This series is addressed to them.

Alternative Spending Meme

At the level of the national government, taxes don’t pay for nothing. As discussed, they serve three purposes: they drive money, they prevent excess demand, and they influence choice. All of these are within the proper purview of public policy; all have substantial social benefits. We need to stress these, and discard the conservative tax meme that taxes pay for government.

Now, at the local and state (or provincial) level, government is a “user” of the currency, not an issuer. It needs an income, including tax revenue, bond sales, and federal government “transfers” (or “block grants”). That is true.

As discussed, promotion of the stakeholder view is a slippery slope, but for some government services it may not be too dangerous: police and fire services, garbage collection, toll highways, and so on, where benefits are fairly easy to see and are widely shared. But the conservatives brilliantly took advantage of the devolution of government in the area of social services. As the federal government underfunded social services in the face of growing inequality and an aging population, the burden on state and local government increased. The “welfare queen” framing of the social safety net pitted stake-holding taxpayers against undeserving loafers demanding “entitlements”. Hence, welfare was ended by Clinton—just as it took a Republican to initiate détente with China, it took a Democrat to end a half century of safety nets for the poor.

The biggest loser, however, was Social Security. It had long been sold as an insurance scheme: workers “pay in” to a fund that they draw down on retirement, with benefits linked (somewhat loosely) to earnings. That made it easy to produce “money’s worth” calculations and as well to estimate the program’s “solvency” over periods up to 75 years!

For the first half century of the program’s existence, money’s worth was good for most workers as the payroll tax rate was low due to the relatively young demographics of the American workforce. Over time, tax rates rose in part due to slower economic growth and in part due to changing demographics. At the same time, the program’s long-run “solvency” came into question—leading to the transformation mentioned earlier from “paygo” to “advanced funding”.

In truth, Social Security was never an insurance plan, but rather an “assurance”: you work today to support yourself as well as seniors, and when you retire the workers of the future will take care of you. Really, there is no other way, since as we discussed above there is no way to financially provision for the future at the aggregate level. Tomorrow’s consumption will come out of tomorrow’s production.

But here’s the problem: liberals and progressives bought the conservative meme. They believe that the conservative tax framing protects Social Security: “I paid into the Trust Fund through my taxes, so I deserve retirement benefits”. With that framing, Social Security is doomed. On narrow “money’s worth” calculations, Social Security is already a bad deal for many middle class workers, and it has always been a bad deal for high income workers (who don’t want the insurance, anyway).

And it means that those whose work lives and pay for work were substandard do not “deserve” decent lives in old age. They’ve got to dumpster dive and eat tins of dog food because they do not measure up, in terms of their own tax payments. They didn’t “pay in” so they do not deserve benefits. As long term unemployment rises, as labor force participation of men falls, as wages stagnate for most workers, as the wage share of national income continues to fall, the problems with this conservative meme are compounded. The elderly of the future will not “deserve” decent retirements. The program will go broke.

All the conservative scare tactics work and are at least grounded in some truth if one accepts the meme that taxes pay for benefits: tax rates will have to rise, benefits will have to be cut, and retirement ages increased to maintain program solvency; Social Security won’t be “there” for today’s young workers, who would be better off taking their money elsewhere.

The best that “progressives” can do is to say that the future tax revenue shortfall is “only” 25% of promised benefits—which only whips up fear in the listener who imagines a future retirement at three-quarters pay.

I watched in horror as some of the most prominent progressives fought tooth-and-nail against President Obama’s payroll tax holiday on the argument that payroll taxes protect Social Security’s future! As if what Americans love about the program is the tax they have to pay.

Bruce Springsteen knows something about framing.

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

Here’s the alternative meme on the social safety net. We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own.

Here’s the alternative meme about taxes and government spending. We pay taxes to keep our currency strong. A strong currency keeps our country strong. A strong currency and a strong country ensure that we can take care of our own.

We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own.

If government doesn’t spend tax revenue, how does it finance its spending? It spends its currency into existence. In modern economies this is accomplished through keystrokes that credit bank reserves, with banks crediting accounts of recipients. A government that issues its own currency can never run out of keystrokes.

Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will. We need the right meme to quicken the will.

Even the institutional home to Milton Friedman’s version of monetarism, the St. Louis Fed understands these points about sovereign “affordability”. Two of its economists wrote:

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.“

Sovereign government spends the currency into existence. It cannot run out of money. It cannot be forced to default. It never needs to either tax or borrow its currency in order to spend. It is never subject to the whims of bond vigilantes. It can afford anything that is for sale in dollars.

That’s our state money meme: The currency-issuing sovereign can afford to buy anything for sale in its own currency. Duh!

Government can no more run out of money than can the scorekeeper at Fenway Park run out of runs to award the Boston Red Sox.

In our modern economy, government spends by “keystrokes” that mark-up the deposit accounts of sellers. In practice because banks handle the records of debits and credits for us, bank reserves are increased, and banks increase our deposits whenever we receive a payment from government.

Government cannot run out of keystrokes.