This is the concluding post in a four part series on the “Top” reasons why the national debt should matter. In Part One, I considered “Fix the Debt’s” claim that high levels of debt cause high unemployment and argued that this is a false claim. In Part Two, I followed with a review of the historical record from 1930 to the present and showed that it refutes this claim throughout this period, and that there is not even one Administration where the evidence doesn’t contradict “Fix the Debt’s” theory. In Part Three I showed that the other four reasons advanced by “Fix the Debt” also had very little going for them. In this part, I’ll give reasons why the national debt does matter, and why we should fix it without breaking America, or causing people to suffer.
Three Top Reasons
There are at least three “top” reasons for fixing the debt, even though the debt hysterians are wrong when they claim it’s a financial problem that will cause high unemployment.
— First, The interest on the debt predominantly goes to wealthy individuals, large corporations, and foreign nations, who buy US debt instruments, because they are a risk-free investment, a parking place for their funds where they can earn interest. I’m not sure what good this safe-harbor does for the rest of us. What do the 99% get out of its existence? Doesn’t this “welfare for the rich” just exacerbate our already very serious inequality problem.
— Second, the existence of a large national debt is a political problem, best illustrated by the activities of the “Fix the Debt” campaign and the other Peterson-funded groups forming his political network. The political problem is that the constant harping on the size of the debt and the non-existent solvency problem requiring deficit reduction impacts every spending bill introduced into Congress. No matter how beneficial a bill promises to be, it has to pass the meaningless test of a 10 year CBO deficit/debt projection assuring its deficit neutrality.
This requirement is contributing greatly to the crippling of a progressive economic agenda. Progressive advocates for policy changes believe that they must make obeisance to the deficit problem, and explain how it will be “funded” whenever they put out a proposal for a new policy. Two examples include Senator Bernie Sanders (I-VT) and Congressman John Conyers (D-MI). Sanders seemingly never fails in any speech advancing a proposal that will involve spending, to include a statement about his agreement with the importance of handling our long – term debt problem, and he usually also includes statements about how he plans to fund his initiative through new taxes on the people who can afford them.
He seems oblivious to the notion that higher taxes of any kind will cause the economy to contract and will have to be compensated for by spending that has a fiscal multiplier higher than the negative multiplier of the tax. Also, he reinforces the forces of austerity every time he makes his argument in favor of deficit reduction.
Congressman Conyers is known for long-term advocacy of his Medicare for All bill, HR 676. That bill outlines a simple and very good design for enhancing Medicare and extending it to all Americans. But it also includes a plan for further taxation to generate revenue to “pay for it,” and to show that it is “fiscally neutral.” Never mind that the economy would be much better off if the Bill envisioned a good bit of additional deficit spending, funded by Platinum Coin Seigniorage (PCS).
The Progressive Caucus in Congress provides another example. Their recent deficit reduction plan was expansive for the first two years in its decade projection, but the remaining years of their projection envisioned smaller deficits than most of the plans proposed at the time. Had the plan been implemented, it would have stimulated more expansion than its competitors, but after that it would have quickly brought stagnation, and perhaps recession as well.
Fiscal policy bills ought to be evaluated based on their anticipated overall benefits, both economic and more broadly social. But for many years now, consideration of bills strengthening the economy, the safety net, and solving our other major problems can’t get beyond the deficit spending issue, unless they’re about defense, or bailing out big banks and insurance companies. Our Congress has become a legislature of mean skinflints; and our Executive a branch full of green eye shades.
So, the most important reason to pay off the national debt is that its presence is a political barrier to solving the problems facing the United States, because it is a big stick with which to beat up people who actually want to solve these problems. If we use Platinum Coin Seigniorage (PCS) to pay off the debt, then we can turn to our real problems, and have a much better chance of solving them.
— The third top reason for paying off the debt is one of rapid education of the public. Americans need to understand that our fiat currency system gives us the policy space to solve our problems because, unlike households and every other type of currency user, the Federal Government doesn’t have to worry about not being able to afford to deficit spend up to the point of full employment.
They also need to understand that if a piece of legislation will benefit most of us, then we can always afford it, whatever the level of debt or the debt-to-GDP ratio involved, as long as we have REAL resources to implement the legislation. But the easiest way for them to come to understand these things is to provide a demonstration that the Federal Government really does have the currency-issuing power it needs, to do whatever we need and want it to do. A demonstration of this will shorten the education process about the nature of modern money by many years. That education can’t come too soon for this country.
Time to Transcend
If we want a healthy and growing economy, beginning this year and in every year from now to 2023 and beyond, then we ought to use Government deficit spending, preferably without issuing debt, to provide both full employment and price stability and to address the other extraordinary challenges of national adaptation we face. We have no Government Budgetary Constraint (GBC) to prevent us from doing that, regardless of the continuous propaganda spread by the Peterson front groups likening the US Government to an overgrown household of currency users rather than a modern government that issues its own fiat currency.
It’s time to transcend the “Fix the Debt” and deficit reduction nonsense we’ve been seeing for years from the Peterson-funded network of organizations. It’s time to get on with the job of using the powers of Government to bring back a nation that cares about economic and social justice, inequality, economic growth, energy, environmental and climate sustainability, and the wonderful future we can have if we’re only willing to forget about false solvency issues and start building it.
We must change the focus on US economy. US economy should focus on growing its GDP. Revenue is more important than Debt. If a major Corp. is focusing on how to pay its debt than its first priority is Revenue. If its sales fall too low than its ability to pay its debts are comprised. But US Federal Gov. is different than normal business. It issues its own currency and collects taxes to pay off its debt/interest and pay for federal expenditures that benefit US economy. Yes, even large social federal expenditures like Social Security, Medicare and Medicad go right back into economy as revenue for commerical businesses. And Federal Debt is not in danger of being unpaid nor should its focus be on having no debt. Federal Debt can add to Consumer side Savings. Why do people think reducing social spending will benefit the economy? Reduce social spending and you reduce GDP. Haven’t the results of austerity in Euro Zone convinced everybody that reduced gov. spending only continues to depress GDP and increase unemployment. Increasing unemployment adds to Gov. costs and less tax revenue.
Many of us here thing that the overall goal of fiscal policy should be public purpose. Breaking that down we begin with full employment with price stability and do not recognize a trade-off between these two. If we provide for full employment, then economic growth will take care of itself, but there also other important values for fiscal policy. I’ve tried to outline those more broadly here, but do not claim that my list is either complete or shared by all MMT writers.
Supporting the cases for the need for full employment and price stability lies a meta paradigm of public purpose: Ensuring the long term survival of the species and the ecosystem.
That meta paradigm may be the seen as the unifying force that supports full employment and price stability because it represents a call to action for all of humanity.
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Overall a good post, Joe. Although I have to quibble with the following:
“He seems oblivious to the notion that higher taxes of any kind will cause the economy to contract and will have to be compensated for by spending that has a fiscal multiplier higher than the negative multiplier of the tax.”
My one big beef with MMT is that it fails to account for income inequality in the private sector. While the mainstream left is overfocused on the long-term debt and increasing taxes to pay for it, they are right in one aspect. Increasing taxes on the top income earners and redistributing that money to the bottom will have a positive impact on GDP without increasing the debt. The Robin Hood strategy of taxing the wealthy and providing for the pooer is actually a viable strategy for improving the economy and reducing the federal deficit even if the deficit is a red herring.
So you’re saying we the people should work together for the good of us all. Next you’ll suggest we should be expecting liberty and pursuing happiness. But Saint Ayn promised me a private utopian hideaway in the mountains, fenced and protected from the countless throngs who would be happy to slave away for subsistence in order to fill my coffers with all the luxury I deserved. I’m flummoxed.
You make a great case for a rational fiscal policy. But the current problem is not so much what to do or whether there is an adequate percentage of the populace willing to work toward that end, it is how do we start and perpetuate a movement that can get it done?
Stephanie Kelton occasionally reminds us that we’ve been here before and that FDR’s regime got us out of it and headed down a just path. Economists pointed the way and gave us a plan but the 1% of that era refused to cooperate. It took a terrifying war to give FDR the leverage to essentially nationalize industry and dig us out.
Today we’re commemorating a charismatic leader who ignited progressives and a charismatic president to begin the last great surge for social justice. But only after an assassination empowered LBJ was he able to strongarm the legislation through. And who knows what other ammo he had to have in the gun he held to congress’s head before they consented to pass a law “for the people”.
With second and third generation coal miners rioting to support their overlords right to lead them to the same miserable lives and deaths of their ancestors, masses of religious fanatics mobilizing to help destroy creation and mindless throngs goose stepping to the cadence of Peterson and his allies, how do we mobilize ourselves.
They say it’s easy to herd bison as long as you’re going the same direction they are. There are now a lot of us ready to head in more or less the same direction. How do we start the stampede?
We can show people, their labor isn’t being put to the highest best use with respect to their own interest, by working in the mines etc for the man. I think we can win converts if we can show that.
This would take a few successful examples of migrations from the old to the new as seeds. It would be a terrible thing if we had to wait until nature makes the point herself.
Thanks for responding, John. My post was a bit of a rant. I must remember to chill and reread before hitting the button. The weakening effect of emotions on thought is precisely how miners and others end up working against themselves. You are dead on, I think, with the “few successful examples” comment.
The Trillion Dollar Coin idea has reached German MSM! 🙂
Münchau mentions it in Spiegel Online: http://www.spiegel.de/wirtschaft/soziales/shutdown-in-usa-kolumne-von-muenchau-ueber-eine-billion-dollar-muenze-a-925758.html (in German, sorry)
Now, he admittedly calls it a “delightful trick” but at least the idea has made enough waves that they crossed the Atlantic.
Thanks for letting me know. I read it in Google translation. I hope it creates some sentiment in Germany pressuring the Fed and the President to use the coin. Btw, a $60 T would probably make the debt ceiling crisis issue a dead letter forever.