By Joseph Hykan
Another great video developed for Eric Tymgoine’s modern money course.
By Dan Kervick
The Unites States government operates a fiat currency system. The government is therefore the monopoly supplier of the final means of payment in our dollar-based economy, and is ultimately responsible, in one way or another, for any net increase in dollar-denominated financial assets in the private sector.
And yet, we continue to hear bipartisan expressions of fear and angst about the budget deficit and the national debt. Both major parties seemingly agree that we are “out of money”. They wrangle over various competing approaches to shrinking the gap between tax revenues and government spending. They appoint commissions to study the government budget and recommend some combination of slashed spending and higher taxes in order to close that budgetary gap. They warn us that we will transform ourselves into banana republic status if we do not urgently address our public debt problems.
This situation should be perplexing. Why does a government that is the issuer of the national currency have to borrow that currency back from the public to which the currency is issued? And how could such a government ever experience the kinds of budgetary squeezes and debt burdens that can pose severe problems for households and businesses?
I wish to make a radical suggestion: Public borrowing is an outdated practice, and we could dispense with it entirely. Borrowing by the public treasury and the accumulation of government debt obligations are legacies of the era that preceded the development of modern fiat currency, an era when governments were primarily users of traditional means of payment that lay outside their control, and not the producers and issuers of the primary means of payment. That pre-fiat era is now dead in the US, and the chief remaining role of government borrowing in our time is to bamboozle the public, and to obscure the true nature and effects of government fiscal and monetary operations under a bewildering maze of bookkeeping ink and financial legerdemain. Eliminating public borrowing, and replacing it with operations that are simpler, more direct and more transparent, would advance the cause of informed democratic debate over public spending and taxation. Above all, the change would eliminate needless obscurity and confusion and help us all understand exactly whose bread is being buttered by the budgetary decisions made by politicians.
There have been many job creation programs implemented around the world, some of which were narrowly targeted while others were broad-based. The American New Deal included several moderately inclusive programs such as the Civilian Conservation Corp and the Works Progress Administration. Sweden developed broad based employment programs that virtually guaranteed access to jobs.
The JG posts here at MMP have generated a huge number of comments. I have focused my responses at the comments more-or-less directly directed to the actual posted blogs. I can understand the impatience: many questions have not been answered. However many of these questions and comments concerned upcoming topics.
Let us move on to macro stability issues. I have given JG talks all over the world and the two main objections raised always refer to inflationary impacts and exchange rate impacts. It seems to me that those who respond with these fears have not paid attention to the set-up of the program and to the MMT arguments.
Thanks for the comments, many of which get ahead of the story.
I’d like to remind readers that we are ADDING the JG onto the EXISTING system. So the correct comparison is NOT against some UTOPIAN IDEAL in which we all live like Wall Street’s finest in some sort of Ayn Rand blissful Fountainhead. But RATHER to compare the existing system against one in which the JG is added. I realize this is a difficult mental gymnastic. I hope this will be clear as I respond to seven comments (the others concern upcoming topics; indeed, even these really are about topics we have not explored in detail but they are worth discussing).
This will be the final part of this series. Next week we turn to the Job Guarantee/Employer of Last Resort.
The answer to both questions posed in the title is, I think, a big fat no.
I’m not going to go deeply into methodological debates. First, I’m no methodologist. Second I don’t think many readers here are that interested in such debates. And, third, it really isn’t necessary.