Sovereign Spending and Public Goods

By J. D. Alt

Based on my new understanding of Fiat Money, I’ve concluded that it is both logical and desirable for the U.S. sovereign government to issue and spend MORE dollars than it collects back in taxes. Doing so accomplishes two fundamental goals:

1. It enables the sovereign government to purchase from the Private Sector goods and services which will benefit society as a whole; and
2. It enables the businesses and households in the Private Sector to build up a reserve of fiat dollars which can be used to expand the goods and services available in the Private Sector economy.

Issuing and spending MORE fiat dollars than it collects back in taxes means the U.S. sovereign government, itself, will build up what is commonly—but misleadingly—called a federal “deficit”. This terminology is misleading because it strongly infers that the “excess” sovereign spending must somehow be “paid back.” The average citizen is made to fear that his or her national government is making the same grave mistake that a household makes when it “spends” more dollars than in “takes in”—creating a household budget deficit, and requiring the household to borrow dollars that will eventually have to be repaid. This fear is both logical and powerful, and it is invoked each time the words “federal deficit” are heard or read. Because of this, it is very easy to convince normal, intelligent people that spending by the U.S. sovereign government must be CONSTRAINED, or the nation will become insolvent and bankrupt.

I now understand, however, that excess sovereign spending does NOT have to be “paid back”—EVER! This, in fact, is the whole point of “sovereign” spending. Sovereign spending is the SOURCE of fiat dollars—it is the PROCESS by which the fiat dollars we all use, every day, are issued INTO the Private Sector economy. The fact that this process can ALSO, at the same time, create goods and services that will greatly benefit our American society as a whole is the astonishingly GOOD NEWS—news that we must now convince ourselves is actually true.

To assist in that convincing I would like to suggest that some “vocabulary adjustment” is desperately needed and long overdue. Specifically, we need a more accurate term to replace the misleading phrase “federal budget deficit”. My proposal is “National Asset Expansion” (NASSEX for short). Sovereign spending over and above what is collected back in taxes generates a National Asset Expansion. Furthermore, I propose that the the specific goal of NASSEX should be to generate the growth of REAL “Public Goods” (as opposed to simply pumping “cash” into the financial industry with the dubious assumption the financial industry will do something useful with it.)

Since I’m an architect instead of an economist, I’ll define “Public Goods” in my own peculiar (but I think practical) way: A Public Good is anything that (a) can be demonstrated to significantly benefit society as a whole (even though it may be privately consumed) and (b) is UNLIKELY to be produced by the profit motive of the private market. This is a broader definition than what most economists would allow, but from my perspective the only IMPORTANT issues are whether a thing is desirable and, if so, is it likely the private market—on its own initiative—will produce it? If the answers to this two-part question are respectively “Yes” and “No,” then the thing in question, from my perspective, qualifies as a “Public Good” that can justifiably be paid for with sovereign spending.

My first NASSEX proposal for this year (2013.1) meets the above definition in spades:  $1.4 billion to hire the 2000 new food inspectors the U.S. Food and Drug Administration (FDA) recently announced would be required to implement the Food Safety Modernization Act passed by Congress two years ago. (“FDA begins implementing sweeping food-safety law,” The Washington Post, January 04, 2013.) The new safety standards seek to insure that lettuce, for example, isn’t irrigated with water that flows from fields of cow manure, or that workers processing and packaging chicken parts are cleanly dressed and have hand-washing sinks convenient to their work tables, etc.

“The CDC estimates that each year roughly 1 in 6 Americans (or 48 million people) gets sick, 128,000 are hospitalized, and 3,000 die of foodborne diseases.” (Quote from the Center for Disease Control website.)

In spite of the above statistic, austerity-obsessed leaders in the U.S. Congress are positioning to PREVENT the hiring of these new food inspectors as being something the American nation—with its huge “federal budget deficit”—simply cannot afford. Representative Jack Kingston (R-Ga.) is quoted in the Washington Post as saying “No one wants anybody to get sick, and we should always strive to make sure food is safe. But the case for a $1.4 billion expenditure isn’t there.”

But now we can help him make the case! Preventing the illness of 49 million Americans seems to meet the standard of benefiting society as a whole; furthermore, it would be difficult to argue that the profit-motivated food industry, itself, would be likely—by any stretch of the imagination—to provide these inspection services. Food inspections, therefore, qualify for NASSEX spending.

NASSEX #2013.1 shall therefore issue and spend $1.4 billion to pay the salaries, benefits and expenses of 2000 new food inspectors. NO TAXES need to be collected to cover this expenditure. Nor does the sovereign government need to borrow fiat dollars from anybody to hire these new inspectors. This expenditure shall simply be sovereign spending over and above what will be collected back in taxes. It is not $1.4 billion that, by any logic, will ever have to be “paid back” to ANYONE. Best of all, it no longer increases a thing called the “federal deficit”—terrifying the masses into believing their national government is going broke—because what this spending is now doing INSTEAD is creating a National Asset Expansion which we are all going to greatly benefit from.

Will NASSEX #2013.1 create inflation? This is unlikely since the fiat dollars will be spent to pay 2000 men and women who were previously unemployed. Also, in order to pass the inspections, food growers and processors will have to hire people themselves to clean up the irrigation systems, install hand-washing sinks, and wash and dry processing uniforms etc. In other words, lots of new goods and services will be generated in the Private Sector economy to “absorb” the new fiat dollars the NASSEX will issue.

And what (in addition to preventing 3,000 deaths each year) will those 2000 new food inspectors do with the fiat dollars they’re paid for their services? Let’s see, they’ll probably buy cars and houses and lawnmowers, and flowers for their wives or barbeque grills for their husbands, and toys for their children. In other words, it sounds like a very good start to a REAL economic recovery.

So if Jack Kingston happens to be YOUR congressman, please send him a link to this essay and ask him to take a few moments to understand how fiat money and sovereign spending actually work. America CAN afford to have safe, healthy food—and much, much more as well.