Doing What the Market Can’t


What decides whether something is undertaken in America is the “market.” The way the market decides what is to be done is by determining whether people are willing to pay to benefit from the undertaking, how many people are willing to pay, how much they are willing to pay, and all this is then compared with the cost of the undertaking. If nobody is willing to pay for the benefit (no customers), the undertaking will not happen. If the number of people willing to pay, multiplied by the amount they are willing to pay, equals a dollar value less than the cost of the undertaking, the undertaking will not happen. If, in fact, that calculated dollar value is not some specified percentage GREATER than the cost of the undertaking (profit), the undertaking will not happen either. If the calculated profit is determined to be adequate, the undertaking will move forward and the cost of doing so will be invested in anticipation of harvesting the profit. These are the basic rules and dynamics of a Market Economy which is—for many good reasons—the chosen, championed, and cherished American economic model.

America’s Market Economy—with the motivations inherent in its structure—is astonishingly good at making sure that a never-ending parade of efforts are undertaken which do, in fact, address and provide for many of the real needs of American citizens, families, and society. The Market Economy is even good at providing things that people don’t really need but derive a lot of pleasure, fun, or sense of well-being by having—which, again, is why they are willing to pay (in some cases extravagantly) to have those things, and why the Market Economy is so endlessly creative in undertaking to provide them.

It’s a magical “machine” that essentially runs and guides itself using Adam Smith’s famous “invisible hand.” Less understood, but even more magical, the sovereign U.S. government creates, as necessary—and without debate or effort—the money required to keep the operation running. The machine would quickly STOP running, after all, if people didn’t somehow have the money they needed to pay for the things the Market Economy produced—and it would sputter to a halt as well if the undertakers of things didn’t have the money required to produce the things they determined people wanted to buy. These “money needs” are crucially (and, to repeat, effortlessly) handled by the U.S. Federal Reserve banking system. This system, not well understood by the average citizen, is a joint venture between America’s sovereign democracy—embodied in the Federal Government—and the private U.S. banking industry.

(Without going into detail, the joint venture works basically like this: the private banking industry creates the “money” the Market Economy determines it wants to spend by making bank-loans, and the U.S. Federal Reserve (America’s central bank) converts that “bank-loan money” into U.S. dollars by simply “creating” them—as necessary—either electronically or with a printing press. (For a more in-depth description of this process here is a detailed explanation by Economist Eric Tymoigne.)

But back to the point at hand: While the Market Economy system causes truly wondrous and useful things to be made available to American consumers, there are certain things it fails to provide. Namely, it fails to provide those things which are not profitable to undertake. Or—a variation of the same problem—it fails to provide some things at a price the average citizen can afford to pay. Some of these unprovided things are not only needed, they are existential necessities for individuals, families, and the collective American community. (Three examples come to mind immediately—health-care, education, and affordable housing—but the list can be quickly expanded, for example, to include funding the legal justice system, community water and sewer system repairs, air-traffic control systems, etc.) The challenge of progressive politics has always been to figure out how to provide these needed and necessary things which the Market Economy, by its nature, is unwilling to produce, or incapable of producing at a price the American citizens can afford to pay.

This challenge has always been difficult for many reasons. Chief among them, of course, is the apparent difficulty of obtaining U.S. dollars to pay for the not-profitable undertakings. As we’ve just understood, the Federal Reserve banking system “automatically” creates money, as necessary, where a profit is to be made, but refuses—by its statutory structure—to create a penny for something that is essential but unprofitable. For those things, there appear to be only two options for acquiring the dollars necessary to pay for the labor and resources to undertake profitless undertakings: taxes and charitable giving.

This limitation dramatically constrains what non-profitable things can be undertaken and accomplished. While the things profit-making ventures can do are constrained only by the availability of real resources—labor, materiel, technology—and the calculus of Return-On-Investment, not-profitable ventures are apparently constrained by the availability of a finite pot of U.S. tax-dollars parsimoniously guarded by an electoral political system terrified at the prospect of levying taxes on its constituents. Or, alternatively, by the availability of charitable largess by a super-wealthy class of citizens (who use the largess, ironically, as a strategy to reduce their own contribution to the pot of tax-dollars).

There is a third option, of course, which is what the political system, in fact, overwhelmingly chooses to utilize: the sovereign U.S government can “borrow” the dollars necessary to buy the unprofitable goods and services. This might seem to be analogous to the way the Federal Reserve banking system operates, since the businesses and consumers in the Market Economy are “borrowing” the dollars necessary to both produce and consume. Also, the source of the dollars the U.S. government “borrows” is the same source the Market Economy taps at the end of every business day: The Federal Reserve central bank (which is, in fact, the ONLY place U.S. dollars can ever come from). Furthermore, the Federal Reserve creates the U.S. dollars the government “borrows” in the same way it creates the dollars the Market Economy decides it wants to spend: it simply issues them, as necessary, either electronically or with a printing press. Same source. Same magical process of money creation.

But there is a difference. The difference is this: bank-loans are required to be repaid—i.e. they represent a legitimate “borrowing”—whereas the federal government never repays the dollars it “borrows” for the simple reason it never actually “borrows” anything from anybody. Instead, the U.S. Treasury and the central bank are using a bookkeeping trick to allow the federal government to spend U.S. dollars created directly by the Federal Reserve. In the end, there is literally nobody—no creditor—to pay back. If this seems implausible, ask yourself how it can be the U.S. sovereign government has, for decades and decades and decades, built up what now appears to be a $20 trillion “national debt,” but no debt-collector has ever come knocking on the door. It’s because there’s literally no one out there to come knocking.

Which brings us back to the central dilemma of progressive politics: how to pay for all the useful and essential things the American people need but which the Market Economy can’t provide. It should be apparent from what we’ve described above that the dilemma stems from a self-induced delusion reinforced, habitually, by a semantic mistake. So long as progressive leaders think and talk about spending people’s “tax-dollars,” there will never be anywhere close to enough money to pay for the essential but unprofitable things they want to propose. So long as they depend on charitable trusts and foundations to do their work, they must dramatically limit the scale of what can be accomplished. So long as they imagine the U.S. government is “borrowing” dollars when it issues a Treasury bond, they must explain how the money will be repaid—which, of course, they cannot do, and so are stymied to justify the “borrowing” no matter how essential or beneficial the purpose may be.

The only real option, therefore, is to eliminate the semantic mistakes, overcome the delusion, and begin thinking and talking about direct sovereign spending to achieve the essential but unprofitable goals of America’s democracy. Please note this does not require progressive leaders to disparage, in any way, the Market Economy. Indeed, they can earnestly champion and cherish it just as loudly as any conservative. Now, however, they can add the proposition that the Market Economy, so effective at providing America with much of what it needs and desires, will have a partner which can effectively provide the rest.

This essay was first posted at

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