By J.D. ALT
Whenever I get frustrated—which is quite often these days—I vent some steam (and feel somewhat better) simply by imagining a response that Bernie Sanders, Elizabeth Warren, or Alexandria Ocasio-Cortez might give to some conservative pundit when they say, “Yes, but that’s going to increase deficit spending beyond anything imaginable!”
REPLY: “Excuse me, Anderson, I don’t use the term ‘deficit spending’ because it suggests or implies something which is demonstrably not true. It implies that when the federal government spends more dollars than it collects in taxes it is creating a debt that it will have to repay in the future. This is factually not the case. If the government spends three dollars and collects one dollar in taxes, it creates a ‘net spending’ of two dollars. It’s as simple as that.
And where does the ‘net spending’ go? It goes into the pockets and bank accounts of the American people—the citizens whose goods and services are paid for with federal spending. To imagine those two dollars must be ‘paid back’ to somebody in the future is delusional. Who would they be paid back to?
Now then, does all this mean that you or I—or General Motors—can ‘net spend’ the same as the federal government? The answer, of course, is NO! We cannot. So why can the federal government ‘net spend’ while we, ourselves, can’t? The answer, again, is simple: We can’t ‘net spend’ because we’d quickly run out of dollars for spending. The federal government, on the other hand can’t run out of dollars because it is the one who creates dollars in the first place. Where else do you think fiat-dollars come from? Do you think we mine for them, dig them out of the ground, discover them in green-rich veins of rocky earth? NO! The federal government issues them. In most cases, they’re not even printed, they’re simply issued as numbers on an electronic balance sheet. That’s how modern U.S. dollars come into existence. After that, the federal government collects some of those dollars in taxes. And then it spends whatever Congress decrees it needs to spend. If it happens to spend more than it collects, that’s ‘net spending.’
Now, there have to be rules about this, right? There must be controls—checks and balances—over these operations. We have to manage the whole process carefully, and monitor it continuously, so the federal government doesn’t issue more fiat-dollars than the real production of goods and services can absorb. If that happened, market prices could be destabilized, and inflation could get out of hand. So, it’s not something to be taken lightly.
At the same time, however, if a democratically elected Congress decides the federal government needs to spend dollars to accomplish an important public good or collective goal, is it logical to say, ‘No, we can’t do that because there aren’t enough dollars’? That is the most illogical thing you could propose. There can always be enough U.S. fiat-dollars.
If American commerce decides to grow, and U.S. banks decide to expand credit to accommodate the new businesses and new employment and new consumer purchases, does the Federal Reserve say, “Sorry, there aren’t enough dollars to do that”? No. The question doesn’t come up. No one is screaming about creating money to finance private commerce. So why are we screaming about creating money to finance public commerce—the public good?
In each case, American businesses and citizens get paid dollars to produce goods and services. So why is one case—private commerce—great and wonderful, while the other case—spending for the public good—a disaster?
The only question that’s pertinent is whether there are enough REAL resources—labor, technology, energy, materials—available for the dollars to buy to accomplish both the goals of private commerce and the goals of the public good. If the answer is “Yes,” the dollars can be issued and spent without pushing up inflation.
So, please, don’t talk to me about ‘deficit spending.’ I’m tired of hearing it, and it just takes our attention off the real things we need to get done.
Now let me interrupt before you even ask your next question, because I know what it’s going to be! What about all the treasury bonds the government issues and the interest it must pay on those bonds? My answer is: don’t worry about it. Treasury bonds are simply a tool to manage the future cost of money in the financial system. The Treasury and the Fed coordinate to do this. It’s tied to interest rates, which are tied to bank profits, which are tied to the planning of private commerce. Treasury bonds do not constrain the creation of money, they facilitate it.
Someone has told you that the government is going to go broke, that financial markets are going to stop wanting treasury bonds, that someone is going to show up on our grandchildren’s future doorstep and demand twenty trillion dollars in back pay. Well, so long as the U.S. government stays in business, it’s not going to happen. And if the U.S. government goes out of business, it’ll be the last thing our grandchildren will be worried about.
So, please, let’s stop talking about all this scary going-broke stuff, and start focusing instead on what we need to undertake and accomplish so our grandchildren will even have a livable world to exist in!”