I always find it odd that the only people who hold any “doubt” about the worth of the US Dollar as a viable store of value for the future are Americans. US Treasury bonds are consistently the prevailing choice for saving by those much more qualified to assess their value than we, or our politicians, are. People who understand money have many such options available to them but have stuck with our Treasury instruments even when Moodys was downgrading our credit rating and talking down our ability to repay obligations.
A fiat currency, our fiat currency depends on perceptions, on the confidence in the market that the “full faith and credit” of the U.S. is a solid and bankable commodity, more solid than specie.
The one thing that US Treasury bonds offer that most others can’t is stability. The dollars returned will always be exactly as advertised. A dollar will always be worth one dollar and any change in purchasing power will be restricted to the availability/perceived value of commodities, not dependent upon past or future spending by the issuing government. This position is maintained by having the good sense not to accept any denomination for the sale of bonds except the US Dollar, which is what gives it its value. It is the fact that we don’t need, or even use, dollars obtained via bond issues to “fund” anything that makes them desired as a no-risk investment.
If a government just issues new currency to fund all its spending, particularly if people come to expect that, it runs the risk of putting too much currency in circulation to match the goods available for purchase and has at the same time eliminated the mechanism for calling some of that currency back.
No one is suggesting that currency flow be completely in one direction, including the many economists now realizing the basic logic of MMT. Taxes actually drive the desire to hold dollars in the economy by making everyone who cannot satisfy their tax obligations effectively unemployed until they can. This enables the government to provision itself and pay for programs without needing a revenue source. Taxes also provide the means to limit the total money supply and to affect social goals relating to the distribution of wealth.
MMT resolves questions about taxation as “funding” by pointing out that spending must always precede collection of taxes or there is no currency to collect. Ditto for bond issues. Our monetary system interjects a lot of complexity, especially at the Fed, but the basics are fairly simple to grasp once the old myths and lifetimes of experience with the currency as “users” can be let go of. As users of the currency, we all face restrictions that the “monopoly issuer” of the currency doesn’t. Primary among those is the need to “get” money from some source prior to spending.
Disconnecting taxation and borrowing from spending as “funding operations” is critical to understanding any fiat system, and even more so when that system is sovereign, accepting debt only denominated in its own currency. Even when we used the gold standard taxation and borrowing only drew down excess reserves to allow “policy space” to spend within the value of the gold reserve and never “funded” anything. The act of destroying receipts of all revenue mandates that “all” spending is via the creation of new currency. There is literally no operation at the Fed or Treasury that makes tax/bond receipts available for Congress to recycle to spending.
Any currency entering the government sector ceases to be high power money required to spend by the cancellation of the requisite negative entity of “debt” held in the government’s sector of the spreadsheet representing the total economy. It then only becomes a non-convertible accounting entity used to track credits and debits. This was the only way to enable a system where the government held the gold that the currency represented and could be converted to upon demand.
With as much wealth in the hands of the few that now exists, taxation seems to be a natural function to fund much of the socially beneficial and undone work.
With the exception of a small contingent of anti-tax libertarians, almost all proponents of MMT are progressives. As such, they fully recognize the need to limit wealth accumulation and likely 99 other reasons to tax the wealthy. They simply state that doing so is not a prerequisite to spending on the public purpose. The best way to deal with excessive wealth is to make it irrelevant to achieving economic goals.
Once the population realizes that the wealthy are not the source of funding for spending their tax obligation will increase dramatically. Conservatives often state that no one ever obtained a job from a poor person, but they assume that logically extends to “all jobs are the result of some being wealthy”, which is the primary falsehood keeping us from achieving our full potential.
The nature of capitalism is to fully realize the potential of profit for shareholders with disregard for any other motivations, especially the well being of the workforce. It is incumbent on government to set the parameters of accepted actions of business in obtaining profits. However, the reverse view of money held by most poses a trade-off of such regulation and the potential of business to create jobs. It also promotes a degree of envy among those who pay taxes against any who benefit from government spending, greatly enabling racism and class-based judgments concerning how “their” tax dollars are spent.
I would expect much push back from wealth holders who saw “unfunded” govt spending as an erosion of their wealth holdings.
Wealth is a comparative value. Anything that promotes the general wealth of the greater population reduces the comparative wealth of the elite class and can be expected to receive opposition. However, the mere presence of new money doesn’t decrease the value of existing money as long as potential productivity exists to absorb the new spending. Markets will always increase production to garner a larger share of new currency up to the maximum potential before raising prices. Shortages and supply hiccups will always impact prices of individual commodities, as will monopolies and patents, but the money supply will not until the maximum of potential is exceeded by new money creation.
There are very real limits to production, if only the limits we will be facing as we continue our degradation of the natural systems that are our only real source of wealth. We should focus on finding our way out of an eternal economic growth model reliant on consumption that as Edward Abbey put it had “the logic of the cancer cell”.
A society that promotes a scarcity mindset that enables wealth accumulation is most likely to throw off caution in commoditizing resources. When jobs are scarce employers are given more latitude to pollute and extract resources. Such a society also isolates individuals and denies the value of shared resources and wealth.
I once spoke to a well-known environmentalist about the difference between American and European attitudes about social resources that will be part of any movement toward a more sustainable society. He said that writing a best selling book gave him considerable trepidation over its success. The number of books sold to individuals provided him with considerable accolades and some measure of wealth, but the resources required to distribute those books made its social contribution questionable.
He would have preferred to have only enough books sold to make them available to libraries and book clubs but those are both much more available and accepted in European society than in America. America has a maturity problem that will have to be addressed prior to any success in curtailing ecological damage and global warming.
