If we are going to solve the student debt problem, or any other issues that now involve massive investments to maintain our competitive ability in global markets, we are going to have to rethink many of the misconceptions that have grown around our monetary system, and our money itself.
Americans have assumed that their government’s budget process is like their own, only bigger, and that the federal government must “get” money from someone, taxed or borrowed, prior to spending. However, this has never been true, even when we limited the money supply with a gold standard. When we moved away from the gold standard in ’71 very little was changed in how our government funded its spending, mostly to limit any shock to our economy and global markets that traded largely in US dollars even after we left the Bretton-Woods agreement.
The gold standard forced our monetary system to work with a finite amount of money, which made resources appear to be infinite. There was never enough money to purchase all available resources and labor. However, the move to a fiat currency turned this around. The money is now infinite and we are finding resources to be considerably more finite than we once thought possible. Most, however, have not made this mental transition and use political power to force gold standard thinking on us, which is fairly easy because it resonates with voters in terms of fairness and their own budget processes as “users” of the nation’s currency, not currency “issuers” as the federal government is.
About the same time that we left the gold standard, we had our first real experience with inflation from the Mideast oil embargo that made everything rise in price as oil-based energy was entwined in everything we produced and transported. Having the most inept Fed chairman in history certainly didn’t provide any relief from the meteoric price rises and most people associated his increases in the money supply with the inflation, not the price of oil. The truth is with a fiat currency monetary inflation isn’t even possible until all resources and labor are utilized, but “cost-push” inflation in individual commodities can still result from scarcity or supply chain hiccups.
Reagan came along at the perfect time, when a manufactured recession was doing its job of reversing some of the inflation, but killing jobs and sending even more overseas. It was easy to convince voters that government “WAS” the problem when it carried an element of truth, but not how he portrayed it. Those words, however, have echoed through elections and monetary policies to this present day with an undercurrent of distrust in the government’s ability to do anything to the people’s benefit.
So, how does this solve our education debt problem? The federal government, as the monopoly issuer of the currency, can “afford” anything for sale priced in US dollars. As long as the real resources exist to provide the desired results the cost is irrelevant. The supply of dollars available to fund education, or anything else, in America is not dependent upon “revenue” or has to be borrowed from anyone. Congress merely has to agree to spend the money and brand new money appears in Treasury’s reserve account at the Fed to cover it.
I can think of few better uses of federal funds, public money, than educating the workforce and leaders of the next generation. None of the gold standard descriptions of deficit or debt any longer apply and we do the next generation a great disservice by not using money freely available to us to give them the best shot at America’s vast opportunity. Perhaps they will forgive us for remaining stuck on stupid for a generation and spend some money to upgrade our retirement when they control the economy.
