After some thought, I decided to balance the US’s liabilities and its income streams. Economists often compare national debt with GDP, so I’ll do that.
Why?
Is employment at full 100%? Have you met all the goals and reasonable expectations of the people, including the desire to net save? Does your economy not have any currency (demand) leakages, such as a trade deficit, that need to be compensated for? Is the private sector debt manageable and being paid/retired in a timely manner? Is the population stable?
If the answer to any of those questions is no you haven’t created enough currency in the private sector. Your revenue/income position is irrelevant to the private sector economy except that it offers a brake should that economy begin to become overheated. You have no “need” to even have a revenue stream to facilitate your spending and can “afford” anything that is for sale and priced in the currency you create at will. Your “liabilities” are the only source of “net fiscal assets” the people of your country have.
It has flaws, because it assumes: — That a central government knows enough about a complex economy to second-guess the market. — That that government has enough influence over an economy to meaningfully change it quickly. — That improved economic capacity aligns with economic stimulus.
Two words; automatic stabilizers. The best form of such is a federally funded job guarantee that both pins the economy to labor and offers a floor for wages and benefits sufficient to provide a dignified lifestyle. The federal government doesn’t have to manage the jobs, only pay for them to provide an injection of new money countercyclical to the business cycle. As the economy slows the money injected will prevent supply chain erosion and workers will retain their social and work skills until the private sector needs them again and bids enough to attract them away from public service.
The investment spending needed to meet that new demand is almost totally out of my control. I can build bridges and improve roads, but the benefits won’t appear for years. In the meantime, I either reverse my tax cuts or start increasing interest rates.
Every dollar spent by the federal government immediately becomes someone’s asset in the private sector. Increasing taxation drains demand from the economy without enabling the government’s spending one bit. That spending is always under your control without consideration for revenue.
You have to let go of the concept that the monopoly issuer of the currency needs to “get” that currency from somewhere to fund its spending. It doesn’t, and never has. The US dollar is not a “thing” that the government must get from the private sector. It is a tax credit that our economy uses as a unit of measure to price contracts, resources, and labor. Your government “funds” the economy, including Treasury bonds, not the other way around.
That makes the dollar self-funding and the only debt incurred in its creation is a promise to credit a future tax obligation. The private sector has no control over taxation (beyond the democratic process) so it is never liable for the “debt” in the way the word is normally applied. If it were, all currency in the private sector would be collected and canceled to pay that debt and all private-sector debt, including accumulated trade deficits, would go into default. The national debt represents past productivity not yet collected in federal taxation, not a mortgage against future productivity. It is a mostly meaningless tracking entry within the government’s accounting system.
You can’t understand macroeconomics without a grasp on basic sectoral balances in a dual entry spreadsheet accounting system. A “balanced budget” is a 100% tax rate and the theft of resources and labor from the private sector. It leaves nothing in the economy to store value to net save, fund economic or population growth, or retire private bank debt. In spite of this, it has somehow become the political holy grail and even life-saving spending measures are stopped dead in Congress with a simple question; “How will you pay for it?”.
I wish MMT were as simple as it sounds.
It is actually much less complex than the accepted concept of how our government finances itself. If the economy is experiencing “any” involuntary unemployment it is being overtaxed or government isn’t spending enough. Any undesirable inflation is indicative of the opposite. It isn’t political and only provides an accurate lens through which the reality of our economy should be viewed. We don’t fund our government with taxes or bonds, as both require dollars that already exist from prior spending.
Our government funds the economy and any misery in that economy that can be mitigated with spending is entirely a political decision. Using the productivity of the private sector economy to balance mostly meaningless accounting numbers on the government’s spreadsheet is literally killing many of us and is at the root of many of our social ills. We should stop that.
