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Austerity Is A Sham

The Road to Resilience

Suppose the federal government could make money out of nothing and spend it freely.  Suppose they could do it not only without raising taxes, but possibly lowering them, and that the country would thrive on full employment.  This sounds like the kind of promise that a snake oil-peddling politician might be able to buy some votes with.  Amazingly enough, there is a possibility that such a scenario could turn out to be true.

Recently, a friend of mine sent me a video explaining the doctrine of Modern Monetary Theory.  In the most recent The Nation magazine (May 22, 2017), there is a feature article on it.  Economists such as James Galbraith, Dean Baker, and Paul Krugman have quietly admitted that the theory has a sound basis, but it is so counter to the prevailing beliefs and so outrageous, economists don’t seem anxious to promote it for fear of losing credibility in the field.  Very few of us are given the gift of certitude when it comes to judging economic theories, and I certainly am not one of them, but this theory has serious economists risking their reputations in promoting it

In the Nation article, a situation was recalled from 2013 when some spending programs and some tax cuts were expiring.  The problem for both sides of the aisle concerned the national debt and whether to raise the debt limit.  Someone suggested that the government mint a trillion dollar coin and deposit it in the Federal Reserve.  It was perfectly legal, and since it would not go into circulation, it wouldn’t be inflationary.  It never happened, of course, but only because it was too big a stretch for the national imagination.  Examples of this kind of spending that did happen were the trillion dollars for the Iraq War and the 800 billion for the Wall Street bailout.  Where did that come from?  Certainly not the budget.

Basically, the Modern Monetary Theory (MMT) starts with the bedrock of modern economics, which is that, since we abandoned the gold standard, money is created by our sovereign government by fiat. That is, they can create as much as they want whenever they want with no basis in actual material wealth.  There are practical considerations, just as there are when you decide how much ice cream to order for yourself.  In economics, one consideration would be that inflation problem. That is, your dollars would be worth less and less.  In any case, limits or conditions on the issuance of money by the federal government are political decisions.  

According to Modern Monetary Theory, the idea that national debt is something that we will pass on to our grandchildren if we don’t bankrupt the country first is all a bunch of hooey.  Our biggest misconception is the equating of money with wealth.   Money is a medium:  it is the grease that makes the economy work.  The more money circulating in the economy the more jobs and wealth are created.  It’s similar to the Trickle Down Theory in desired result. Trickle Down doesn’t work because the money is only given to the wealthy and they aren’t sharing.  MMT gives directly to everybody.  If we want a full employment economy, free college, and universal health care, we can have it, and MMT says that we will thrive.  It is only a matter of political will.

If issuing money is the gas pedal, what is the brake?  The brake is the most effective way to take money out of circulation, and it’s one of the two things that “we can be sure of,” and it isn’t death:  it’s taxes.  If the economy is really active and heating up, we tax everybody and cool it down.  Both the left and the right have part of the solution right.  We need to spend more and tax less!  I can’t believe I just said that.

This makes it sound deceptively simple.  Just as a talented athlete in top condition can run into trouble if they aren’t alert and attentive to changing conditions, we have to practice good judgment, curb greed, and diffuse power.   We have to realize that a change of this magnitude will need to be introduced gradually.

Both “Liberals” and “Conservatives” believe that everybody should have the opportunity to get the education they want and a means to secure the things they need for themselves and their family.   Both agree that the government must be utterly accountable to “We the People” and not corporations.  Both agree that we need to rebuild our infrastructure.  There are real cultural and religious differences, but not nearly as many as the wealthy would have you believe.

Austerity is a phantom card that the wealthy play to control you and make sure the profits go to them.  Austerity has reeked havoc in countries like Argentina and Greece, and the EU is slowly starving from the slim diet it serves up.  

Check out MMT on the web and draw your own conclusion.  We have the resources to make all of us prosperous.  Within a few years, free college can produce all the healthcare personnel, technicians, engineers, etc. that we need to provide a good living for all, and all the goods and services we require.  We still have to live within the finite resources of this planet, but we needn’t let money hold us back.

Comments? (please tell me what’s wrong with MMT):