A few days back, the President had some remarks on taxes, fairness, “The Buffett Rule,” “fiscal responsibility,” and making real choices with real consequences. From my point of view, informed, in part, by the Modern Monetary Theory (MMT) approach to economics, these remarks were so wrong-headed, that I’m afraid I can’t let them pass without a rebuttal. Below is a paragraph-by-paragraph commentary on some of his remarks.
“Now it’s not that these folks are excited about the idea of paying more taxes, this is something I’ve always made clear, I have yet to meet people who just love taxes. Nobody loves paying taxes. In a perfect world, none of us would have to pay any taxes. We’d have no deficits to pay down and schools and bridges and roads and national defense and caring for our veterans would all happen magically.”
We have no need to pay down deficit-associated debts, since the Treasury can always roll over such debts by issuing and selling new debt instruments. But if the Government does want to pay down the Federal debt subject to the limit, it can certainly do that, under current law, by using the Trillion Dollar coin solution, also known as Proof Platinum Coin Seigniorage (PPCS). Using PPCS is perfectly legal at this time. And if a $60 Trillion coin were minted tomorrow, then that would allow all the debt subject to the limit outstanding right now to be paid as it comes due, and all the debt (about $6.2 Trillion) owed by the Treasury to other agencies of Government including the Federal Reserve within a week.
In addition, it would probably also cover 15 – 20 years of deficit spending yet to be appropriated by Congress. This process of using PPCS can be thought as filling the public purse. And there’s no magic involved in it, just the Mint creating a coin according to law, and then the Fed as the Mint’s bank, crediting the deposit on the coin to the US Mint Public Enterprise Fund (PEF) account. Then, also according to law, the Treasury may “sweep” the Mint’s PEF account for its coin seigniorage profits, by transferring the seigniorage to the Treasury General Account (TGA).
“We’d all have money we’d need to make investments in the things that help us grow; investments, by the way, that have always been essential to the private sector success as well. They’re not just important in terms of the people that directly benefit from these programs; but historically those investments that we’ve made in infrastructure and education and science and technology and transportation, that’s part of what has made us an economic superpower.”
Again, we already have the capability to generate as much money as we need to use for whatever public investments we need to make to secure the future of the United States. The easiest currently legal way to generate that money is to use PPCS. But, since the constitution allows Congress to create as much money as the US needs to make any investments it deems necessary, Congress can also delegate its constitutional power to create money to the Treasury, by simply moving the Fed under the supervisory authority of the Treasury Department. Of course, doing this won’t affect the exclusive Congressional power over the purse under the Constitution, since the Treasury won’t be able to spend any money it creates unless the spending involved has been appropriated by Congress.
“And it’d be nice if we didn’t have to pay for them. But this is the real world that we live in. We have real choices and real consequences. Right now we’ve got significant deficits that are going to have to be closed. Right now we have significant needs if we want to continue to grow this economy and compete in this 21st century hypercompetitive, technologically integrated economy.”
Well, Mr. President, in the real world, Governments like the United States with non-convertible currencies, floating exchange rates, and no debts in currencies they can’t create and control, aren’t like individual households, States, Eurozone nations dependent on a foreign currency or corporations. Governments like these can create reserves at will. So, they can never become insolvent, and they can always buy anything that is for sale in their own currency.
Because the US Government can’t become insolvent, it can always pay its debts on time, and it can choose whether to roll over these debts by issuing new debt instruments, or, alternatively, to pay off these debts with newly created reserves. So, whether we “close” our deficits or not is the Government’s choice. From a solvency standpoint it doesn’t matter either way.
That’s the US Government’s real world. That real world does require real choices that have real consequences as the President says. But those choices are about whether the President will acknowledge the real world and use fiscal policy to end the recession, create full employment, Medicare for All, a first class educational system, new energy foundations, a re-invented infrastructure, accelerate technological innovation, and expand and enhance the social safety net to update it for a 21st Century World of unprecedented productivity, or whether he will continue to believe the precepts of deficit hawkism and insist that a Government with a capability to produce as much money as it can possibly need, really needs to get back its own money by taxing or borrowing only.
The real consequences of these alternative choices are not something this President has been willing to face. One choice leads to lost decades and the de-evolution of the US into a third world nation dominated by a small group of kleptocratic oligarchs. The other one leads to the reconstruction of the United States and to the fulfillment of its goal values of liberty and equality of opportunity. The President may be OK with this first choice; but I’m not!
Unless and until the President escapes from his austerity fantasy and sees the reality of our modern money system he will continue to make very bad fiscal choices and to sacrifice the futures of hundreds of millions of Americans on the altar of his neo-liberal old time religion. He needs to end his adherence to the old-time religion, and start learning some post-Keynesian economics, and particularly MMT, with its commitment to full employment at a living wage with price stability.
“That means we can’t afford to keep spending more money on tax cuts for wealthy Americans who don’t need them and weren’t even asking for them. It’s time we did something about it. I want to emphasize this is not simply an issue of redistributing wealth; that’s what you’ll hear from those who object to a tax plan that is fair.”
There is no problem about affording the tax cuts. We can afford them because we can always make new money for the programs people need.
But there is another and much more important reason why we should end the Bush tax cuts for the rich and even raise marginal tax rates way beyond the rates under the Clinton Administration. That reason is that a democracy needs to re-distribute wealth when it reaches a state of extreme inequality.
Extreme inequality is a critical issue! It is not about envy! It is about justice, fairness, and above all the future of American democracy! In the end, extreme inequality of the kind we have now is a threat to political democracy that we cannot live with for very long.
It gives the few too much say over politics, too much influence over office holders. It undermines one-person one-vote. It makes democracy unstable and threatens its very existence. We. Just. Can’t. Have. That. Extreme wealth and income inequality must end. “A House Divided Cannot Stand!” People must become economically more equal, if our way of life is to survive!
“This is not just about fairness, this is also about growth. This is also about being able to make the investments that we need to succeed; and it’s about we as a country being willing to pay for those investments and closing our deficits.”
No, Mr. President, the “fiscal responsibility” through austerity you are calling for is really “fiscal irresponsibility.” It is not about growth! (See the results all over Europe.) It is not about the future! It is not about investments! It is about your failure to look at the Government and its impact on the world as it really is, and to see it instead as just another household or business. It is not that, and so we need no austerity!
Instead, we need leaders who are willing to use the fiscal power of the Government to enable the economy to create real wealth. But, right now, you and the other austerity mongers in Congress and among the emerging elite are standing in the way of healing our economy and building our individual and collective futures. Please stop it!