Government Spending Doesn't Work How You Think It Does
Article by Derek Contreras, picture by Andre Taissin, collage by Mallika Sunder
Every day is a new surprise in 2020. With the coronavirus infections raging in the US and no flattened curve in sight, it's impossible to say what is coming next, but some things are essentially guaranteed. Benjamin Franklin is famous for his quote, “...in this world nothing can be said to be certain, except for death and taxes”. To that list, I would add the bipartisan agreement to crush working people on behalf of the ruling class. This was made clear with the near unanimous passage of the CARES Act through both chambers of Congress, in which the majority of funds went to businesses, rather than to consumers that were impacted the hardest. Also, the recent expiration of the eviction moratorium could lead to the homelessness of millions of Americans amidst a global pandemic, although congress is no stranger to mass evictions during societal crises. The Democratically controlled legislature allowed 10 million Americans to be evicted during the Great Recession, while concurrently rescuing the banks responsible for the crash. Why is it that, during catastrophic scenarios from financial crises to global pandemics, there is a belligerent uproar from both Democrats and Republicans to mind the deficit when it comes to economic relief for American citizens, but multi-billion dollar industry bailouts pass without a peep?
These societal failures are not the grim yet inevitable consequences of a country which cannot afford anything better. Instead, they are deliberately constructed institutions of oppression which result from the decades-long permeation of corporate ruling class ideology. Such ideology has led the general public to fundamentally misunderstand how congress functions, giving the elites full advantage over our collective deception. This misunderstanding of the federal government is often summarized by an incorrect exchange beginning with the question, “How are we gonna pay for that?” in reference to federally funded social programs, and the response is, “The American people fund X program through their tax dollars”. Conventional wisdom has taught us that this is obviously how things work. The problem is that this widely held belief is inaccurate and is purposefully dishonest. Taxes do not pay for federal programs.
The United States has the unique ability to create US dollars, and therefore every dollar of new spending for every federal budget every single year, is simply willed into existence at the Federal Reserve. Taxation began in order to commodify money and hence require everyone to value the currency; now, it is used as a method of reducing the money supply while simultaneously limiting an individual's buying power to mitigate inflation. What I am describing is called Modern Monetary Theory (MMT) and it applies to any country which has a high degree of monetary sovereignty, meaning that it is in control of its currency. Countries in the European Union, for example, have no monetary sovereignty because each country gets the euro from the European Central Bank, and cannot independently increase its money supply). So, if a country like the United States, which has monetary sovereignty, can spend as much money as it wants, why is concern for a balanced budget such a common talking point among the political establishment?
The answer is that it is convenient for corporations and the ruling class to propagate faulty economic logic to prevent social programs from interfering with their profits. Medicare for All would essentially eliminate the private health insurance industry while greatly reducing costs for Americans. Tuition free public college would allow many millions the opportunity to attain an advanced degree without the decades long burden of student debt. The Green New Deal has the potential to employ millions of Americans that would otherwise remain jobless while improving domestic conditions and the overall wellbeing of the planet. Unfortunately, we can’t have programs like these because our congresspeople refuse to advocate for the middle and working class. Rather than fund universal programs which would uplift the masses, the elites take advantage of MMT to fund industry subsidies, military expenditures and massive tax cuts and loopholes.
MMT is not an immediate gateway to utopia, or a solution to all the problems in the world. As with all things, too much of a good thing can be dangerous, and there are real limitations to the amount of dollars the US can spend before there is a rise in inflation. That being said, it is an undeniable fact that MMT is the manner under which the national government operates financially. It is important to remember that economics is not a physical science, but one with trends and guidelines that can be adjusted to serve working people rather than corporations and the ultra-wealthy. In summary, always reject the notion that taxpayers fund the federal government and remember that, according to Modern Monetary Policy, yes, our government can pay.
Author's Note with Sources:
This article only scratches the surface of MMT and I welcome questions at derekcontreras314@gmail.com. I credit the MMT introduction to "The MMT Podcast" and the book The Deficit Myth by economics professor, Stephanie Kelton.
