It matters or it doesn’t

Modern Monetary Theory (MMT) holds that government spending and accumulated debt doesn’t matter because the Country can create money endlessly.

Economists generally agree that in times of national crisis, deficit spending is desirable, if not essential to meet economic challenges.

The United States is not only living negative paycheck to paycheck, it is living far beyond its means.

Economic crisis notwithstanding, why is it Americans believe all the things they expect and desire from government do not need to be paid for? Why are they willing to waste billions upon billions of dollars on interest, but rarely more on taxes to pay the bills?

Politicians rarely equate spending and the need for revenue. Why? Because voters don’t want to hear it.

Adjusted for inflation, the two stimulus packages passed in the last nine months are roughly equal to what we spent fighting World War II over four years.

President Trumps’s departing words included “I hope they don’t raise your taxes.”

Why do Americans accept all this? The answer may be that many Americans live their lives in the same manner; living in debt and wasting money on interest to live a lifestyle above their means.

Uncontrolled debt either matters or it doesn’t, there are long-term consequences or there are not. Wouldn’t it be nice if we knew the answer now?

9 comments

  1. Let’s look at the concept of money. Money is something that we value. Money is what we trade for in place of goods and services. It is just too hard to carry five bushels of wheat to McDonalds to buy your family dinner. Many of us trade our labor (time) to earn money which is easier to trade instead. We get paid according to the value that our labor and time adds to the final product.
    If we went back to the barter system and only traded in goods, MMT would fail. You can’t promise three lifetimes worth of labor. Once people figure it out, they will stop trading with you. But you say that is why it is called Modern because the ancient rules don’t apply. I call BS.
    Now, let’s look at it if it really doesn’t matter. Government is just going to give you everything you want and dream about without regards to how it is paid for. Why restricted to just allowing the government to do that? How about if you just go into a store and take what you want? Why have money at all if there is an unlimited supply. Money would be meaningless and have no value.
    The exact same thing is currently happening on the West coast in several cities. They will not prosecute shoplifting if the value is under $1000. Money is meaningless in these cities because you can just take what you want. Businesses are closing and leaving these areas. They no longer have money to pay their bills because they were not being paid by the thieves. The business suppliers from around the country and around world don’t care if Seattle just let thieves take your merchandise. The suppliers want to be paid for the goods they provided you.
    At some point when the trading of either money or goods becomes too lopsided, when the debt becomes too great, it just stops and the system collapses. Will it happen tomorrow? No. But one year, if continued unchecked, it will happen so it matters.

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  2. “Politicians rarely equate spending and the need for revenue. Why?”

    Maybe it’s because they’re not the same. We spend far in excess of revenue. That’s just a fact.

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      1. I understand that you think that. But why should they be in balance? My point is that they are not in balance, and we seem to be doing okay.

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      2. Fact is they never will be in balance and a lot of people don’t see growing debt as a problem. However, even the MMT folks acknowledge the longer term inflation risk. My gut tells me you simply cannot keep growing liabilities and pass them down to future generations without consequences. Look at European countries with generous social spending often held up as the ideal. At least they are willing to accept higher taxes (and a different lifestyle) in exchange. Americans want it all either not paying for it or having others pay. And keep in mind that to keep this going there has to be people willing to buy our debt. Most Americans have no clue. Take SS for example. The Trust invests in Treasury bonds and in return receives about $80 billion a year in interest and yet many people still buy into the idea Congress stole the SS money. Now the deficit must grow as those bonds are being redeemed to pay benefits.

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      3. “And keep in mind that to keep this going there has to be people willing to buy our debt.”

        If these people come to be unwilling to buy our debt, there has to be available some better debt they could buy. That is, we don’t need to make our bonds totally secure, but just at least as secure as the available alternatives. There is a debt market in which we compete, and so far, we do so very successfully.

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    1. The first cracks are there for other countries not wanting to buy our debt. That is China, the EU, and Russia are moving away from the US dollar as the world’s trading currency.
      If the US just prints more money, it devalues our currency, causes US inflation, and foreign countries holdings of US debt becomes less valuable.

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