An American Budget

Yves here. The problem with Alt’s entirely sensible approach to the US budget is that the US does not do long term, and this is hard wired into the Federal government. A new Administration can upend earlier plans and commitments if it can get Congress to go along. And that’s before we get to lobbying, revolving door, and other forms of corruption.

By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at www.realprogressivesusa.com

Let’s imagine pulling together a group of enlightened economic planners to create an American budget for, say, the years 2020-2024. What might they come up with? To begin with, how might they even go about thinking about how to create an American budget?

It’s not so obvious as, for example, the way the Congressional Budget Office might go about it. The CBO would begin by tallying up how much money America’s government will have to spend in the years 2020-2024. Then they’d allocate those projected dollars to various pots of spending—with some calculation about what the spending needs will be for each pot. In the middle of this exercise, they’ll discover that the spending needs for the pots far exceed the number of dollars they’ve projected America’s government will have to spend. So, they’ll tweak the tax revenue numbers, projecting that economic growth in this or that sector will generate more tax collections for the government, and they’ll search for a bevy of cost-savings the government can garner by eliminating “wasteful” spending. Then they’ll repeat the allocation exercise and discover the projected available spending dollars are still far short of what they’ve calculated the pots will demand. Thus they will next have to calculate how many dollars the American government will have to borrow to make up the short-fall—and will have to further calculate how much that borrowing will add to the “national debt,” and how many years (projected into a distant future using imagined numbers for economic growth and future tax-rates) will it take for America to repay the debt. Then they’d publish all these numbers and Congress would blanche and fall into chaos and confusion. The political party out of power would declare the party in power to be “fiscally irresponsible,” driving the nation to bankruptcy, and the arguing would begin over which pots should be reduced or eliminated. Another day in the life of American politics courtesy of the Congressional Budget Office.

So, how would our group of enlightened economic planners tackle the problem differently? First, because we’re imagining they’re “enlightened” (meaning they fully understand how modern fiat money works), they’d realize it is incorrect—even illogical—to begin with a calculation of how much money the American government will have to spend. The American government, they understand, is constitutionally authorized by law and the Federal Reserve Act to issue fiat currency as necessary to meet the spending needs of both private commerce and the federal government. The pertinent budgeting question, then is not whether the necessary fiat dollars can be issued, but what precisely are they to be spent on? This makes the process of creating an American budget a much more interesting and useful task than what the CBO habitually assigns itself.

Here’s how I imagine the new process might proceed:

STEP 1:  The first analysis and decisions are about what we—as a collective society represented by the federal government—need to accomplish: What pressing challenges do we confront? What dangers do we face? What opportunities lie at our doorstep? The list of broad categories might go something like this (in my opinion; feel free to generate your own list):

  • Mitigating climate change
    • Developing and deploying zero-carbon energy strategies and technologies.
    • Plan and implement new afforestation programs.
    • Management analysis of existing forests and rainforests to maximize carbon sequestration.
  • Adapting to climate change
    • Plan and implement an equity-replacement program for properties threatened by sea-level-rise.
    • Develop sea-level-rise relocation and replacement strategies.
    • Plan and implement water-supply security, preservation, and allocation strategies.
    • Develop and implement agricultural adaptation, crop diversity, and food-security strategies.
    • Develop and deploy Emergency Transitional Housing solutions.
  • Restoring and rebuilding natural ecosystems
    • Develop and deploy strategies to preserve and reestablish ocean habitats and fishery stocks.
    • Preserve and reestablish wetland habitats.
    • Reclaim and restore industrial and mining waste-sites.
    • Plan and implement rain harvesting programs to reverse desertification of natural landscapes.
  • Rejuvenating America’s education system
    • Implement tuition strategies to remove debt from post high-school education.
    • Plan and deploy a universal pre-K day-care system.
    • Plan and implement a national, Grade 2 “reading-assist” program.
  • Establishing comprehensive Retirement and Housing Assistance
    • Plan and implement a national “Life-Share” house-mate program for retired persons.
    • Develop and implement a national co-housing assistance program.
    • Establish a national retirement housing co-op.
  • Repairing and rebuilding critical local, regional, and national infrastructure
    • Contract to immediately repair all bridges identified by the ASCE.
    • Contract to immediately replace all lead-based community water-systems.
    • Develop and implement electric-grid security strategies and technologies.
    • Develop and build a national electric-vehicle charging grid.
  • Redefining “work” in preparation for the AI and automation revolution.
    • Plan and implement a job guarantee program.
    • Design and implement an “art and artisanship” curriculum for public schools and community colleges.

STEP 2:  Next, our group would evaluate which of these challenges, dangers, or opportunities are likely to be met by the natural interests and operations of profit-making enterprise—and which of them (because they don’t lend themselves to making profits) are likely to be ignored.

STEP 3:  Taking the national “to-do” items which analysis has determined will likely be ignored by private commerce, the next step would be to determine what real resources will be necessary to undertake and accomplish each of them. How much and what kind of labor will be required? How much and what kind of materiel and technology?

STEP 4:  Taking the list of required resources, our group would then ask: Are the resources described available within the borders of the United States? Or, to be more specific to the issue at hand, are they available to be purchased with U.S. fiat currency?

STEP 5:  If the answer is “yes,” our group would then issue a formal proposal that the U.S. Congress (1) authorize the U.S. Treasury to issue treasury bonds, as necessary, for the purchase of the said real resources; and (2) direct appropriate government agencies to develop specific spending strategies to marshal the resources to pursue the goals of each stated item on the “to-do” list.

A simple example:

Imagine that one of the challenges our group identified in STEP 2 was this:

  • 25% of American children are failing to learn to read by the end of their second grade—and therefore will begin, in the third grade, to relentlessly fail in the U.S. education system, resulting in unnecessarily high levels of social dysfunction and loss of American productivity. This is not a challenge that profit-making commerce is going to undertake to meet, nor is it one that existing school funding can stretch to cover.

Next, we ask: what are the real resources necessary to provide the special assistance necessary to bring those children up to reading level at the end of grade two?  We might calculate as follows:

  • There are 92,858 elementary schools in America, each with a second-grade class of children learning to read. Let’s say there’s 24 students on average in each class, and 6 are struggling to read, falling behind, and in need of special one-on-one tutoring, say an hour a day per child.
  • This creates the need for a unique kind of work-force: people capable of tutoring who are available and willing to provide their services for only one hour per school-day. Who might that worker/tutor be?
  • A likely candidate is a high-school student, tutoring 1 hour after each school-day @ $20/hour, to make $100/week spending money. Call them the “Read-Assist-Corp”.
  • Each of our second-grade classes would require six RAC tutors, generating a need for 557,148 high-school students/year, earning $100/week for 36 weeks/year. (=$2B/yr.)
  • It seems plausible those high-school students are, in fact, available and would be willing to provide the tutoring services in exchange for U.S. fiat dollars. Therefore:

We issue a formal proposal that Congress (1) authorize the U.S. Treasury to issue bonds as required to pay annually up to $2 billion in wages to the RAC program; and (2) that the funds be paid directly, each month, to the participating elementary schools.

Thus, we have created an American budget for ensuring that every school child enters the third grade able and happy to read—and is therefore highly likely to engage in constructive learning in grades 3-12 and beyond. The budget has been calculated to be $3,600 per struggling second-grader, or approximately $2 billion per year. And the budget has been funded—as our enlightened group of economic planners knows—without the necessity of increasing taxes or borrowing dollars from the profits of private commerce. The budget has been funded by the sovereign government’s legal mandate to issue fiat currency.

A lot of people will ask: But is it worth it? To which the answer is: worth what? Is rescuing the education and future careers of half a million American children worth the hours spent by the high-school students in mentoring them? I would think the proper answer to that is not only emphatically YES, but that the high-school tutors, themselves, will have learned and received as much life-affirming energy as the second graders they helped. So, what’s the complaint? If, on the other hand, the question is meant to ask: “is it worth all those dollars?” then the asker obviously doesn’t understand what “money” represents—or what, in fact, is its only purpose.

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18 comments

  1. cuibono

    Why do we need to imagine needing to maintain a system of post-high school education that is as bloated and inefficient as the one we have which requires so much taking on of debt?
    Seems to me, great education is now possible for a FRACTION of the cost.

    Reply
    1. rd

      The branding and marketing of higher education drives it. From everything I have seen, there isn’t a significant benefit to going to the overpriced private schools unless they are giving you grants to cover the differential costs.

      I find it hard to distinguish the outputs from state and private universities at the undergrad level. The success of the graduates is generally inherent in the students themselves as opposed to the school they went to. The better students can get accepted into the “best” private universities but studies have shown that they do just as well if they then go to a cheaper state school.

      At the post-graduate Masters and Ph.D. level, I see more differentiation between the expensive private and state schools, but probably half the people who attended those programs didn’t need them for the jobs they were doing. I hire M.S. and Ph.D. for specialty work, but for most of the rest of the work it is Bachelor degrees with on the job training.

      In general, people should not be coming out of university with $100k+ of student loans. That is very difficult to ever justify economically. My general rule of thumb is about one-half of a reasonably expected first full year gross income. That is something that can be comfortably paid off in about a decade or less and is a reasonable mortgage on one’s own future. so for most college grads, that is about $20-30 k.

      Reply
      1. Trick Shroade

        The same force that drove the housing bubble is driving the higher education bubble: the notion that everyone is entitled to the very best. In 2007 you were entitled to a big, beautiful home regardless of your income. Today you are entitled to the very best university regardless of your ability to pay.

        Don’t overthink it. Just borrow the money. You deserve it.

        Reply
        1. Adam Eran

          Worth remembering: Federal aid to higher education has declined 55% since 1972. When I posted this earlier, other commenters added that the decline in states’ spending on higher education has been even more precipitous. One example: Oklahoma’s funding declined 37% in just the last decade. Currently Oklahoma has big trouble attracting and keeping its public school teachers. They’re even talking four-day school week. Hey, teacher can just Uber on Friday.

          Bob Dole’s legislation allowed privatization of the fruits of research at land grant colleges … which, besides adding a new class of professor/patent holder/rentiers to the population,
          deprives the universities of some income too.

          So…not a big surprise that tuition has been rising. And now graduates can look forward to a life of debt peonage because current bankruptcy law does not allow them to retire their education debt (thanks Hillary!). This is a two-fer because previously our best and brightest might consider a career in public service. Now they cannot afford to do that.

          Reply
    1. Susan the Other

      I’m thinking’ it’s because we seem to have finally won that one, but I don’t want to jinx anything by saying so.

      Reply
  2. bmeisen

    Thank you, this is fun … but an equity replacement program for properties threatened by sea-level-rise? Properties like Mar-a-Lago (or whatever Trump calls his shorefront palais)? Reward the comfort optimization class again?!?

    Reply
  3. Tomonthebeach

    I agree with Yves – a bit politically naive – not to mention that neolib capitalist sharks are not going to just disappear. Not much attention to reigning in the power of monopolies and superwealth.

    Reply
    1. Susan the Other

      I thought Alt took a sober look at that when he said the budgeteers should do a sort of economy triage and eliminate from the government to-do list all those things that are viable opportunities for the private sector… that was an interesting idea. Because it makes everyone focus on what is possible, opportunities for business that will not wobble out of balance in short order or require ridiculous financialization which has caused the absurd externalizing and debt burdens of present-day corporations trying to survive a changing world. And equally reasonable was Alt’s question about outside sourcing of available resources only if they can be purchased with US fiat. As well as his reading program for second-graders. We could do all these sensible things and much more if we all started thinking like this. I loved his last sentence. A whole new take on a “budget” – a fiat budget. I’m pretty sure that’s a budget balanced by good sense.

      Reply
  4. The Rev Kev

    The State I live in used to use an interesting concept. It has since been abandoned but then again, our State seems to be always in the red now. What they would do is use the capital budget to finance stuff like hospitals, schools and police. If they had to borrow money, it would be for stuff that would generate a financial income. So they might borrow to build a highway but then they would make it a toll highway. The receipts received would then be used to liquidate the original loan.
    As to the above article, I am going to go out on a limb here and say if that if the actual resources are in place, then money can be printed to finance any scheme. The students in that example are in place as are people like teachers and high school students to aid in teaching. The only question is financing it but if printed to meet this need, then what is generated will pay for the money long term. All that money spent by those high school students will be a stimulus to the economy and the taught students are much more likely to generate a high earning – and spending – income over the course of their lives. Call it seed money.

    Reply
  5. GramSci

    Kudos to Mr Alt for the high school teacher corps. Instead of locking teenagers up with their hormone-addled age mates, the US desperately needs to teach them to care for the weak. Imagine that.

    Reply
  6. Rodger Malcolm Mitchell

    T-bonds don’t pay for anything. The federal government neither needs nor even uses the dollars that are deposited into T-bond accounts. The U.S. government, being Monetarily Sovereign, creates dollars, ad hoc, every time it pays a creditor.

    Reply
    1. Mel

      Alt seems to have his own nomenclature there. I don’t understand it; perhaps I’m too wrapped up in the usual definitions. It’s as though he says issue bonds when I would say spend money. He’s explained it all before, maybe if I read the explanation again I would understand it.

      Reply
    2. Asburn

      RMM – Thanks for that. I was about to ask (naively) why issue bonds? Can’t the Fed or Treasury simply credit the account of the payee? MMT is not an easy concept for the uninitiated and adding the complexities of bond issuance, interest payments on the “debt,” etc., only adds to the confusion to my mind. There may be good reasons to issue bonds—other than guaranteeing the wealthy a handsome risk-free for doing nothing—but MMT folks need to better spell that out for folks like me.

      Reply
  7. Christopher Herbert

    Great article and it does represent the right way to build a federal budget. One flaw, however. It assumes that the Congressional budget will require debt be issued to ‘pay’ for the spending. Congress has no need to issue debt to finance its spending. Debt is not intrinsic to federal spending. The money is more efficiently spent directly into the economy.

    Reply
    1. rd

      There is an even bigger flaw. It assumes that the items listed in Step 1 are national priorities. That has not been the case for the past 30 years.

      Reply
  8. Chauncey Gardiner

    I would argue that we already have MMT. It’s a different issue. Fiat money serves the purposes of those in power, both domestically and globally. They do not see public education as being in their interest. Besides political and economic control, what do they see as being in their interest are rising financial asset and real estate prices. IMO this is why you saw the U.S. Treasury build up a war chest of over $400 billion in the Treasury account at the Fed ahead of the US government shutdown, and no net reduction of that balance while the stock market and prices of corporate junk bonds were elevated in part with borrowed funds through the primary dealers during the 35-day period when many employees of our government of the People, by the People and for the People went unpaid and our national parks were closed. To expect the priorities of those in control to change is unlikely absent political pressure and profound change in the current framework.

    Reply

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