The Debt Delusion

Yves here. It is frustrating to see how often seemingly new ideas need to be repeated, like “The earth is not flat,” or “The Federal government does not need to tax or go into debt to spend” for them merely to get a hearing, let alone for their ramifications to sink in.

So here is yet another go at debunking austerity mythology, via John Week’s new book, The Debt Delusion.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK

I have been reading Prof John Weeks’ book ‘The Debt Delusion‘. I should say, upfront, that I know John, and enjoy his company: he is a fellow member of the Progressive Economy Forum. The book would be worth reading without that association.

In essence, John uses the book to tackle six myths, which he identifies as:

1) We must live within our means;
2) Governments should balance their books;
3) We should tighten our belts to achieve this objective;
4) Debt is always bad:
5) Government debt should be avoided by reducing expenditure and not raising taxes;
6) In combination, these mean that there is no alternative to austerity.

Readers of this blog will be familiar with such claims and that I, like John, have no time for them. For this reason I recommend the book. But I also do so because it is intensely readable. This is an economics book that uses the odd graph and table, but most certainly not formulas. Instead John uses an easy narrative flow to make his argument.

I take this example to prove my point. When dealing with the first myth, which is in many ways the most economically dangerous John opens his chapter saying:

Perhaps the most difficult of all the austerity myths to pin down is the injunction that “we must live within our means”. The message deeply embodied in this phrase has little relationship to the words. Rather, it serves as the apparently definitive answer to the question “Can our government spend more?” We can imagine a politician speaking at a meeting of constituents, and a concerned citizen asked, “Why is it necessary to reduce spending on school meals?” And the elected representative answers, “The overall government budget is in deficit and we must live within our means.”

If the constituent retorted with “Why must we live within our means?” the assembled group might break into laughter, because every sensible person knows ” we must live within our means.” If the constituent instead went to the heart of the matter and ask “What do you mean by ‘means’?” the politician, if a patient person, might say, “I mean that the government obtains its money from taxation and we cannot spend money that we do not have.” That would probably induce affirmative nods from the audience.

What are our “means” water or who determines them? What does ” live within” convey? A dictionary provides no enlightenment. Equally vacuous is the closely related phrase, often applied to household budgets, that ” families struggle to make ends meet.” These cliches serve as emotional entreaties rather than practical guidelines, like “emojis” at the end of an email.

Starting in this way John gives himself the chance to explain that the constraints that we face are not financial. “Our means” very clearly is not defined by the relationship between government expenditure and taxation. If the term has any relevance at all, then it definitely refers to the capacity of an economy to meet the real needs of those who live within it. The finance follows.

For those looking for an explanation of this fact I recommend John’s book.

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65 comments

  1. H.Alexander Ivey

    a concerned citizen asked, “Why is it necessary to reduce spending on school meals?” And the elected representative answers, “The overall government budget is in deficit and we must live within our means.”

    The constituent should retorted, “Why don’t we bring the boys home and fund our schools?”.

    You can get into the argument that governments don’t need to tax to pay for things, and get bogged down getting people to un-learn what they “know”, or you cut to the chase and hit them where it hurts-military spending. That is an argument everyone knows so you don’t spend time getting people un-learning things.

    Reply
    1. jsn

      This is because of the heirarchy of governments, County, City, State & Federal: only at the Federal level is the “within our means” not relevant to the budget discussion.

      At all the subordinate levels it is highly relevant and made more so by an essentially hostile Federal Govt. that’s been happy to convert 4/5 of the continental US to an extraction zone, with citizens seen as just extractive resource to be harvested for whatever purpose.

      So you say, “why don’t we bring the boys home and fund our schools?” and your council critter, mayor or school board member says, “that’s a Federal issue I’m powerless to address.”

      Reply
  2. vlade

    “We have to live within our means”. That is not a myth, that is law of physics.

    What the author meant was probably closer to Yves text above, the myth that the government can spend only what it takes in taxes and debt issuance.

    I object to this naming beause it turns away a lot of people right away, and has implications of “if it’s not true, then we can live above our means, always, ever” Which is clearly wrong in many ways (cf the discussions about climate change, which is all about living within our planetary means).

    Starting witht he second myth (government is not a household) would be much better, as there you can start explaining things.

    Reply
    1. Paul O

      I think that is a valid point. I attempt this general debate regularly though eyes glaze quickly. More quickly if leading with point 1. That said, the mantra is so ingrained that responding to point 1 is the typical point of entry.

      Reply
    2. Ignacio

      The phrase has much moral context and I don’t really see that law of physics as limiting. Here economics meets religion. IMO, the problem with the phrase lies in the context. It should say “We have to, collectively, live within our means” which I not only find moralizing, but limiting our reach to some unmovable means standard that we cannot defy or surpass as if we had already reached the limits of physics laws. The phrase expresses conservatism at its best.

      Reply
      1. rusell1200

        Ok, so you could say?:

        We can only consume, what we can sustain-ably produce.

        ….That seems to cover both the problem that finance is not a full measure of reality with the physical limitations.

        Reply
      2. Ignacio

        Of course I am understanding the phrase from a pure economical point of view. From an environmental POV we all live well above our means. but in this case few seem to care.

        Reply
        1. xkeyscored

          I fail to see how you can divorce the economy and the environment, except via the mainstream trick of ignoring most of the real economy, and only considering whatever’s been monetised.

          Reply
          1. Ignacio

            As I understand it, the “live within ones limits” say is tipically said in monetary terms, and the physical limit to it is the time you need to type, for instance, 9,999,999,999,999.00$ and then ENTER.

            Reply
    3. Krystyn Walentka

      “We have to live within our means” is exactly a myth, a capitalist myth. Foraging people would not say this. Why? Because their means are not controlled by some corporate lobbyist or a monopolistic capitalist. Only invented scarcity facilitates the need for this expression. I have to live in my means so some rich jackoff can have another billion dollars?

      And the government is not a household and a household is another modern myth. Myths upon myths!

      Reply
      1. vlade

        So, people before capitalism all lived ouside their means, and could do what they wanted at all times?

        And if we but threw away the capitalists, we could all get everything, because we all have unlimited energy sources that can fuel creation of whatever with no impact on the planet whatsoever? My, we have been looking in the wrong place.. we’d be looking to you for answers. Simple. And wrong.

        Reply
        1. Krystyn Walentka

          Before civilization there was no inside or outside, and our means were freely shared with each other.

          I am not saying I have a cure, only expressing why we are in the mess we are in so maybe after it all collapses some people remember.

          Reply
          1. DHG

            Money is not necessary to live, it was invented by religions of old as a limiting factor for the commoners so they could take most of the Earthly wealth for themselves.

            Reply
            1. notabanktoadie

              Except:

              Men prepare a meal for enjoyment, and wine makes life merry, and money is the answer to everything. Ecclesiastes 10:19

              Reply
              1. Krystyn Walentka

                Nice try!

                First, old testament, so nah.

                Second, read the next passage:

                Do not revile the king even in your thoughts, or curse the rich in your bedroom, because a bird in the sky may carry your words, and a bird on the wing may report what you say.

                So basically, be a suck up and make your money.

                Reply
        1. Oh

          The USA does not have limited energy sources. It’s only limited by sources that can’t be plundered from other countries. It uses the armed forces and the almighty dollar (de facto world currency) to ensure that.

          Reply
  3. Noel Nospamington

    Why not tax corporations and the wealthy much more to help balance the books and pay for new or expanded social program? And what about reducing military spending and corporate welfare and corporate bailouts, especially to polluting industries?

    Here in Canada at the federal level interest on our debt will require the government to spend 30 billion dollar this year from its revenue which is over 11%. That’s 30 billion dollars of public money completely wasted. And heaven help us if interest rates increase and the government returns to spending a lot more on debt servicing.

    Austerity is not the answer to balancing the books, but fair taxation and long term thinking is.

    Reply
    1. Joe Well

      The interest is absolutely not wasted to the extent it goes to retirees.

      And you’re missing the point: the books don’t have to be balanced, ever, and probably they shouldn’t be, because that could be deflationary. For a currency-issuing government, they can just print more of it and tax for the purpose of equalizing wealth in society, so that the average person is getting interest from government bonds to fund their retirement, not primarily the wealthy.

      Roosevelt’s attempt to balance the books in the late 1930s by reducing spending is credited with retriggering the Depression, for instance.

      Reply
      1. JEHR

        Noel, you may get inspired to understand the six myths mentioned in the article when you read the book. How do you know the Federal level of interest? What is debt servicing? Where do you get that information? Public money is never wasted if it is spent on what the public needs. Our debt does not require the government to spend any certain amount from its revenue (I assume you mean to pay the interest on the debt). The amount spent by the Federal government makes up the deficit and the accumulated deficit over time makes up our debt. The deficit created by the Federal government is spent into the economy for the private sector (us) to use.

        You would get a kick out of reading this book!

        Reply
        1. Oh

          Good point. I always flet that the interest on the debt was a way to hand money to the banksters. When you sell bonds the banksters make money; when you buy bonds they make money. When you pay interest they get a cut.

          Reply
    2. Grant

      Explain why you think the federal government needs to balance the books. I presume you think that in a capitalist system growth is needed (there are limits to growth in throughput, but not in the monetary and financial parts of the economy). So, if the government balances the books, where will the money come from to allow the economy to grow? Private financial interests will create the money and they will do so when someone goes into debt to them. Seems, for many reasons, that we need to stop relying on private financial interests in regards to creating money. But, if the government balances the books, it cannot inject any demand into the economy, nor will it play much of a role in investment decisions. Seems to be a disastrous idea in 2019, both here and in Canada, given what is coming for us.

      I do want reforms though. Simple stuff would even help, like allowing the Fed to buy bonds directly from the Treasury.

      Reply
    3. eg

      “balance the books” for the Canadian federal government, which is monetarily sovereign, literally has no meaning, and it certainly does not mean what “the books” means colloquially for users of $CAD. If you do not understand the difference between the constraints of currency users (individuals, households, corporations, municipal/regional/provincial governments) and currency issuers, there is no escaping the neoliberal austerity narrative.

      By all means, reduce “military spending and corporate welfare and corporate bailouts, especially to polluting industries” but please, do NOT make getting to this desirable outcome a necessary condition before undertaking new or expanded social programming — it is precisely this sort of process by which the small government ideologues successfully oppose progress. It is, to use an infelicitous Americanism, “PAY GO”

      Then there is this: “Here in Canada at the federal level interest on our debt will require the government to spend 30 billion dollar this year from its revenue which is over 11%. That’s 30 billion dollars of public money completely wasted.” The error here is the misconception that the Canadian Federal government relies upon tax receipts to pay for anything denominated in $CAD. No — the Canadian Federal government spends de novo into the economy to provision itself. Then through the Bank of Canada monetary operations the overnight interest rate is “defended” by the sale and purchase of bank reserves, much as the US Federal Reserve does among its primary dealers. The end result is a deficit or surplus — the former expansionary, the latter contractionary.

      Finally, “heaven help us if interest rates increase and the government returns to spending a lot more on debt servicing.” Interest rates are set by the Bank of Canada as a matter of policy. The market does NOT set those rates. In extremis the Bank of Canada can also purchase all $CAD Federal bonds further out the yield curve — ALL OF THEM! Because the Bank of Canada, unlike any other individual or group of individuals in the entire world has access to unlimited $CAD.

      I recommend strongly that you get and read Mitchell and Wray’s “Macroeconomics” — it will help dispel the narratives that inhibit clear thinking about sustainable policy space

      https://www.macmillanihe.com/page/detail/Macroeconomics/?K=9781137610669

      Reply
      1. KiWeTO

        Yes. Printing unlimited money would solve all innediate outstanding debt today. But make said state’s future promises untrustable?

        Hyperinflation didn’t work in Zimbabwe, nor has continual re-currency denomination changes worked for them or Argentina. Yet, their trading parties continue to accept new forms of money coming out of those nations. Perhaps for larger and larger discounts against prior monetary instruments, but future wealth is still extracted out.

        Clearly, the amount of money$ owed by a state is only the expression of yesterday’s problem. Written off at the stroke of a pen if so desired, by lender or lendee.

        Reply
  4. Sound of the Suburbs

    Let’s start with the easy stuff.
    The monetary pie always has zero size, there are just positives and negatives.

    Money and debt come into existence together and disappear together like matter and anti-matter. Bank loans create money and bank repayments destroy money.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
    If debt is bad, money is bad.
    You can’t have one without the other.

    The money supply ≈ public debt + private debt
    We need a money supply.
    Where do you want the debt?
    Richard Vague has looked back at 200 years of data for financial crises and it is nearly always runaway bank lending, e.g. private debt, that causes the financial crisis. In the developed world it is hardly ever Government borrowing, i.e. public debt.
    The runaway bank lending causes the economy to boom due to the money creation involved. Bank loans create money.
    Japan has been paying back the debt from their 1980s excesses ever since and this is why their economy has been flat-lining ever since. Debt repayments to banks destroy money.
    https://www.youtube.com/watch?v=8YTyJzmiHGk

    Now we’ll get a bit more complicated and see why the US has got it so wrong.
    We’ve already touched on the zero sum nature of the monetary system and this is important.

    “Half a century ago Valéry Giscard d’Estaing, then French finance minister, lamented Washington’s “exorbitant privilege” — the dollar’s pre-eminence that put Europe at a commercial disadvantage and helped provide the Europeans’ motivation on the long road to monetary union.”
    The Americans have forgotten how the “exorbitant privilege” worked.
    Once the gold standard had gone, the main saving instrument in the global economy became US treasuries. This allowed the US Government to run large deficits and effectively get imports into the US for nothing.
    This is what Michael Hudson describes in “Super Imperialism”
    The US forgot how the “exorbitant privilege” used to work and decided to start balancing the Government budget.
    Who would be paying for the US trade deficit now?
    The private sector
    This drove them into debt and caused financial crises.
    This is the US (46.30 mins.)
    https://www.youtube.com/watch?v=ba8XdDqZ-Jg
    (MMT video)
    The private sector going negative is the problem as you can see in the chart. This is when the financial crises occur.
    When the Government deficit covered the trade deficit they were fine, but then they tried to balance the budget
    As the Government goes positive, into Bill Clinton’s surplus, the private sector is going negative causing a financial crisis.
    The current account deficit/surplus, public deficit/surplus and private deficit/surplus are all tied together and sum to zero.

    Reply
    1. Sound of the Suburbs

      What are the FED doing?
      They should know this stuff.
      This is Japan, and a Government surplus occurs when they have a financial crisis.
      Richard Koo shows the graph central bankers use and it’s the flow of funds within the economy, which sums to zero (32-34 mins.).
      https://www.youtube.com/watch?v=8YTyJzmiHGk
      Richard Koo expects central bankers to be familiar with the flow of funds in the economy.
      Richard Koo’s graph of the flow of funds shows the Japanese Government ran a surplus as the Japanese economy blew up.
      The terms sum to zero so, as one is going positive, another is going negative.
      The Government was going positive as the corporate sector was going negative, until the economy blew up.
      A government surplus is sucking money out of the economy.
      A government deficit is pushing money into the economy.

      Richard Koo knows this stuff because he used to be a central banker at the Federal Reserve Bank of New York
      He explains why austerity is bad in a balance a sheet recession and Greece is the best (worst) example.

      The IMF predicted Greek GDP would have recovered by 2015 with austerity.
      By 2015 Greek GDP was down 27% and still falling.
      The money supply ≈ public debt + private debt
      The “private debt” component was going down with deleveraging from a debt fuelled boom. The Troika then wrecked the Greek economy by cutting the “public debt” component and pushed the economy into debt deflation (a shrinking money supply).

      He has some charts in the video showing how the money supply shrank during the Great Depression (debt deflation).
      The money supply ≈ public debt + private debt
      Banks going bust and debt repayments shrank the money supply through the “private debt” component of the money supply.
      The New Deal boosted the money supply through the “public debt” component of the money supply.
      When they cut back on government borrowing 1937/1938, the US plunged into recession again through the “public debt” component of the money supply

      Reply
  5. Harry

    We must live within our means. Only the definition of our means is the total productive resources we have available to deploy.

    We dont not need to live within our financial means because the amount of money in the economy is a choice of central government.

    Reply
    1. Joe Well

      Bizarre that conservatives can imagine the government being limited by something it itself creates, but not by nature and the planet. I feel like that is a window into the conservative mindset: it really is the glorification of prejudices over reality.

      Reply
    2. Grant

      ” the amount of money in the economy is a choice of central government”

      Well, private banks create a large chunk of the money in the economy and the government doesn’t control that much. From where I am standing, that is a big problem. But, I agree with your overall point.

      Reply
  6. John Weeks

    The central point which I make in y book is that governments unlike households can alter their “means” through changes in tax and borrowing from their central banks.

    Reply
    1. vlade

      Harry above describes it best. The physical means are really fixed. The financial aren’t (for a number of reasons). But for that, the “govt is not a household” is a better metaphor, as it all turns on user vs issuer of money.

      Problem with “living within our means is a myth” sentence is that it’s something that most people will disagree with. And it will be people not only who care about the fiscal part of it (that you could in theory start arguing with), but a lot of other people who will immediately take it in the larger context (climate change springs to mind), and the explanation needed around it will be mostly defensive IMO.

      I believe most of the readers on this blog will understand the intention, but my point is that it’s not the best way of putting it to a wider population – even if the intent is to provoke a discussion.

      Reply
      1. Alternate Delegate

        Physical means are real, while financial means are an arbitrary function of government. That’s a helpful way to phrase it. Physical means begin with energy, which is the main prerequisite for things like food, water, and shelter. And it’s a pretty direct line from energy to food. There’s a reason it’s called a Calorie.

        Helpfully, the discussion of real physical means leads directly to the “common inheritance of humanity” – everyone’s share of sunlight – and therefore to universal concrete material benefits: universal education, universal health care, and universal basic income.

        Those are what we need to preserve while drastically reducing our consumption and lifestyles to get through the energy and climate crises.

        “Financial means” are merely a deliberate distraction from the decent sharing of physical means.

        Reply
  7. john weeks

    Vade
    I have had some success in public talks with debunking the government = household argument, especially when I point out that most households go into debt (eg mortgages) and few balance their budgets in the short run. Have look at my first chapter.

    Reply
    1. vlade

      Govt vs household is IMO the way to do it (which is why I wrote ‘ “govt is not a household” is a better metaphor”) , as when people start understanding that, then the whole “living within financial means” becomes obsolete.

      Especially when one gives examples of governments that are not issuers only users (gold standard, EUR) vs. issuers. As often mentioned here, the US military spending is actually a pretty good example of how an issuer govt is not limited by its ability to tax or borrow.

      Reply
    2. templar555510

      I have given talks on this subject. The most effective approach I have found is to pose the question to the audience ‘ Where do you think the money comes from to pay tax in the first place ? ‘ That sets off a melee from which just occasionally it’s possible to obtain a glimmer of light .

      Reply
  8. cnchal

    >. . . If the constituent instead went to the heart of the matter and ask “What do you mean by ‘means’?” the politician, if a patient honest person, might say . . .

    . . . politicians are self selecting narcissists in politics for one reason only, enrich ourselves at your expense, and “means” means we are mean, plural.

    Reply
  9. emorejahongkong

    How about starting with a simple version of the (most politically relevant) question of whether Government spending, in excess of tax revenues, ultimately leads to runaway inflation. That’s what makes Pettis so accessible, but even his primer could start at a simpler level, along the following lines.

    Most people should be able to follow the argument that:

    1. this excess would only result in inflation if the increase in spending results in bidding-up of the prices of goods and services,

    2. this bidding-up occurs only for goods or services of which sellers are unable to increase the supply as fast as purchasers increase the demand.

    Thus, if the money newly “spent” by the government goes into the hands of rich people, then they will indeed bid up the prices of, for example, famous old paintings, of which the supply cannot be increased.

    In contrast, if the money newly “spent” by the government goes into the hands of poor people whose families are underfed, then more money will be spent on rice and beans, but the price of rice and beans will only be bid up if farmers are unable to increase the supply of rice and beans.

    If the farmers spend their increased revenue (whether actual or expected) on tractors, then the price of tractors will only be bid up if tractor-makers are unable to increase the supply of tractors.

    If more tractors can be made by hiring more workers (especially to work a night shift using the same production line), and if more workers can easily be “supplied” from large numbers of unemployed people, then there is no bidding-up of prices of worker wages, tractors, or rice/beans.

    Supply could be increased, at each link in this supply chain, if the government’s initial spending was in the form of investment into infrastructure, which enabled the workers, tractor-makers, farmers and food-buying families to be more efficient producers and/or consumers.

    The ever-bigger twist on this is that, for example, if the money newly “spent” by the government goes into the hands of people who spend it on a new software data file (such as a digital copy of a song or a movie), of which the supply can be increased infinitely at virtually zero cost, then this does not cause bidding up of price.

    Reply
  10. Summer

    “The Government Debt Delusion”

    A small correction, but important to moving away from the conflation with other debt.

    I’d like to see more of the same specificity when bonds are discussed.

    Reply
  11. Boatwright

    It would be nice if economists could admit that their internally consistent equations or may not model the real world.

    Unless and until they can begin with premises grounded in more fundamental sciences, notably those having to do with energy, thermodynamics and ecology, we will continue in a fog of superstition.
    Only children and fools believe in pots of gold.

    Reply
  12. steven

    The federal government needs to tax – not to balance its books but to limit the power (the ‘free speech’) of its wealthiest citizens and the multinational corporations to which it has become so abjectly subservient. Those dark pools of money can be used to buy politicians, often with a much greater ROI than the most speculative financial instruments.

    Reply
      1. xkeyscored

        It wasn’t meant as hyperbole in the slightest, nor was I thinking of the USA in particular.
        If you take this living within your means stuff at face value, then no means means death.

        Reply
      2. Boatwright

        If you include their families, esp. the kids on the free school lunch program the true number is in the millions.

        The strong will always tend to the cruel. The weak suffering what they must becomes, by twisted Ayn Randian logic, a justification for the cruelty.

        Reply
  13. Susan the Other

    If we consider our deep debt to the environment for all of our voracious exploitation and externalization, we’ve got a situation where we can keep the books balanced like Scrooge. Because if the environment actually becomes part of “the balance sheet” (as a critical asset that has been severely mortgaged, which it is) and we dedicate ourselves to paying off that debt (reclaiming the environment) we will be creating an economy of severe debt deflation and thus we can all spend our sovereign currencies, or perhaps some global shared-sovereign currency, with abandon. As long as the resources are plentiful. And, as long as the projects are monitored, vetted, scientific, show good progress and etc. Balance sheets have never before had a column for reclamation. So finally this dawns on us after 200+ years of the industrial holocaust – it’s not so much that debt is the delusion (it is) but that money itself is the delusion. But a very useful one.

    Reply
  14. Adam Eran

    MMT explains this as follows: Government does not “tax & spend.” It can’t. Where would taxpayers get the dollars they use to pay taxes if government didn’t spend them out into the economy first? “Tax & Spend” is a logical impossibility. It must be “spend first, then retrieve some dollars in taxes.” So currency creators are fiscally unconstrained.

    What do we call the dollars left in the economy, not retrieved in taxes? Answer #1: the dollar financial assets of the population (their savings). Answer #2: National ‘debt’… It’s like bank debt. Your savings account is your asset, but to the bank, it’s a liability.

    Now imagine some demagogue persuades depositors to march down to their bank to demand that it reduce its debt (i.e. the size of their accounts). Not very sensible, is it? Yet that is the argument of the austerians…

    Reply
    1. Buckeye

      The “tax and spend” propaganda meme is meant to convey the FALSE conservative belief that only rich, private people and corporations “create” money. All business activity is funded with “other peoples’ money” the “other people” being “We the People, of these United States, in order to form a more perfect union…” etc. etc.

      Reply
      1. eg

        Exactly — an understanding that the sovereign issues currency FIRST, and then taxes it back SECOND also puts paid to the annoying “taxation is theft” meme that the lunatic right seems to so enjoy propagating …

        Reply
  15. Rodger Malcolm Mitchell

    Monetary Sovereignty and Modern Monetary Theory have been publishing the same “Federal Government Doesn’t Need Taxes” fact for years.

    Even the Federal Reserve admits that the federal government (unlike state and local governments) does not need tax dollars.

    Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

    Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

    St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. unlike state and local governments) does not need tax dollars:

    Unfortunately, the rich (who run America) don’t want that known, because it leads to federal spending that benefits the non-rich, which is something the vast majority of the rich despise. They don’t want the poor and middle classes gaining on them. This is called “Gap Psychology.”

    Reply
  16. tiebie66

    Why this fretting about Austerity? Why miss the opportunity to use Austerity to good effect? Why allow others to set the terms of the debate? The argument about austerity needs to be put in a proper perspective – if not turned around and used to good effect given that so much hay has been made about the necessity for austerity. This article again misses that opportunity.

    Clearly, we must live within our means – natural resources are being depleted or destroyed by exploitation. Given our excesses, austerity is essential beyond any shadow of a doubt.

    Clearly, austerity must first be applied to the most wasteful, unnecessary, and unconscionable spending – military spending. Why have so few realized this? Instead of promoting austerity, commenters promote MMT.

    MMT will be a disaster, instead of the needed austerity, politicians will be able to ‘pay for it’.
    – Politicians will certainly risk and produce inflation if it is in their interest; we already know this will happen.
    ⁃ We know that they are capable of diverting already scarce and needed resources to the benefit of the few. There are clearly no checks and balances that function anymore! Why open the spigot, before the system is fixed, to allow them to direct more resources to those that already have too much? How stupid!
    ⁃ The earth cannot bear more profligate consumption, wars, and waste that will certainly happen because we can now pay for it.

    Clearly, the approach should be reversed – austerity embraced and MMT eschewed because we are not ready for it. We cannot even use the money that we have wisely, it is premature to create more.
    I despair!

    Reply
    1. DanB

      I hear you but my take on MMT is different. As others have suggested, think of MMT as two pronged, first, as a description of how fiat currency actually functions, and second, as a form of conceptual blockbusting that allows the people to realize that when politicians say “live within our means” they are imposing a form of shaming and social control. The interpretation of “within our means” is a victim of polysemy. But let’s not have that stop us from using MMT, along with limits to growth insights, to overthrow the tyranny, bad faith, and imposed suffering coming from the austerity for the masses oligarchs.

      Reply
  17. juliania

    I’m one of those whose eyes glaze over. Number 1 ‘false’ claim is that we have to live within our means. Directly then, my mind goes to the exhorbitant military expenses – so if Number 1 is false, no holds barred on producing more and more weapons. Win win for the oligarchs. I know this is false from the age old ‘guns and/or butter’ argument which I saw unfold when then president Johnson gave up on his war on poverty and went to real war – where we have been ever since. Real war meant you shift our manufacturing jobs overseas. Real war meant you cut back even more on poverty programs, health care and the like. Real war meant you go after our mortgages and student debt. Real war meant the poor are non-citizens or at best cannon fodder. Real war has had consequences for the 99 percent.

    And now you say they can go on doing all this? That’s how it sounds. I know there are esoteric economic explanations out there, but this looks like a very dead end street to me. Create as much money as we like sure – and it all goes to the moneymaking psychopathic mega-plutocrats who rule the world.

    I’m waiting for an argument that says no, they can’t keep expanding the already bloated military budget and cutting off our needy. One I can understand. Something like the debt jubilee from our hero Michael Hudson – which is a way of reinstating balance in the economy. Something like that!

    Reply
    1. cnchal

      > . . . Something like the debt jubilee from our hero Michael Hudson – which is a way of reinstating balance in the economy. Something like that!

      Now, there is a quaking mountian of debt carried by individuals which constrains consumption and there is some limit to how much moar debt can be taken on by the peasants. The rich are on the opposite side of that, and the peasant’s debt is the rich person’s asset, and since the rich are relatively few, they can consume as much as they want and not make much of a dent in overall consumption. A very unbalanced system, for sure.

      The problem with “restoring balance” through a debt jubilee is that we don’t have another planet to destroy before wealth inequality reaches these levels again.

      Reply
  18. Dick Swenson

    I share the feeling expressed in the opening paragraph by Yves. I only want to lighten it by mentioning that the attention span of most of humanity seems quite short. This is probably an evolutionary trait; If it ain’t a tiger, then don’t pay attention.

    However, many aspects of our current lives are just “tigers in disguise” so we may have to learn to pay more attention occasionally to events that otherwise don’t seem important.

    However, there is an even more severe problem. Given the large number of people in our country and elsewhere, and their polarization, getting even a very small portion of them to “pay attention” to things that aren’t brright and shiny. e.g., a new fashion item or a new cell phone, seems an overly optimistic point of view., I feel that we will disappear before enough learn to pay attention.

    Reply
  19. Dick Swenson

    I apologize for my obtuseness, but I am unable to parse the line What are our “means” water or who determines them? that occurs in the 3rd paragraph of the quote.

    Why does the word “water” appear?

    Reply
    1. YouMustBeJoking

      pretty sure this is the autocorrect effect (as in, “effing autocorrect!”). I parsed it as ‘What are our “means”? What or who determines them?’

      Reply

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