The Big Lie of Economics

Big Lies have a very long history indeed.  As the infamous Nazi propaganda minister Joseph Goebbels (who knew quite a thing or two about lying) noted, the bigger and dumber the lie is, the more likely people are to believe it.  And you know what, it works. Counterintuitive, perhaps, but true nonetheless.

So what if some politician, pundit, academic, or activist were to make the following claims, which you probably have heard over and over again, ad nauseam?  Would you believe them?  Here goes:

• Federal taxes pay for federal spending, and any shortfall in revenues (i.e. "deficit spending") must be made up by the federal government borrowing money to cover the deficit.
• It must be this way, because otherwise the federal government will run short of dollars, which are finite.
• The federal government is literally bankrupt and can no longer afford to keep paying for Social Security, Medicare, and Medicaid, let alone anything more ambitious and progressive.
• Things like Universal Basic Income (UBI), tuition-free public college for all, state-of-the-art infrastructure, and single-payer Medicare For All sound like good ideas on paper, but we literally can't get the numbers to add up.  Sorry.  Oh well.
• If the national debt as a percentage of GDP rises above some arbitrarily high level, the federal government will have no choice but to default.
• Thus, we will have no choice but to accept an austerity "menu of pain" at this point, both large tax hikes and/or deep spending cuts. (Austerity for the bottom 99%, that is.)

Well, guess what?  Each and every one of those specious statements is absolutely FALSE.  Period.  Not even a kernel of truth in there, except for the completely contrived self-fulfilling prophecy that believing such lies leads to, starting with the very first statement on that list, and it goes downhill from there.  Wait, what?  That's right, federal taxes do NOT actually pay for federal spending, because our federal government is Monetarily Sovereign.   They literally create brand new dollars out of thin air every time they spend money, with no need to borrow any money or raise any tax revenue at all.

So why do they borrow, if they don't really need to?  First, it is due to one of several arcane and archaic rules left over from when we actually had the gold standard, which we haven't had since 1971*, that requires matching spending with either taxes or borrowing.  Secondly, federal government borrowing is simply issuing Treasury securities, which are in practice  really a fancy kind of national savings account rather than "debt" as the term is usually understood.  And those Treasury securities are a safe haven for investors that helps to stabilize the financial system, and also provides a handy platform for the government to control interest rates.  So Congress could simply pass a law changing the rules and implement Overt Congressional Funding instead, thereby completely decoupling spending, borrowing, and taxes, while still allowing investors to park their money in Treasury securities if they so choose.

Oh, and how about taxes then?  Where exactly does all of that money go?  Well, that is where it really gets, um, interesting to say the least.  (Sit down before you read any further.)  For practical purposes, all of those trillions of federal tax dollars each year get....DESTROYED upon receipt.  Yes, you read that right, DESTROYED.  Since the federal government by definition has an infinite amount of money since they can create it at will by fiat, taking money from We the People is like bringing coals to Newcastle only to destroy them.  Of course, due to those arcane and archaic rules, the money does not get destroyed immediately, but rather it first makes a brief pit stop at the privately-owned FERAL Reserve. But the end result is exactly the same nonetheless.   

(In contrast, state and local governments are NOT Monetarily Sovereign, so they must either raise taxes or borrow money in order to spend, and their tax dollars are deposited in private bank accounts prior to spending them.  Ditto for the Euro nations as well.)

That does not meant that federal taxes are entirely useless, however.   For one, they can be used to give the official currency "teeth" by compelling its use to pay such taxes and not accepting any other currency as payment for such taxes.  They also function as a useful tool for social engineering that is difficult or impossible to do otherwise (think vice taxes and Pigouvian taxes, as well as taxes on the ultra-rich) as well.  And they can also act as a (rather crude) tool for inflation control as well, by being a sort of "automatic stabilizer" when the economy overheats.  But paying for federal spending and servicing the national debt?  If you believe that we need to actually take money out of the economy to pay for that which the government can literally just create out of thin air, well, we've got a nice bridge we'd like to sell you.

Thus, it follows logically that the rest of the aforementioned list of lies are, well, lies all the same.  Austerity (which does far more harm than good) need not be on the menu any longer, and we can opt for truly shared American prosperity instead.  And that means that all of the right-wing, neoliberal pack of lies about the economy also falls like the house of cards that it is.  All of those things that both corporate parties claim that we cannot afford can now be ours.  If only our politicians would just be honest for once (as tall an order as that may be).

Bottom line:  Money is really nothing more than a tool.  And like any tool, it can indeed be weaponized--in this case, by the oligarchs and their sycophantic lackeys in government against We the People.  They use the con-tricks of austerity and artificial scarcity to systematically widen the Gap between the haves and have-nots (and between the have-mores and have-lesses).  But it does not have to be this way at all, and in fact We the People can turn the tables on the oligarchs by electing honest representatives that know the true meaning of Monetary Sovereignty. 

So what are we waiting for?

(Hat-tip to the ever-insightful Rodger Malcolm Mitchell, Alan Longbon, and Joseph M. Firestone, for all showing us the wisdom of Monetary Sovereignty and the related Modern Monetary Theory, respectively.  Before first discovering their writings on the topic in 2018, even the TSAP had previously fallen for at least a few of the variations of the Big Lie above.)

*NOTE:  The Gold Standard in the USA functionally ceased to exist when Nixon suspended convertability of dollars to gold in 1971. Though originally intended to be temporary, this "Nixon Shock" was made permanent in 1973, ending the Bretton-Woods System for good, and any remaining nominal link between dollars and gold (along with any restrictions on private gold ownership and trading) was subsequently removed from the law books by 1976. The United States Dollar is now a purely fiat currency and the federal government is now fully Monetarily Sovereign (even if they don't always act like it).