Today, I would like to discuss something that almost everyone has an opinion on – whether they are politically engaged or not. Any time there is a new policy proposal, almost certainly the first question asked is “how do we pay for it?” Well, I’d like to dig into that a little bit. What I would like to do is have a high-level discussion on the overall US national debt, fiat currency, and our government’s overall balance sheet. I’m no critically acclaimed economist, but there are some basic principles that people always seem to either overlook or completely ignore.
Today’s discussion comes from the concept of Modern Monetary Theory. In general, the theory is that because a country is the sole issuer of it’s currency, it can be more widely issued to pay for goods, services, and programs to overall benefit the entire populous. There’s obviously much more involved in MMT, but for the sake of this discussion, this is the main thing we’ll need to understand. Going forward I will discuss certain principles of MMT and how it can ultimately benefit everyone.
To start off with, lets see how much the US government deficit is currently. So, there we have it. Over 26 trillion. That number is certainly astonishing. I for one cannot even comprehend that much money. Now that we know that, let’s first acknowledge what this means. A very over simplified answer is that the government has issued out 26 trillion more dollars than it has taken in via taxes. Now lets explore that just a tad bit deeper.
With the understanding that the government has issued 26 trillion more dollars than it’s received, the next question is where is that money? It must be somewhere. It didn’t just vanish. Well, here is one major aspect that people always overlook. Let us use a very simple example. In this example, the government will issue out $100 to its citizens, but only receives $90 in return from taxation creating a deficit of $10. Where’s the extra $10? Still with it’s citizens.
Again, this is an oversimplified example. But do you see what I’m getting at? The initial $100 still exists, the only difference is that $10 is left with the people. For the most part, this would be considered a good thing. Money in the hands of the people will stimulate the economy.
Keeping that in mind, lets apply this to the controversial topic of universal healthcare. This discussion will not be about whether or not people have a right to healthcare – which I wholeheartedly believe they do. This discussion will be on the obvious: how do we pay for it?
The answer is quite simple. The federal reserve makes a few keystrokes, a couple mouse clicks, and hits enter. Boom, there’s the money. Now, I can already hear it “but where did it come from?!” The short answer is, we just made it.
Now to see this actually enacted, lets look at the US Military budget. This past Thursday, congress approved the military budget proposal of $740.5 billion dollars. This is about $2 billion more than last year. Given that in 2017 congress passed the Tax Cuts and Jobs Act of 2017, the US government is taking in a lot less money than it used to. So, we’re raising the military budget while also reducing taxes; how are we paying for it? Again, the answer is we’re just creating the money – which in turn adds to the deficit.
At this point, we’ve gone over what the deficit is, how its created, and how it builds up. Now lets talk about why (for the most part) it doesn’t matter.
The US dollar is a fiat currency. This means that there is no physical commodity backing it. It’s quite literally just 1’s and 0’s in the computer (outside of the bank notes and coins of course). The US dollar is the sole monetary standard for the United States, but it’s also the reserve currency for the International Monetary Fund (IMF). This means that all other currencies are essentially compared to the US dollar to obtain their valuation.
Those points might not seem that big of a deal, but they really are. Because the United States solely relies on its own currency, it can basically do whatever it wants with it without repercussions (to an extent of course). Also, given the fact that the United States has the top GDP in the world, this makes the US dollar especially important.
Which brings me to the next point. It might seem like I’m saying we should just create as much money as we want and implement every social system ever. No, not at all. There are very real limitations. The main being inflation. In this scenario, the worst thing that could happen is hyper inflation occurs which then bottoms out the value of the US dollar.
As stated earlier, the US dollar holds heavy weight in the world. If the dollar collapses, the world as we know it would drastically change. But there are ways to effectively implement policies and services by using deficit spending and balance redistribution to our advantage.
On Wednesday, congress voted down a proposal to cut the military budget by 10%. Currently, our military budget is more than the next 10 highest nations combined – most of which are our allies. From 2016 until this year, Amazon paid $0 in taxes. Just think about these two instances alone. 10% of the military’s budget that was approved is $74.5 billion. This year, Amazon was only required to pay a measly 1.2% on it’s 2019 income which was $162 million.
That is money that should be used elsewhere. Currently, the nation is in dire need of PPE, healthcare, and housing due to the pandemic. It sure would be nice if we could re-appropriate some of the excess spending. That along with sensible deficit spending would go a long way to making the ‘American Dream’ attainable.
I know a lot of people will not agree with this ideology, but I implore you to just take some time to think about the subject matter. If you’re interested in learning more, I highly suggest the book “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy” by Stephanie Kelton. She’s an economist that explains MMT more precise and aptly than I’ll ever be able to.
Lastly, I’d like to mention the passing of Michael Brooks. He hosted his own podcast (The Michael Brooks Show) and was an integral part of The Majority Report. Michael was an amazing human that genuinely cared for everyone. He dedicated his life to fight for justice for ALL people. He is one of the main reasons I started this blog. Michael was such a down to earth and caring person who was also incredibly intelligent, I truly looked up to him. He made me aspire to enact change for the better in the world. Even though I’ve never met him, and almost certainly didn’t even know I existed, he made a massive impact on my life.
Michael – Rest in power, brother.