It seems that politicians no longer fear debt. Trillions of dollars are spent on whatever can get through congress. The economists tell us it’s just a number. The conservatives don’t mind debt if its created by a tax cut. The liberals don’t mind debt if it strengthens the safety net and stimulates the economy. Both sides argue that the tax cuts and social programs will pay for themselves. It seems like nobody knows what is up or down anymore.
Let’s start at the beginning so we can remember what an economy fundamentally is. An economy is simply people working for each other and in turn a functioning society emerges. The key here is that people ‘work’ for each other providing goods and services. The problem with debt is that nobody has worked for it. The government is spending money that nobody has worked for. Unfortunately, it will require work to pay the debt back. The work of the American people. The work the government does has to be paid back with toil and trouble.
Modern Monetary Theory (MMT) says that if FIAT debt is issued in a country’s own currency, then it doesn’t have to be paid back. This is a very convenient way of saying that work doesn’t have to be paid back with work of equal value, and new promises of future work (aka debt) should suffice from here to eternity. There is no mystical power of FIAT money, the economy is based on people working, money is earned from work and debt is money that is issued without anyone working for it.
Passive income or wealth generation from asset appreciation is not the real economy. Only when the passive income or wealth is spent does it impact the economy. While wealth and income does not necessarily require labor or a service, the economy does require labor or a service to actually function. The point is that just because stock markets and real estate is at an all-time high doesn’t mean that the economy, the activity on the street is picking up, efficient, or effective.
So, while the economists declare MMT as a solution, the working class of the world, especially in America, is burdened by the rising cost of living, the perpetual stagnation of wages and the mounting evidence that opportunity is for the rich. The truth about debt is that it is an invisible killer just like the Coronavirus. Debt forces down wages for the sake of preventing inflation. Debt forces up the cost of housing with low interest rates on mortgages which only leads to higher prices and costs for housing. Debt increases the cost of everyday items as people make ends meet by using debt to pay more for items that would otherwise cost less. Regardless of MMT philosophy, life only gets harder with more debt, especially when its government debt.
Why is government debt terrible for the working class and poor? First and foremost, government spending is never efficient. Spending starts in the halls of congress in the haze of perpetual political turmoil. So, whatever bill manages to get passed, it is so complicated with thousands of pages that hardly anyone knows what it will actually do. One thing is for sure, if the bill includes spending it will be for billions and billions of dollars. Those billions of dollars will make life more expensive one way or another. So, while life gets more expensive, the working class has to work harder to keep up.
A left leaning perspective will defend government spending as a necessary evil and point the finger at corporate greed and massive CEO pay checks. However, that is all based on the notion that there must be a culprit, there must be someone or something to blame for these terrible outcomes. The CEO who is getting the multimillion-dollar paycheck is leading a company that is doing actual competitive work in the economy. It would not be possible for the CEO to make any money if the company was not providing a service or a good. In short, the CEO has earned it. Yes, corporations are pursuing profits in sometimes illegal and often environmentally disastrous ways especially when they can get away with it. However, none of these activities adds to the national debt. It doesn’t steal money from the poor either. In other words, it’s dishonest to put the blame on the very people and entities that are making the economy function.
President Biden thinks we need to compete with China by fixing our infrastructure. This is missing the point entirely. We can’t compete with China because the cost of living in America is 10 times higher than it is in China. Infrastructure spending paid for with debt only makes the cost of living in America even higher. This makes American workers and companies less competitive, basically making everything worse.
There is another way of thinking about economics. It’s a science and engineering approach. Today, the economy is a mystery, no one knows what happens next. This is because economics is not a science, it’s a psychological study of human behavior. The scientific approach looks at the banking system and when engineering is applied, the inputs into the economy are identified. As it turns out the only input into today’s economy is bank loans or, debt. If humanity wants to be in control of its future, it needs to take control of the inputs into its economy. Engineering techniques can then solve for humanities biggest problems. From lack of robust economic growth to global warming to poverty and safety net issues, there is an answer out there that works for everyone.
First featured on Forbes.com