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Government Practicing Austerity is Absurd

Photo by Jordan on Unsplash

Pundits tout "tax and spend" as the way the federal government operates, but the government makes the dollars, so it must spend first, then retrieve some dollars in taxes, otherwise the population wouldn't have dollars with which to pay taxes.

What do we call the dollars not retrieved in taxes? Answer #1: The dollar financial assets of the population. Answer #2: National 'debt.' Both answers refer to exactly the same thing. 

Similarly, your bank account is your asset, but to the bank, it's a debt. Fighting for national 'debt' reduction is equivalent to demanding your bank reduce its debt to you--in other words, make your account smaller. It's hardly sensible, but it does serve to deceive the population. 

How many times have you heard that national debt is a problem? A burden for future generations? Ask yourself: Is my bank account a problem? 

When governments practice austerity, savings shrink and economic instability grows. usterity is absurd, unnecessary and only serves to immiserate people.

So the austerity excuse for not spending without raising taxes is illegitimate. Remember, government must spend first, without any revenue constraint. The federal government is the only fiscally unconstrained player in the economy.

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Congress required our central bank, the Federal Reserve ("the Fed") to publish an audit of its distributions after Lehman's bankruptcy. The Fed created $16 - $29 trillion in credit to prop up the banks whose Ponzi capitalism caused the collapse now called the Global Financial Crisis (GFC). Before and after the GFC, there was no tax rise, and no surge of inflation.

So we're not running out of money, and the coronavirus stimulus checks confirm that. We will run out of dollars when the Bureau of Weights and measures runs out of inches--never. 

Furthermore, inflation does not stem from "printing" too much money, it's typically caused by a shortage of goods. In Zimbabwe, the Rhodesian farmers left, and a shortage of food initiated the hyperinflation, not money printing.

These observations are difficult for many people to accept. People are used to household economics, and "tax & spend" aligns with that exactly. The trouble now is that we need to mobilize society's resources to address significant problems, like a pandemic and the impending climate catastrophe.

Yet orthodox economics continues to promote the austerity narrative with theories like "crowding out," which assumes the economy is a zero-sum game and resources are completely consumed, so when government employs additional resources with its spending, it must do so at the expense of the private sector. Yet, according to the Fed, the U.S. economy is at less than 75% of its current capacity. A more realistic economics would conclude that government spending would employ idle resources, not "crowd out" private use.

History demonstrates this conclusion is realistic, too. GDP growth rates increased dramatically when the government spent for the New Deal and for the big public works project we call "World War II." One could conclude the additional GDP growth was a result of bringing under-employed resources online. During World War II, government employed 50% of the economy. For the Green New Deal, it would only have to employ 5%, yet the austerity narrative discourages even that modest spending.

When governments practice austerity, savings shrink and economic instability grows. Historically, whenever government has succumbed to the siren song of "fiscal responsibility," significantly reducing deficits, the economy goes into a tailspin...100% of the time.

defunding the police is a start

So...austerity is absurd, unnecessary and only serves to immiserate people.

Mark Dempsey
Simpler Than it Looks