Skip to main content
Government Debts

The organization and manipulation of government debts (to finance budget deficits and development projects) have been core components of world capitalism’s real history for centuries. (Photo: Juan Barahona / Flickr)

Each week, LA Progressive’s editors pick what they regard as a particularly insightful comment from one of our readers, both to draw attention to one particular reader’s thoughts and to encourage more readers to weigh in with their opinions. This week’s pithy "Feedback Friday" response comes from Mark Dempsey who commented on the article by Richard Wolff, "Government Debts as Class Swindles."

As much as I admire Mr. Wolff in other contexts, and as much as I believe government favors the wealthy in egregious ways, this article is founded on egregiously false statements.

As much as I admire Mr. Wolff in other contexts, and as much as I believe government favors the wealthy in egregious ways, this article is founded on egregiously false statements.

“If governments raised enough taxes to cover their desired levels of spending, they would not need to borrow. ”

That is completely false. Governments with sovereign, fiat currency are the only fiscally unconstrained players in the economy. No such government ever “needs” to borrow as households do. They may issue bonds (promises of future money) to remove demand from the economy, and as a service to the financial sector, providing a safe place to store money. But they can make as much money as they need any time they need it. Witness the $16 – $29 trillion in credit the Fed extended for the financial sector in 2007-8. (The figures are from the Fed’s own audit).

In fact taxes do not provision such governments at all. They can’t, logically. Where would taxpayers get the dollars they use to pay taxes if government didn’t spend them out into the economy first? The function of taxes is to make the money valuable, not to fund the government. If you paid your taxes in cash at the treasury building, after marking your bill “paid,” they would shred the dollars you gave them. They don’t need your money.

Scroll to Continue

Recommended Articles

So it’s not “tax and spend”…it can’t be. It’s “spend first, then get some back in taxes.” What do we call the dollars left out in circulation, untaxed? Answer #1: the dollar financial assets of the population. Answer #2: National ‘debt.’

That national ‘debt’ is like bank debt. Your bank account is your asset, but to the bank, it’s a liability, it’s the money they owe you…their debt. Now imagine a group of depositors marching down to the bank to demand that it reduce its debt (i.e. make their accounts smaller). Not very sensible, is it. Impairing savings makes the economy more fragile.

The U.S. has succumbed to the siren call of “Fiscal Responsibility[tm]” seven times since 1776. The last significant ‘debt’ reduction was the Clinton surplus. The time before that was in 1929. Andy Jackson actually paid the entire debt off in 1835. This meant the country was without a national currency. Lumps of gold and (private) bank notes served. (Currency is an IOU, it says so: “Federal Reserve Note”…a Note is an IOU)

What correlates with these ‘debt’ reductions, 100% of the time? The kindly creditors don’t say “well, your savings are impaired, and there are fewer dollars, so we’ll skip this month’s payment” They say “Pay your mortgage or we’ll take your house.”

So what happens when people’s savings are impaired is a wave of asset forfeitures and foreclosures–a Great-Depression-sized hole in the economy. (See https://www.huffpost.com/entry/the-federal-budget-is-not_b_457404?guccounter=1)

So Wolff may be sincerely trying to re-balance the population’s wealth, but he’s got the wrong tool with which to do it.

Tags
terms: