Bill Mitchell smacks down some silliness from Peggy Noonan about the supposed looming insolvency of the U.S. (italics mine):
She [Noonan] should hang her head in shame for providing further myths that will certainly agitate all the ignorant – uneducated (despite long lists of credentials) – and high blood pressure conservative types who get wound up every day about their claims the US is facing impending bankruptcy. Leave them alone Peggy. Let them have a day off so they can calm down.
What does being bankrupt or almost bankrupt – on paper or anywhere else mean when you are talking about a nation that issues its own currency and can credit any bank account it likes for any amount it likes at any time that it likes? Answer: it is blathering nonsense.
It is true that you don’t have a foreign policy that requires a vast mobilisation of real resources to back it if you have run out of those real resources. But if there are companies around who can find the materials necessary to build the tanks, guns, rockets etc and offer them for sale then the American government will always be able to purchase them.
It might be that the economy eventually achieves full employment – although that looks a distant goal under current policy – and such purchases (of military equipment etc) would have to involve hard trade-offs to ensure that the real resources used in making the weapons etc are not desired elsewhere. If there was competition for these real resources then inflation can occur.
So if the US government found itself in that position then it might have to raise taxes and cut spending in other areas if it wanted a non-inflationary environment in which to purchase its weapons of death. But it can always fund the purchases. How?
Credit: Bank account of military equipment provider
Debit: Some account in the Federal Reserve system.
That would do it.
And this canard of insolvency is then used by Noonan to claim that the U.S. is losing its position of leadership (in many ways, we already lost it, but I digress), even though she has no idea what leadership means:
Noonan claims “We cannot lead, or even be an example, without money” – but leadership is not about having money. The US government doesn’t “have money” but it can spend it whenever it likes.
Leadership is about insight, judgement, courage, empathy etc … all human values. The mandate that leadership leads to can always be “funded” by the US federal government. Leadership is about knowing where to use the power that comes with the currency monopoly to advance the welfare of the nation.
The vast array of real resources that have been deployed by the US military have not advanced the welfare of the US citizens. The money that deployed those resources should have deployed them in creating jobs and revitalising decaying urban environments, and increasing access to first-class health care for the poor and all those sorts of things. But they are all political choices and operationally the US government can exercise whatever political choice it wants. The constraints are thus all political and/or human (lack of leadership qualities).
It is an outright lie to say that the nation is “without money”.
That’s the key thing: the decision not to solve the employment deficit is a political one. We are not on the gold standard, and thus, currency should never be limiting. People, resources, industrial capacity, all these things can be limiting; we simply might not have enough stuff. But if all we need is money, that’s not a problem–with a fiat currency, we can ‘dig up’ as much ‘gold’ as we like. As Paul Krugman noted, our current policies exist to preserve the wealth of the creditor class:
Consciously or not, policymakers are catering almost exclusively to the interests of rentiers – those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense….
While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work – but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump – in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered – but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.
Too often the budget is treated as some kind of physical immutable entity, but it’s not. We can spend what we need to spend to accomplish our goals, and likewise we can and should tax what we need to tax to accomplish the goals of inflation reduction and reduction of income equality.
And we shouldn’t let deficit shibboleths get in the way.