Old Narratives Die Hard
Opponents of Bernie Sanders’ progressive proposals warn us, "Even if you raised taxes to 100% and drained every single dollar in the United States, that still wouldn't be enough to pay for Bernie’s programs."
We admit it: this is true.
"Then you can't do it," they say, “and you’re completely foolish. We can’t afford it.”
This is false.
Of course no amount of tax could possibly pay for the gigantic changes we are advocating. Problem is, the era of government taxing in order to spend is long over. Fiat currency - such as the United States uses - is created out of thin air by Congressional appropriation bills and the Federal Reserve.
Old narratives die hard. Once an idea makes it into popular understanding, it can be a very long time before it's discarded - even if it is long since obsolete. Asking where Bernie gets the fiat currency to pay for his programs is a question founded on obsolete assumptions. The question itself is moot, and has been for many years.Unfortunately, that doesn't stop it from being asked.
It’s been moot since 1913, but more importantly since 1933, when President Franklin D. Roosevelt signed a measure that gold no longer had to be available in lieu of paper money. This helped prevent further bank runs like the ones in 1929, and allowed the government to finance World War II. During that war, we needed to expand our productive capacity and thus we needed more fiat currency to pay people for the goods and services that were needed. If we had kept the dollar’s value tied to gold, creating additional fiat currency would have just created inflation (if you have a static amount of gold and a growing amount of fiat currency, the fiat currency would be worth less and less). Removing that relationship between the fiat dollar and gold meant that creating fiat currency no longer necessarily deflated the value of that currency. This is what makes that question moot.
Later, in 1971, Nixon signed a bill that ended the relationship between the US dollar and gold entirely. These two moves by FDR and Nixon have profound implications for what money is, what taxes do, and what debt means. The entire reality of our economy has been fundamentally changed… but have I mentioned that old narratives die hard?Nowadays, each dollar the government issues - is “red ink” from the government’s point of view. From the private sector’s point of view, each dollar is “black ink.” This means that the government’s account is negative in the exact amount the private sector’s accounts are positive. Think of it as an equation, an accounting spreadsheet, or a teeter-totter.
The reality post-1971: Government issues new money into the economy when it decides to spend, widening the amount of “red ink” on its books while expanding the amount of “black ink” in the private sector. This hinges on the private sector creating something of value with the money it’s received, expanding private sector black ink to justify government red ink.
If you have ten apples and ten dollars, then add 90 dollars, you have inflationary pressure. If you have 100 dollars and now there are 100 apples, you do not have inflationary pressure.
This means private sector shrinkage (via tax) isn’t the source of government spending; instead, private sector growth is the justification for government spending.
On the federal level, dollars never have to be “raised” anymore. Under a Bernie Sanders administration, the government will pay for its programs the same way it pays for anything else: the government decides it wants to improve the country, so it passes legislation and directs the Fed to debit private sector accounts.
Let’s take Medicare For All, for instance. With vast new credits in the “fantasy economy” (the government’s red ink), real debits begin to emerge in the real economy (the private sector) to justify the spending:
A healthier workforce with higher productive output
Dramatically lower overhead on businesses who can then invest money into expansion or additional job creation
An explosion in entrepreneurship (striking out on your own is dangerous and expensive since entrepreneurs become responsible for 100% of their household’s healthcare costs)
A vast cost saving over our current system, resulting in more consumption from people who stay healthier for longer
A major immediate-term deflationary pressure
Now let’s consider the Green New Deal. Obviously this also constitutes vast new government “red ink” but catalyzes real “black ink” emergence in the private sector:
- A vast mobilization effort creating a jobs stimulus the likes of which haven’t been seen since WW2
Zero marginal cost energy in a horizontally-integrated system, which allows energy users to make money on both money and data
A massive amount of technology and goods being created and exported
It’s a good thing money is artificial and that it has the elasticity to function this way. If it didn’t have this elasticity, it would still be artificial - but it would be an artificial barrier to using resources and filling jobs. This barrier would manifest, for instance, as empty factories next to empty homes with unemployed people sleeping out on the street - all while the resources needed go unused.Oh, yeah. That's exactly where we're at right now - because when it comes to spending for the public purpose, our representatives act like there are constraints that don't exist, because old narratives die hard.
It’s time to catch up to where we were 80 years ago and recognize reality. Bernie’s ideas aren’t just possible - they’re a brilliant move economically and a moral imperative.
What we can’t afford: living in an obsolete fairy-tale at the expense of human life.