Table
of Contents
1. First Introduction:
Paying Off the Debt vs. M.M.T.
2. Second
Introduction: Basics of Modern Monetary Theory
3. My Plan to Pay Off the
National Debt
4. My Plan is to Create a
Surplus Without Raising Taxes
5. Removing Money from
the Economy, and Private Issuance of Currency
6. What Does a "Private
Sector Surplus" Really Mean, Anyway?
7. Do Deficits Really Pay
for Imports? (Including Thoughts on China)
[more sections to come at a later date]
Content
1. First
Introduction: Paying Off the Debt vs. M.M.T.
I am
currently running for the U.S. House of Representatives, on an
independent platform which has, as its most important plank, a plan
to pay off the U.S. national debt by 2047.
Between April 20th and 30th, 2020, I was
involved in an argument on Twitter regarding my plan to pay off the
national debt.
That
plan would involve generating a trillion-dollar annual federal budget
surplus as soon as possible, paying that trillion dollars directly
into the hands of the federal government's creditors, and then doing
that again each year until the debt is fully paid off. Since the
national debt is currently above $23 trillion, this task will take at
least 23 years to implement, so I have estimated that it could be
completed as early as some time between 2044 and 2047.
The
argument began when a proponent of Modern Monetary Theory criticized
my claim that I have a serious plan to pay off the national debt
(saying that there is no
such thing as a serious plan to pay off the national debt). That
Twitter user, who calls himself “Bill”, later told me that my
plan to create a federal government surplus (as opposed to the
deficits that we're used to) would create problems which he worries I
have not anticipated.
2. Second Introduction: Basics of Modern Monetary Theory
In
order to better understand the argument I had with “Bill” - and
in order to understand why someone would want to criticize a plan to
pay off the national debt in the first place - it will first be
necessary to understand a few basic things about Modern Monetary
Theory.
Modern Monetary Theory (initialized as M.M.T.) is a school of
economics which is an offshoot of the Keynesian school (founded by
mid-20th-century British economist John Maynard Keynes).
“Bill” urged me to
watch a video by M.M.T. economist Rohan Grey, titled “What is
Modern Monetary Theory?”. That video was posted to the YouTube
channel “Michabo Sustainable Harmony” in July 2019, and can be
viewed at the following link: http://youtu.be/gr1PxeW5yWw
In
the video, Grey said the phrase “Modern Monetary Theory”
originated in Keynes's explanation that the state has authority to
enforce contracts, and also to enforce what sort of things can be
used to make payments.
Keynesianism and M.M.T. both hold that debt, deficit spending, and
inflating the money supply in order to make up for shortfalls in the
budgets, are essentially not serious problems, and perhaps not even
problems at all. Certainly not as important, anyway, as goals such as
keeping inflation under control, and preventing too much money from
being saved rather than spent. M.M.T. proponents and
Keynesians tend to view paying off the national debt as undesirable
and probably also impossible.
Economists who associate
with free-market, conservative, and Austrian school strains of
thought, on the other hand, reject that view completely. They argue
that government debt is a bad thing, that it should be avoided if
possible, and that it must be paid back.
Many
such critics of M.M.T. also believe that their goals of keeping
inflation under control and preventing too much savings, are not as
important as the goals which could be pursued by abandoning monetary
policies influenced by Keynesian and M.M.T. thinking. Such goals
include ensuring high or even full employment, and
achieving a stable currency which has a slowly rising purchasing
power because it's backed by balanced budgets. The tendency of M.M.T.
proponents has been to criticize, minimize, or even dismiss these
concerns.
I
have written the following article in order to explain what
objections I have to Modern Monetary Theory, with particular regard
to M.M.T. as presented by economist Rohan Grey in the video “What
is Modern Monetary Theory?”, and also as presented by the proponent
of M.M.T. who criticized my plan to pay off the national debt on
Twitter (“Bill”).
3. My Plan to Pay
Off the National Debt
Before continuing, it will be necessary for the reader to understand
several things about my proposal to pay off the national debt:
1) Spending two trillion annually while taking in
three trillion annually, would require
decreasing both spending and revenue
(and that's why it's my preferred solution as to how to generate a
trillion-dollar surplus);
2) I would
hope to achieve this by reducing military spending not essential to
our national defense; localizing Medicare, Medicaid, and Social
Security; and passing reforms which would achieve price relief in
health goods and other goods;
3) Three trillion in revenue and two trillion in
spending is not the only way to achieve a
trillion-dollar surplus; there are numerous other possibilities which
will, though (such as taking in four trillion while spending three
trillion, taking in two trillion while spending one trillion, taking
in one trillion while spending and doing nothing, etc.); and
4) It's probably possible to finish paying off the debt earlier than between 2044 and 2047. If legislators begin to see early that the reforms are working, then they will be able to plan future spending and taxation in accordance with the limitations I have outlined.
4) It's probably possible to finish paying off the debt earlier than between 2044 and 2047. If legislators begin to see early that the reforms are working, then they will be able to plan future spending and taxation in accordance with the limitations I have outlined.
I
tweeted to “Bill” the following: “Suppose we started taking in
$3 trillion a year, and reduced our spending to $2 trillion.” I
continued: “Say we did that every year, and paid the leftover
trillion directly to our creditors. And we did it for 25 years until
the debt got down to zero. Are you saying that would be: A)
impossible; B) undesirable; or C) both?”
“Bill” responded “both”, specifying that he was answering in
terms of whether it would benefit the American economy and benefit
the status of the U.S. Dollar as the world reserve currency. He
added, “Economics is about distribution of real production and
resources. Money is the tool we use to do that. Removing money from
the economy makes distribution of real stuff
more difficult. No reason to do this... ever.” He also said, “A
federal surplus is literally a non-federal deficit. This is a
reduction in the net money supply.”
I
initially responded by saying that my proposal would not take U.S.
Dollars out of the economy. However, “Bill” responded by saying
that studying fiscal flows will show that private sector savings and
wealth are decreased when the government runs a surplus budget. As
“Bill” put it, “a federal surplus means a deficit for everybody
else” (i.e., for
the private sector and for the foreign economy.
Basically, “Bill”'s argument was
the following: 1) it would be both impossible and undesirable to try
to pay off the national debt; and 2) a surplus should not be created,
because that would remove money from the economy, and make it harder
for people in the private and foreign sectors to spend enough money
in a way that distributes resources effectively.
I
suppose that "Bill" was trying to point out that if the
federal government wants to create a surplus, then it will have to
raise taxes in order to cover the current budget shortfall, and that
will require taking more from the private sector and from personal
and household wealth, causing unemployment and stagnation.
“Bill” also explained that there
is a private sector surplus whenever
the government runs a deficit (which is because the government is not
taxing the private sector as much as it would have to in order to
balance the budget). “Bill”'s analysis of this concept was that
“Basically federal deficits 'pay for' imports and private sector
savings.”
4. My
Plan is to Create a Surplus Without Raising Taxes
What “Bill” neglected to notice, is that my
proposal does not call for raising taxes.
What I mean is that - while it may call for tax rates to be raised on
certain activities -
the total amount of revenue which
the government would take in as federal tax receipts, would
not be any higher than it is now; in fact, it would be much lower.
I
want the federal government to spend $2 trillion per year, while it
currently spends about $4 trillion
per year. This means that I am calling for approximately
a two-trillion-dollar reduction in
the total amount spent by the federal government annually. I am
calling for balancing the budget while reducing total
spending; I am not calling
for balancing the budget through raising the amount expected to be
generated through tax revenues.
Moreover, I am not only calling for
paying off the debt and serious budgetary reform; I am also proposing
that governments change the sources of their tax revenue to something
more efficient. In 2014, Georgist economist Scott Baker told
RussiaToday (RT) that taxing the unimproved value of land (land value
taxation) could yield $7 trillion in annual revenue. In 2014, $7
trillion was also roughly the same amount of money spent by all
governments in the United States combined (at all levels). That means
that replacing all current forms of government revenue with taxes on
the unimproved value of land, could pay for all
government services.
I
have certainly called for creating a surplus,
but creating a surplus does not necessarily require raising taxes.
People only think it does, because we have never tried to reduce the
debt through requiring balanced budgets, making taxes more
efficient, and making spending more
efficient too, all
at the same time.
The
goal of Georgist taxation is to tax land in order to make taxation on
labor and capital unnecessary. Adopting Georgist and geo-libertarian
policies on taxes will help achieve that increase in tax efficiency
for which we are looking, as well as help simplify taxes while making
them avoidable and (to the extent possible) voluntary.
Once
land is the only thing taxed, the need for income taxes, sales taxes,
and taxes on home value will disappear. That's because taxing
unimproved value would involve taxing the waste and hoarding of land,
and land speculation (key causes of high land prices), which will
help bring about cheaper prices for capital and labor (because they
would be untaxed, and because their prices would be reduced because
the land upon which they rest will have declined in price).
Once
Georgist taxation is in place, the price of owning land as private
property will be high, but only for the sake of compensating the
community for recognizing and protecting that property claim. Also,
the price of tending land (and of building and dwelling and producing
upon it) will be low. What this all means is that nobody will be
discouraged from building, nor from producing, due to the imposition
of taxes (in which a large portion of their earnings are confiscated
through an act of legalized extortion). Nobody will be discouraged
from building upon the land they tend, for fear that increasing their
property value will
increase their property taxes.
Only actual ownership of the
land should be taxed; not the
rental of a housing unit on the land, nor productivity upon the land.
Once
nobody is too afraid of high tax rates, to build and produce to their
full potential – and once they're free to keep all of what they
produce – none of
the “unemployment and stagnation” which we usually see with tax
increases, will be seen as the result of switching to a more
efficient system of tax revenue sourcing. Most of the dozen
Pittsburgh-area communities which experimented with land value
taxation and split-rate taxation saw decreases in not only
unemployment, but also rent and average
household taxes.
In
short, increasing unemployment and causing economic stagnation are
problems which are typically associated with increasing taxes, but my
proposal would not increase taxes; I
would instead solve the budget deficit and create a surplus by making
taxes more efficient (by
switching to Land Value Taxation as our primary – maybe even
our only – source
of tax revenue).
In
the process, I would also like to localize as many government
services as possible to states and communities, and repeal any laws
which interfere with the natural freedom of locomotion. I believe
that these measures will help accomplish three important goals: 1)
Stop trusting the federal government with large amounts of money; 2)
Stop trusting the federal government with the authority to regulate
environmental, health, and land issues; and 3) Leave people free to
travel to any community they please, and free to transact with any
Community Land Trust they please.
Goal
#2 is important for two reasons: A) because each locality is directly
affected by the set of unique health and environmental factors in
that region, and B) because those issues were never specifically
delegated to the national government in the Enumerated Powers in the
first place.
If we learn to live
within our means, do more with the money we're already taking in, and
avoid antagonizing production with the taxes we levy going forward,
then the national debt will go from “unsolvable, but not a problem”
to “a problem, but easily solvable (given enough time)”.
5. Removing
Money from the Economy, and Private Issuance of Currency
I
told “Bill” the following: “It's not a problem that money will
be removed from the economy, as long as: 1) the money comes from the
taxation of the wealthiest who reap the most from government
handouts (i.e., land
speculators and land hoarders, corporate polluters, etc.);
and/or 2) people are sick of the fiat USD (U.S. Dollar) and
want real money.”
By
“real money”, I meant that the U.S. Dollar is partially backed by
debt, and that this constitutes usury, vacating all responsibility to
ensure that transactions do not take place unless all assets are
fully possessed (rather than existing due to debt, inflation, deficit
spending, leverage, and speculation).
“Bill” responded “There is
no 'real money'”, adding
that” You can combine a liability with a material of your choice,
but there is no need to conflate financial assets with real assets.”
I find it odd that he said that, because I don't think I
am conflating “financial
assets with real assets”, as much as I am criticizing the
conflation of financial assets (i.e., the
face value of the dollar) with real assets (i.e., the
real savings and real revenue which back-up, and form a basis for,
the ability to finance. I'm saying that proponents of the dollar are
“conflating financial assets with real assets”, by taking dollars
at their face value, and neglecting to consider that they are backed
by fiat (that is, government say-so).
I
agree with “Bill” that it is possible to “combine a liability
with a material of your choice” in order to try to make a currency
or money which is more solvent than the U.S. Dollar. However, there
is a difference between saying “you can”, and saying “you
can, if you
can get away with
it”. What “Bill” neglected to mention is that, in the United
States, you can be charged with a crime, and put in prison, for
issuing your own currency.
That
is what happened to Bernard von NotHaus, who issued .999-purity
silver coins (and certificates redeemable for precious metals, and
other forms of tender) as “American Liberty Dollars” (ALD). Von
NotHaus never claimed his coins to be official United States
currency; despite this fact, he was charged with manufacturing coins
which bear similarity to American money. Von NotHaus was charged with
“making, possessing and selling his own coins”, was ordered to
pay the government $7 million, and now faces 15 years in prison.
“Bill” was correct to point out
to me that it's possible and legal to exchange your U.S. Dollars for
things like tickets, coupons, and money created by
stores (such as Chuck E.
Cheese tokens and Disney Dollars). However, it needs to be both
possible and legal to create your
own currency, not just to exchange your dollars for tokens created by
legally operating businesses (which are incorporated, licensed, and
regulated by the same government that creates the dollars). Right now
it is possible, but not legal, to
create your own currency without the permission of the federal
government (that is, if you want it to be made of gold or silver).
We
deserve a free economy. A person should not have to worry about being
kidnapped by police, cuffed, and put into a cage, just because he
pressed some gold or silver into disc shapes (unless he lied about
what they're made of and how much).
Considering the fact that the U.S. Dollar has lost some 98-99% of its
purchasing power since 1913, it's safe to say that
nearly any currency
which is issued by a private citizen, is likely to be more solvent
than the dollar is. So why not arrest the people at the Federal
Reserve, instead of arresting people like Bernard von NotHaus and
marking him a counterfeiter for life?
After
all, von NotHaus never tried to use physical force, nor threats, to
get people to use his currency (in the way that the government does).
Is the possibility that he committed a form of
fraud, really as bad as the sort of violent crimes which are
committed overseas in the name of "opening foreign markets to
American products and the dollar", that von NotHaus should be
treated like a violent criminal and have his "freedom"
taken away?
The
fact that private issuers of currencies backed by precious metals
have to live in fear of being thrown in prison, and the fact that
they cannot confiscate people's property and wealth, means that
private issuers of currency are difficult to compare to issuers of
currency which have strong ties to the public sector. That's because
those private issuers are effectively captive to
public currency issuers' interests and control.
It's
not only difficult to compete against a legal monopoly,
it's illegal. To say "you can combine a
liability with a material of your choice", is to leave out a lot
of important information about how, if that material is silver or
gold, and you're in "the land of the free", and subject to
the laws of the United States of America, your body might be put into
a cage.
To
say "you can" do something that's sometimes illegal, is
to dare people who want a more just society with
fairer laws, to put themselves in cages, supposedly for the sake of
proving the point that it's better to work with the government you
have than to live in a lawless society (even if that government is
tyrannical and flouts the law on a daily basis).
6.
What Does a "Private Sector Surplus" Really Mean, Anyway?
“Bill”
said there is a private sector surplus whenever there is a federal
government deficit. That is why, according to “Bill”, it would be
bad to create a federal government surplus;
that is, because it would create deficits in
the private sector and the foreign sector.
When
the federal government runs a deficit (that is, when it takes
in less than
it spends in a given year), the private sector considers this
government deficit to be a surplus for itself. That's because the
government isn't taking enough in revenues from the private sector as
would be necessary to cover the hole in the budget, so the private
sector considers the funds which are not taxed away, to be more money
for themselves (i.e., a
“surplus”).
However,
I have to take issue with “Bill”'s position that “Basically
federal deficits 'pay for' imports and private sector savings”. To
me, the fact that “Bill” put the phrase “pay for” in quotes,
suggests that “Bill” might be twisting logic to fit his own
“truth”.
It's
true that when there is a federal deficit, there is more money
available to be saved in the private sector, because it has not been
taxed. However, the fact that the private sector considers it
a surplus that there's more money for itself than it expected there
to be, does not necessarily make it so.
A
“surplus” (which I am proposing the federal government create) is
when you take in more money than you spend. Having more money left
over at the end of the year, because the government didn't tax you as
much as you expected it to, is not exactly the same thing as running
a surplus. True; each results in having money left over.
But
a federal government surplus and
a private sector surplus are
fundamentally different things, because the private sector has much
less power than the federal government (part of the public sector)
to legally confiscate people's wealth.
Government does this in several ways: 1) through taxation; 2) through
inflation of the currency in a way that devalues the money in
people's pockets; and 3) through legal means (such as levying liens
against landed properties, homes, and other assets).
Government
has the ability to order people to purchase products. Because it has
the military and armed bureaucrats on its side, the government has
the ability to enforce the laws which provide for the expenditure of
the taxable portions of people's transactions, on particular spending
items (such as health insurance and government identification).
Although
the government is very often subject to capture by the interests of
private sector entities, the opposite is also true, as private
entities abide by government laws even when it goes against their
interests. Unless the private-sector entity in question is a
military, or a private army, a private sector entity generally cannot
simply conquer people's land, nor compel people to do business with
it (without the government to help make that happen).
It
is this unique power which sets government apart from the private
sector.
However,
the fact that this is a unique power, vested in the government,
should not be construed to mean, that government deserves this
unique power, nor that it can or should be trusted with it. Nor ought
we conclude that the public sector is “special” simply because it
has the power to confiscate people's property and wealth at will.
This power is neither “unique” nor “special”. What it is,
is evil.
If
you think about it, what we are doing by describing “the private
sector being taxed an amount lower than was expected” as “a
private surplus”, is giving in to the idea that the government can
and should confiscate as much property and wealth as it pleases. The
mere fact that the federal government has the authority to raise tax
rates, should not be construed to mean that it should raise
tax rates.
If
a business operates within its means, and the government declines to
tax the business (or declines to tax it at a high enough rate, for
whatever reason), are we to assume that the “surplus” which would
be generated, would be generated through the action of the business,
or through the action of the government?
Whose
actual action and productivity caused
that surplus? Did the government actually produce
something by performing the
very passive “act” of declining to tax away the funds in
question? Probably not, because the government doesn't produce
anything. But did the company produce
something, or act in a way that directly caused that surplus?
Arguably, yes it did. But what if the company made its money
through destruction; like
through war profiteering, or through polluting land?
We
must not treat destruction as if it were production, in the way we
describe them and tax them. With a taxation system influenced by
Georgism, we will tax the destruction and degradation of
land, not the
labor and capital which are mixed on top of it. This means that
businesses will be taxed without regard to
how much they produce and how much income they reap; that
is, unless they
reap that income through polluting, wasting, hoarding, or destroying
land. Businesses would be taxed to the extent that they engage in
those behaviors.
Many
people are aware that everything the government has was legally
extorted from private people and entities; and that just because the
government balanced its budgets or created a surplus, it doesn't
necessarily mean that the government deserved all
of the money it took in through taxes to achieve those goals, nor did
the government produce anything
in order to acquire those funds.
But
we need to understand that the private sector is
capable of acquiring funds without producing, in exactly the same way
that the government is. And the government and the private
sector both have
long track records of destroying and polluting for the sake of
producing and acquiring funds.
The
fact that private businesses and the public government appear to be
the only entities fighting over these funds which could be taxed,
does not necessarily mean that either of them produced that wealth,
nor does it mean that either of them deserves it, nor that one or the
other knows how to spend it wisely.
What
is being fought over, was created by neither government nor the
private sector, and it belongs to neither of them. The government's
position is that that wealth should be spent and saved by
government. The private
sector's position is that
that wealth should be spent and saved by private
entities. This is a
disagreement, but only in part; they each agree that the wealth
should be spent and saved by someone.
The only disagreements lie in who should do the saving
and spending, and how
much should be spent vs. how much should be saved.
The
fact that they agree to an extent, suggests that there is wider
agreement that that wealth be spent or saved, than there is agreement
about who ought to spend or save it. So why not allow that wealth to
be spent and saved by the sectors of the economy other
than the public government
sector and the private business sector?
The
simple answer is that most people have forgotten that other sectors
of the economy even exist. But the foreign sector, the non-profit
(voluntary / charity) sector, private-public partnerships,
cooperatives, the commons, and clubs and club goods, each have
distinct characteristics which arguably could merit them being
considered sectors of the economy unto themselves (distinct from the
public and private spheres).
With
Georgism and Land Value Taxation, each community would have a
Community Land Trust, a non-state entity which would not necessarily
operate for profit. The more non-state non-profits there are, the
easier it will be to survive, for a person who wishes to boycott the
coercive state and the unsustainable short-term profits which are
enabled by the state's excesses. The more non-state non-profits there
are, the larger the “voluntary sector” (also called the “charity
sector”, the “non-profit sector”, or the “third sector”)
can grow.
The
private sector promises that, if they are allowed to keep their
money, they will spend it on their employees, and on creating new
businesses and new jobs, and on things that will reduce the costs of
needed goods and services, so that people can afford them more
easily. The government promises
that, if they are
allowed to tax more money from the private sector, the
government will spend the
money on its citizens,
and on creating new government job programs and
bureaucrat positions, and on legislative measures that will reduce
the costs of needed goods, and on a retirement program that will
allow them to put money away for later.
If
the government and the private sector are so determined that the
money will get spent on (or saved for) the neediest people – to
help them save, and afford, and work, etc. -
then the neediest people should be the ones who spend the money
directly, in order to make sure that happens (as government and
business claim to want it to). [Ideally, the neediest people
should also be
the ones who acquire the
funds directly from whomever possesses them (whether that's the
government or private owners).]
The
money should be saved or spent by the voluntary
sector (and by enterprises
operating on voluntary bases, such as Community Land Trusts); not by
the private sector nor the public sector.
Why
isn't anyone concerned about the non-profit sector's
deficit?
7.
Do Deficits Really Pay for Imports? (Including Thoughts on China)
“Bill”
stated that “Basically federal deficits 'pay for' imports and
private sector savings”.
I
have already explained that “Bill” believes that federal
government budget deficits “pay for” savings in/by the private
sector, in the following manner: businesses would be left with more
money (i.e., what
could arguably be called a surplus) – money which they can save -
because those businesses would be taxed out of less money than they
expected.
But
now we must continue, to the issue of whether deficits,
in any sense, “pay for” savings in the private sector.
Admittedly,
I was unfamiliar with the idea that “deficits pay for private
sector savings” until “Bill” brought it up. But after thinking
about the issue in the context of financial relations with China, it
started to make sense.
What
I figure “Bill” is trying to say, is this: When the federal
government agrees to generate a deficit, it goes further into debt.
Allowing itself to go into debt, allows American consumers to
“profit” through America's relationship with its creditor nation
China; that is, debt supposedly helps Americans purchase imported
goods at prices which are relatively cheap. They are relatively cheap
because of the close financial and trade relationship between the two
countries, with China loaning to the United States, and the United
States investing in Chinese goods in return. But more importantly, these goods are relatively cheap, because while America is buying Chinese products, it's buying them with a U.S. dollar that's partially backed by Chinese loans.
And don't get me wrong; that sounds like an amazing deal for the United States! That's because it means that China is essentially paying us to buy their
products. Several years ago,
Senator Rand Paul stated something to the effect of “we are
borrowing from China to pay China”. But we should take pause: we should think, “If it
sounds too good to be
true, then it probably is
too good to be true.”
Think about it: If
a seller is so desperate to unload his product that he is willing to
pay you to buy his product,
then that could mean that: 1) the product is bad; 2) the money is
worthless; or 3) both 1 and 2. We ought to ask, “You want to pay
me to buy it? It sounds too good
to be true. What's wrong with it?”
Is
the appeal of massive savings through importing cheap goods from
China, really worth the risks associated with importing large amounts
of products, which could be faulty, feature safety hazards, and/or be
made from low-cost material that's carcinogenic? We must not use the
allure of cheap products from China to justify continuing to enable
the U.S. federal government's cycle of addiction to debt to foreign
nations.
I
want free markets and a free economy; not captive markets and a
rigged economy. To avoid captive markets and the rigging of markets,
we must avoid borrowing from countries from which we purchase massive
amounts of goods.
If we buy a lot of goods from one country, then we should look to other countries for loans. If we notice ourselves depending too much upon one country for loans, then we should try to avoid buying too much from that country, and import goods from different countries instead.
On the other hand, if
we don't do that, and instead we buy most of our goods from one country, and borrow
from that country more than we borrow from any other country, then that is a recipe for
disaster. That's because so much money would be flowing from the
United States to that country, from both its public
sector and its private sector.
If it became necessary to consider consciously decreasing the flow of
money from the U.S. to that country, then resorting to legal methods
could only solve half of the problem at best, while working outside
of government in the private sector could only solve half of the
problem just the same.
It would cause U.S. markets to become subject to rigging of markets in favor of that creditor nation / chief trading partner. It would be a market captive to China. We must not allow ourselves to be lulled into such a "false sense of economic security"; especially not if China's goals are dependence on Chinese products, and seeing the Yuan replace the Dollar as the world reserve currency.
It would cause U.S. markets to become subject to rigging of markets in favor of that creditor nation / chief trading partner. It would be a market captive to China. We must not allow ourselves to be lulled into such a "false sense of economic security"; especially not if China's goals are dependence on Chinese products, and seeing the Yuan replace the Dollar as the world reserve currency.
My point is not that we literally can't borrow from China in
order to spend money on imported goods from China. The issue is that
the fact that we can, doesn't necessarily mean that we should.
We must not risk depending too much upon China (nor upon any other country which could potentially become simultaneously our primary creditor nation and our primary trading partner). Depending too much on one country, for both goods and loans, is a recipe for economic ruin for the debtor nation (in this case, the United States).
We must not risk depending too much upon China (nor upon any other country which could potentially become simultaneously our primary creditor nation and our primary trading partner). Depending too much on one country, for both goods and loans, is a recipe for economic ruin for the debtor nation (in this case, the United States).
To answer the question posed in the title of this section - "Do deficits really pay for imports?" - the answer is no.
We in the United States might like to think that they do, but that is a flight of fancy and an oversimplification. We suppose, from the mere fact that we are borrowing from China at the same time that we are buying lots of its products, that these loans from China are "paying for" the products we're buying.
But we are wrong; first, because money is fungible. Money from China can be spent on anything. Although we do "borrow from China to buy from China" in the sense of trade (and also in the sense that some of the money from Chinese loans goes towards repaying our debt to China), some of what the money from Chinese loans is spent on, has absolutely nothing to do with China, and doesn't go to China. They are spent on other federal budget items; domestic, military, etc..
Second, it's not as if the money from Chinese purchases of U.S. federal government debt are being funneled directly back to the Chinese government, to buy Chinese products. Although the Chinese government provides assistance to the state-owned enterprise Cosco (the shipping company), America's national government is not, in any real or literal way, directly spending China's money on Chinese goods. Especially not, considering that many of the firms "exporting" "Chinese" goods to the United States, are actually American-owned firms.
Although it, perhaps, seems logical that borrowing money is the only realistic way we're going to get as many products into America as we need, and cheaply, that is not the truth.
Here is the truth: Deficits and debt are bad. Spending more money than you take in, is bad. You don't buy products with deficits and deficit spending and borrowing; you buy products with money. You don't buy things with negative money; you don't buy things with no money; you buy things with positive money. Money that you have, or can have in your possession, so that you know it actually exists.
Why should I feel like an idiot for believing that, if we want to buy products from China, we should use money instead of debt? Is the United States trying to pretend like it doesn't want to go into debt, so that it can get away with acting as if it's doing China a favor by allowing China to take a trillion dollars in debt off of the U.S. federal government's hands? That's hardly a way to be grateful to the country that's bailing you out more than any other country is.
Let
us not be mistaken; it is not necessarily a privilege to loan
to America.
If
America's best days are ahead of it, then it is certainly a
privilege. But certainly not if America is on its way out, like if
production will never return. If that is the case, then the fact that
the United States will owe China money, will not matter,
because the U.S. will have no feasible way to repay that debt.
We
are certainly on track for that to happen now, considering the large
number of Keynesian, M.M.T., and other economists who believe that
the national debt is not only not a problem, but also that paying it
off would be undesirable and probably even impossible. My position is
that resolving to pay off the debt, and talking about it as if it
were both desirable and possible (because it is), will help reassure
our creditors (most importantly China) that we are on track to pay
that debt off.
Don't
get me wrong; being a major trading partner of China is not
undesirable. We just shouldn't depend on them any more than other
countries. And we should stop acting as if debt were an asset, no
different from “positive money” and currencies and goods, that
you can have in front of you, and see and touch and feel.
Perhaps
that is why we treat China as if it is privileged to buy our debt
(i.e., lend to us); as if we were doing China a favor by
selling our debt to them (as opposed to some other country, perhaps).
Again, lending to the United States is only a privilege if the
U.S. eventually pays back its debts.
I'd
like to clarify something. America is borrowing money from China,
not the other way around. The investment which the United States
makes in China, is not a purchase of their debt; it is not
a loan to China. The investment which the U.S. makes in China, is the
purchase of its goods (and also, the establishment of
U.S.-owned firms in that country). America is importing goods which
were exported from China after being manufactured in China.
We
are not loaning money to China. We are borrowing from them, while
buying a lot of their products (and employing some of their
people). China is loaning America a lot more money than the U.S. is buying from China. So China is, by no means, in the inferior position. Certainly not in its lending position. It is worth noting that the U.S. now trades with China at a surplus, so China's status in trade has declined relative to the U.S. - especially considering that U.S. debt service has been increasing for the last two decades - but China's position relative to the U.S. is still superior overall (for now).
We
must do away with the notion that borrowing from China allows China
to invest in the United States. Chinese market actors have always
been able to invest in the United States; it's possible for them to
do so without the U.S. doing any borrowing from China at all.
We
would be foolish to go on acting as if owing this money to China
provides only an opportunity to invest in the U.S. by selling us
cheap goods; it also provides an opportunity for China to exploit
America's need for Chinese products and Chinese loans.
Have
we allowed ourselves to become so deluded, as to believe that the
fact that we're supposed to pay China back, means that China
is owed all of this money, and that that's supposed to be as
good as having that money?
Ostensibly,
the U.S. is borrowing from China in order to do four things: 1) be
able to more cheaply afford imports from China; 2) fix a hole in its
budget; and 3) use some Chinese loan funds to fund programs aimed
towards increasing jobs and productivity here in the United States.
The goal of #3 is to help-along goal #4) to generate taxable revenues
from those jobs, to fund government, while (eventually)
decreasing dependency upon China for loans.
And
again, that sounds like it makes perfect sense! But once
again, all it really means is that we're borrowing from China... in
order to avoid borrowing from China.
When
we treat debt as if it were currency or money, and trade it and spend
it as such, we risk turning debt, and the temptation of credit and
loans, into currencies in their own rights.
That
is to say, we risk monetizing debt as a matter of regular course, and
we risk turning debt and I.O.U.s into something which is just as
acceptable – and valuable – as a mode of payment, as are real,
tangible, physical, hard assets (such as precious metals).
When
there are not strong anti-usury (and anti- fractional reserve)
measures in place, we risk setting the value of some good, equal to
the value of another object which claims to represent it. If a
promise to pay is every bit as acceptable as a payment, then the
value of a promise is likely to decrease. People who make promises
will be less likely to be believed, because there will be a perverse
incentive to borrow and receive without giving back as one has
promised.
The
negative consequences of usury are, thus, not only economic and
financial, but also social and moral. The fact that the government
can aggress against people, and coerce them without consequences,
should not be construed to excuse the government from the
responsibility to act as any sane, civil individual would: 1)
live within your means; 2) don't force anyone to buy from you or sell
to you (or use your currency); 3) don't threaten or harm people
unless they do the same to you first; and 4) keep your promises.
After
all, the government's authority rests on the will of the governed,
and its duties are imposed by the individuals who constitute that
government, who have duly delegated their own powers to the
government for the purposes of protecting their liberties. The
government should have every responsibility to behave as it would
expect any of its law-abiding citizens to; because the government is
comprised of those citizens.
[the remainder of this article will appear here at a later time]
Written on April 29th and 30th, and May 1st, 2020
Originally Published on May 1st, 2020
Updated on May 4th, 2020
