National Debt Is No Burden
Posted: November 27, 2012
The fiscal cliff of increased taxes and reduced federal spending resulted from the hasty wedding of Congress and the Administration last year when the debt ceiling became a shotgun. Now, all parties want something different.
Republicans say that tax increases, which are scheduled to begin in January, will take money from the economy, increase joblessness, and lead the nation back into recession. Democrats say the legislated spending cuts will kill jobs and lead toward recession by reducing the flow of new dollars into the economy that it needs to expand. On Nov. 8, the nonpartisan Congressional Budget Office said both are right!
Putting those three pieces together shows that we should neither take money out of the economy by increasing taxes nor stop putting money in by cutting government spending. Instead of trying to balance the budget, if we want to add jobs and avoid another recession, we must run deficits.
The fiscal cliff was not designed to teach a lesson, but that is what it is doing by showing that we must choose between a balanced budget or a healthy economy. We can’t have both. So which should we pick?
Some, like U.S. Rep. Bob Goodlatte, R-Roanoke, keep playing the Johnny-One-Note theme that a balanced budget is most important. Their view is based on the idea that the federal government is just like a family and must live within its financial limitations. But when they say that increasing taxes will hurt the economy by taking money from it, they admit that the government does affect the economy through the money supply. No family can do that.
Those who have analyzed how America’s money system works today explain that true fiscal responsibility requires creating (and not removing) money when it is needed to keep the economy healthy, creating jobs with adequate pay for those who need them, educating the young, allowing older people to age with dignity, and providing the facilities and services — including health care — that a modern society must have. In their view, the first requirements of a civilized country are to meet its human, physical, security, and environmental needs. Money is a means toward those ends.
It was hard to meet those ends when the amount of money available was limited by gold stocks. Today, however, lack of money is a mental or political problem, not a physical or economic one. Just as Depression children remember saving bits of string in balls, most Americans, including the leaders of both parties, still think the federal government is like a family that must get money before spending it. That was true in the gold standard days, but not now when the government creates money by spending more than it taxes.
The fiscal cliff threatens to dump us back into recession quickly. That danger is obvious, so it won’t happen if cool heads prevail.
But what can happen can be just as bad if we fail to learn the lesson that nibbling at the deficit, either by increasing taxes or reducing federal spending now, will cost jobs and lead back into recession. There is a high risk that just extending the time schedule for reducing the deficit will convert the cliff into a long, downward spiral. The only true way to be fiscally, socially, and politically responsible is to spend what is necessary to put people who need good jobs to work as soon as possible. When that happens, tax revenues will increase, benefit payments will decline, and the deficit will shrink by itself.
The federal debt will not be a burden on future generations for two reasons. First, people have worried about that since the Revolution, but growth has always reduced the debt or made it insignificant. And second, the government can always pay its bills by creating the money needed to do it.
So do you care enough about future Americans to provide what they will really need as was done for us, or are you content to live with the idea that people don’t count, only dollars do?
Thornton Parker lives in Harrisonburg.
Republicans say that tax increases, which are scheduled to begin in January, will take money from the economy, increase joblessness, and lead the nation back into recession. Democrats say the legislated spending cuts will kill jobs and lead toward recession by reducing the flow of new dollars into the economy that it needs to expand. On Nov. 8, the nonpartisan Congressional Budget Office said both are right!
Putting those three pieces together shows that we should neither take money out of the economy by increasing taxes nor stop putting money in by cutting government spending. Instead of trying to balance the budget, if we want to add jobs and avoid another recession, we must run deficits.
The fiscal cliff was not designed to teach a lesson, but that is what it is doing by showing that we must choose between a balanced budget or a healthy economy. We can’t have both. So which should we pick?
Some, like U.S. Rep. Bob Goodlatte, R-Roanoke, keep playing the Johnny-One-Note theme that a balanced budget is most important. Their view is based on the idea that the federal government is just like a family and must live within its financial limitations. But when they say that increasing taxes will hurt the economy by taking money from it, they admit that the government does affect the economy through the money supply. No family can do that.
Those who have analyzed how America’s money system works today explain that true fiscal responsibility requires creating (and not removing) money when it is needed to keep the economy healthy, creating jobs with adequate pay for those who need them, educating the young, allowing older people to age with dignity, and providing the facilities and services — including health care — that a modern society must have. In their view, the first requirements of a civilized country are to meet its human, physical, security, and environmental needs. Money is a means toward those ends.
It was hard to meet those ends when the amount of money available was limited by gold stocks. Today, however, lack of money is a mental or political problem, not a physical or economic one. Just as Depression children remember saving bits of string in balls, most Americans, including the leaders of both parties, still think the federal government is like a family that must get money before spending it. That was true in the gold standard days, but not now when the government creates money by spending more than it taxes.
The fiscal cliff threatens to dump us back into recession quickly. That danger is obvious, so it won’t happen if cool heads prevail.
But what can happen can be just as bad if we fail to learn the lesson that nibbling at the deficit, either by increasing taxes or reducing federal spending now, will cost jobs and lead back into recession. There is a high risk that just extending the time schedule for reducing the deficit will convert the cliff into a long, downward spiral. The only true way to be fiscally, socially, and politically responsible is to spend what is necessary to put people who need good jobs to work as soon as possible. When that happens, tax revenues will increase, benefit payments will decline, and the deficit will shrink by itself.
The federal debt will not be a burden on future generations for two reasons. First, people have worried about that since the Revolution, but growth has always reduced the debt or made it insignificant. And second, the government can always pay its bills by creating the money needed to do it.
So do you care enough about future Americans to provide what they will really need as was done for us, or are you content to live with the idea that people don’t count, only dollars do?
Thornton Parker lives in Harrisonburg.