Why government spending is different from household spending
John Hermann
Another blogsite containing useful economic analysis and insights is entitled New Economic Perspectives (see http://neweconomicperspectives.blogspot.com). On this site is a video of a talk by Stephanie Kelton, who explains why TINA (“there is no alternative”) falls apart as a justification to tolerate unemployment once we understand the relationship between a sovereign government and its currency. The talk is entitled “Why You and I Can’t Spend More Than We Bring In, but the Government Can – and Probably Should“.
She makes the point that in the U.S. around 70% of spending is by households, and that whenever there is a significant fall in aggregate demand we should look towards implementing mechanisms designed to boost household spending as the highest priority. Examples of effective measures would include targeted tax reductions and government guaranteed employment creation and assistance programs.
Kelton also sees current beliefs and attitudes of politicians within the U.S. and in the Eurozone as major stumbling blocks which will need to be overcome before any real progress is possible. The most firmly entrenched of those false beliefs include a widespread perception that there is no alternative to the current economic paradigm (summed up in the mantra “surplus good, deficit bad”), along with the belief spelled out in a recent statement by President Obama that “we are broke”.
Contrary to such a viewpoint is the recognition that no sovereign country ever needs to go broke or to worry about going broke. Fears that the U.S. and other sovereign countries like the U.K. and Australia are in danger of falling into the debt traps exhibited by Ireland, Greece, Portugal and Spain are unfounded, because the latter group of countries abandoned their monetary sovereignty when they joined the Eurozone, obliging them to turn to the capital markets (mainly large European banks) in order to fund their deficits.
The simplest way to resolve the spiralng private debt problem is to have a debt Jubilee, on the basis that debts which cannot be repaid will not be repaid. Much of this debt is attributable to a design flaw within the financial system, meaning that many of these debts should not have been incurred in the first place. The issue then is the best way of steering the economy through the non-repayment phase with a minimum of pain and disruption.
On the surface of things that seems like a way to offset spiraling debt. However, and not being an economist it seems that using sovereign powers to issue money brings into question the sorts of demands on resources it would stimulate when other countries don’t have the infrastructure or resource base to kick things along. After all ‘imperialism’ is a way to capture resources and exploit labour cheaply or plunder a country of it’s oil. If economies were to have a policy of self-reliance and moved that way then it would become more feasible – however as we know the global paradigm is way to powerful to allow this to happen without crisis that forces a whole new direction in economic development. For instance how is the USA going to get out of a 17 trillion dollar debt under it’s very own conditions and rules. Almost impossible. Collapse has to occur. A new and comprehensive system needs to be defined and ready when the crunch comes if we are to have any chance of seeing a future for ALL not just an elite section of society.