MODERN MONETARY THEORY UNIT III: FEDERAL GOVERNMENT SPENDING FUNDS TAXES
Imagine for a moment that this popularly held belief is true – that the US Federal Government has no money of its own and depends on taxes to fund any government spending. Think about this. Ask yourself the obvious question. If the US Federal government has no money of its own and depends on tax dollars for its operation, where did the tax dollars people pay each year come from in the first place?
Well, we would all answer, “I work hard for my wages or salary and part of the money I earn is taken away from me to pay my federal and state taxes. That’s where federal tax dollars come from!”
But then the question must be asked, “Where did our employer get the dollars they needed to pay us in the first place?”
Well, one might answer, “I work for ABC Corporation and we manufacture components for Speedy Trailer Corporation that manufactures boat trailers. Speedy Corporation pays ABC for the components we sell them. That’s where the dollars come from!”
Oh, but then one must ask, “Where did Speedy Corporation get the dollars from?”
“Well, it’s obvious! Speedy Corporation gets their dollars from Zinger Boat Corporation who buys their boat trailers from Speedy. Simple!”
“Wonderful! But. . . but where does Zinger Boat Corporation get the dollars they use to pay Speedy for the trailers?”
“For heaven’s sake! Isn’t it obvious? Zinger Boat Corporation gets their dollars from Zinger Boat Dealers who sell Zinger boats. That’s where Zinger Boat Corporation gets their dollars!”
“Oh, well, that’s perfectly clear. Simple. Just one small question. Where do Zinger Boat Dealers get their dollars?”
“How can you be so dense!? Obviously, Zinger Boat Dealers get their dollars from the people who buy Zinger Boats. It’s crystal clear!”
“Of course! crystal clear! But, just one little question. Where do the people who buy Zinger Boats get their dollars?”
“How can you be so thick-headed? Obviously, people get their dollars from the places where they work – from their employers. In fact, I just bought a Zinger Boat. I work for ABC Corporation that manufactures components for boat trailers. That’s where the dollars come from. Now, do you finally get it?”
“Yes, thank you, I finally understand. But, just one, tiny, lingering question. Where does ABC Corporation get their dollars . . .?”
At this point in our circular logic we must all ask ourselves a critically important question. Where do US dollars really come from? Should we assume that in some long-ago past God or the Universe left a big bag of dollars on the east coast of America so that the nation could begin conducting business? And was that bag of money designed to magically grow as the gross domestic product of the United States grew? Or perhaps some mysterious entity has been counterfeiting our dollars since the American Revolution. Maybe that’s where the dollars come from?
Or maybe – just maybe – the US Federal Government is the Constitutionally authorized creator of the nation’s currency and supplies all of the money needed for the ongoing operation of the entire country. Maybe – just maybe – that’s the function of the US Treasury and its bank, the US Federal Reserve. And maybe – just maybe – if the US Federal Government didn’t spend our money into existence in the first place there would be no dollars for us to pay our taxes with! And maybe – just maybe – we should finally figure out – our taxes do not fund federal government spending. Federal government spending funds taxes.
One could not exaggerate how important it now is for the people of America to understand where the nation’s currency actually comes from – because Wall Street, multinational corporations, and the billionaire class understand it perfectly. This is why, in 2008, the US Treasury and Us Federal Reserve Bank were able to create, out of nowhere, over 16 trillion dollars to bail out Wall Street Banks. No tax dollars were collected or needed to do this.
This is how in 2008, billions of dollars were created, out of nowhere, to bail out General Motors and Chrysler Corporation. No tax dollars were collected to do this.
This is how, each and every year, the US Government now gives over 1 trillion dollars to the corporations reaping incredible profits from the military industrial complex and “Homeland Security” without collecting a dime of taxes to pay for it.
This is how, in 2017, the US Congress gave huge tax cuts to the billionaires without a single legislator asking “How are you going to pay for it?”
We need to get it through our heads. At the federal level our tax dollars are never “at work.” But the servants of corporations and billionaires we mistakenly call “our” congressmen and senators from both political parties are always “at work” meeting the needs of their donors. The federal government can always pay for the desires of the oligarchy. But somehow, our political “leaders” can never comprehend how to “pay for” the needs of the average, struggling, working people of America.
We need to understand where the dollars really come from. Our future prosperity and wellbeing depend upon it. We have all of the physical resources and knowledge needed to provide a high standard of living for all the people in America. Whether our not our federal level politicians are willing to fund this standard of living is a political decision, not an economic one.
As always, it must be clearly stated. None of the above applies to state and local governments. Only the Federal Government is a currency issuer. All others are currency users.