THE UNIVERSAL ECONOMY UNIT IV: THE FOLLY OF THE “BALANCED BUDGET”
We’ve heard it a thousand times. . . “I have to balance my budget. Why shouldn’t the government?” I have to pay my bills. Why shouldn’t the government? Politicians of every stripe jump on board. “Government spending is out of control!” “The deficit is unsustainable!” “We’re mortgaging our children’s future!”
But each of these statements is based on false or deliberately misleading premises regarding the monetary functioning of the U.S. Federal Government. Each assumes the government has no money of its own and must tax or borrow from the private sector to “pay its bills.” Let us assume for a moment that this is true.
The question immediately arises. . . If the U.S. government has no money of its own and must tax or borrow from the private sector to stay in operation, where did the money come from in the first place? The Gross Domestic Product (all the business that takes place in one year) of the United States for 2018 is projected to be around 20 trillion dollars. Did God come to Earth when the Declaration of Independence was signed in 1776 and leave a bag with 20 trillion dollars in front of Independence Hall in Philadelphia so the private sector of the new nation would have money to function? And did He design the money to magically grow each year to meet the new GDP? Or has there been a mysterious counterfeiter printing America’s money for the last two and one-half centuries? Neither of these scenarios seems too plausible.
So, where did America’s money come from? It came from the U.S. Government. In fact, it is the constitutionally mandated duty and authority of the U.S. Federal Government to create the nation’s money. The government not only has all of the money it needs to fund its own operation, it is the source of all the money used by the private sector. Just the opposite of what we have been lead to believe. Just the opposite of all the scare tactics being used to inflict “austerity” and unnecessary poverty upon our nation and its people.
Let’s develop a slightly Biblical Story about money and the so-called U.S. Government deficit:
In the Beginning. . . There was no money. Frederick the farmer grew wonderful vegetables, but no one had any money to purchase them so people went hungry and food was left to decay in the fields. Sarah the seamstress sewed beautiful clothing. But no one had money to purchase it so people went about in ragged hides or fig leaves and Sarah’s clothing lay unused. Deborah the doctor knew many cures for illnesses but no one had any money to pay for her services so people were unnecessarily sick and often died prematurely. Ben the builder built beautiful homes from material he harvested in the forest, but no one had money to buy them. So, the homes stayed empty and people lived in caves or under trees. In the midst of plenty, people suffered for lack of money.
One day people gathered to look for solutions. They knew they needed money. After long discussion they decided to form a government with the authority to create money. The money would be printed on pieces of birchbark and stamped with a special seal held only by the government treasurer so no one could counterfeit the currency. Other “officials” were elected along with the treasurer to run the new “nation.”
The government began spending money into the economy. Its first action was to build a beautiful school for everyone’s children. Ben the builder was payed to be the general contractor, but many others were involved. Loggers were paid to harvest forest products for the project. Sarah was paid to sew curtains and table cloths for the new school. Paul the plumber was hired to install sewer and water. Bill the blacksmith was payed to install handrails on the staircases.
Money spread throughout the community. Everyone was hungry so they began paying Frederick the farmer for his vegetables. Demand was so high Frederick began plowing more fields. Dan the dairy farmer had to raise more cows to keep up with the money people were willing to spend for his milk and cheese. Injured workers happily paid Deborah the doctor for her services. Since they now had money, parents also began bringing their children to the doctor. Sarah had to hire more seamstresses to keep up with the demand for school clothes. People began buying houses and Bill the builder was overwhelmed. Cory the carpenter started another construction business.
Where once people had been living in desolation, they now flourished. They were healthy, happy and leading productive, creative lives. The resources of the community could be put to work. All was well until one day when the government “officials” introduced a terrible and misleading word. “Deficit.” Not understanding the nature of their own fiat birchbark money and how it was essentially created out of nowhere to supply the people with a medium of exchange and that it never had to be “paid back,” the officials declared the government budget was like a household budget and had to be “balanced.” It had to take in as much birchbark money as it spent to end the “unsustainable deficit.”
Deficit fear was spread throughout the land. People were told they were leaving their children in endless debt. Soon taxes were implemented to return pieces of birchbark money to the government. Schools began charging tuition to return money to the government. Tolls were charged to use the roads and on and on. The economy soon began to collapse. With all of the money gone people returned to living in squalor. In the midst of plenty, poverty once again reigned supreme. But the government “officials” were happy because they had “balanced the budget” and there was no longer an “unsustainable deficit.”
Every time we hear politicians pontificate about “balancing the budget” or the “unsustainable deficit,” the above story is what they are actually suggesting. It is based on extraordinarily dangerous ignorance about the use of fiat money by the U.S. federal government.
In truth, the term “deficit” should never have been applied to annual spending by the federal government. It is totally misleading. It is the equivalent of being at a football game where the officials declare at half-time that they are running out of points and the game needs to be terminated. In fact, they had deficit spent points in the first half. More points were spent than returned to the officials and they had to balance the point budget. All points were removed from both teams and the game was over. But the point deficit was paid and the officials were happy.
In actuality, there is no such thing as annual “deficit” spending by the government any more than there is a point deficit at a football game. Neither annual government spending nor points at a football game ever need to be “paid back” and neither future children or future games are burdened by any lack of dollars or points.
The author J.D. Alt has suggested we replace the term “annual deficit” with “Annual Achievement Spending.” It is the money the federal government has created out of nowhere and injected into the U.S. economy to keep up with a growing GDP and the needs of society. It is an achievement, not a deficit.
J.D. Alt’s Kindle book, “Diagrams and Dollars,” can be purchased from Amazon for $1.50 and read on any device. It is an excellent source for understanding the flow of money in the USA and clearly shows the misleading nature of the terms “deficit” and “debt.”
Unit V will discuss: Government Debt Isn’t Government Debt