The time has come to expose the great fraud that has been perpetrated on the West in the last forty years. Once we have even a surface-level understanding of Modern Monetary Theory (MMT), the great lie that is Neoliberalism will come crashing down.
Now, this has been outlined and discussed in detail by far greater minds than my own; this is not original to me. But I thought it might be useful to offer a brief description of MMT, how it works and then use these basics to expose the great Neoliberal fraud.
MMT, Part One: Currency and Its Relationships
In every economy that has its own currency (Australia, the US, the UK etc), every entity in that economy has one of two relationships to that currency. One is either a user or an issuer. Obviously, the federal government is the monopoly issuer of currency (hence counterfeit money laws). So the government issues the currency, and everyone else (including state and local governments and the citizenry) uses the currency.
Currencies such as the Australian Dollar, the US Dollar, the Pound etc are called Sovereign Currencies or Fiat Currencies. This means that when the government goes to do something, it simply goes to the central bank (the Reserve Bank in Australia or The Federal Reserve in the US) and says ‘we need this amount of money to be created’ and the bank, through several keystrokes, brings that currency into existence. Similarly, the relevant bank accounts of the recipients are also augmented using keystrokes. This may seem counterintuitive, but think about it this way. Consider the recent spending of $3.5b on tanks. Are we to believe that the government went to a physical bank vault filled with stacks of $100 notes? In light of the amount of money spent by the government on the regular, this would be impractical. Government spending is essentially EFTPOS on a grand scale.
MMT, Part Two: Tax Does Not Fund the Government
Since the government simply creates (issues) the currency it uses, government spending is not ‘paid for’ in that sense. It does not need tax to fund its spending since it is spending currency it issued itself. Tax revenue, I say again, does not fund the government. This lays to rest the zombie lie that a government has to ‘live within its means’ or ‘has a budget like a household’. Households do not issue their own currency, so this statement is a lie. Government ‘living within its means’ is naught but a lie designed to justify cutting funding for things neoliberals do not like, such as universal healthcare, education, pensions and generally anything that benefits anyone making less than $250k per year.
I should be clear: taxation does not fund federal government spending. It is true that tax does fund state and local government since these entities are still currency users (recall it is the federal government that issues the currency).
MMT, Part Three: The Purpose of Taxation
A natural follow-up might be to ask
If tax does not fund [federal] government spending, why have tax at all?
I think the best answer to this was provided in a New Economic Perspectives article
[Another] reason to have taxes is to reduce aggregate demand. If we look at the United States today, the federal government spending is somewhat over 20% of GDP, while tax revenue is somewhat less—say 17%. The net injection coming from the federal government is thus about 3% of GDP. If we eliminated taxes (and held all else constant) the net injection might rise toward 20% of GDP. That is a huge increase of aggregate demand, and could cause inflation
What this seems to mean is that the act of ‘taxing’ a unit of currency serves to eliminate it from the economy. Taxation seems to have the purpose of being a sort of ‘inflation break’, removing a certain amount of currency from the economy to prevent too much currency from flying around which could lead to inflation.
The Other Great Zombie Lie: How Will You Pay For It?
You have doubtless heard some version of this whenever a policy is proposed that would help the peasants. Any talk of, for instance, raising Newstart is met with loud screams of ‘HOWYIGONPAYFRIIIIIIIIIIT’ (how are you going to pay for it) or ‘we cannot afford it’. It is unclear whether those asking making these asinine statements are not aware of the fiat currency the Australian Federal Government uses, or if they are being deliberately deceptive. I leave that decision up to you all individually.
Not only is ‘how will you pay for it’ a ridiculous statement, but its application is also highly selective. Have you ever heard this question, or some variant of it, asked around, say, the military budget (pick your country, but the Americans are the most egregious)? How about corporate subsidies? How about politicians’ own outrageous perks and entitlements?
It is almost like they know that they have a fiat currency and intentionally lie to the people about ‘debt and deficit’ whenever they do not like something, typically for ideological (or corrupt) reasons. Whether it is funding Medicare (consider Mr Morrison’s recent removal of more than 900 items), investment in renewables or anything else the Liberal National Coalition is (in my opinion) paid to oppose, they become penny-pinchers when their ideology gets in the way. Yet hypocritically when it comes to war, corporate looting of the treasury and their own perks, they are reckless. Enough.
Conclusion: The Great Fraud
Since the advent of Reagan and Thatcher, politics in the west has taken a very selfish, individualistic turn. Pulling yourself up by your bootstraps is a popular Neoliberal mantra. Government has to live within its means is another. MMT shows that the very idea that a government has ‘limited means’ has narrow basis in reality. It is a monopoly currency issuer. It is, in a very real sense, not possible for a government with a fiat currency to ‘run out of money’.
I have said this before, but it is worth repeating: When it comes to helping the people, it is not money these sociopaths lack, it is the will to do it.
Governments with fiat currencies have all the money they could ever need. They could do so many wonderful things to improve society in so many ways. Means is not the issue. Conviction is. MMT, with its focus on fiat currencies, helps to expose the great hypocrisy at the core of the Neoliberal disaster of the last four decades. In an economy with a fiat currency, the use of fear-mongering about ‘debt and deficit’ to suppress policies that could help broad swaths of the population is dishonest beyond measure.
Epilogue: Still Learning
I am very much still learning about MMT, and doubtless, I have gotten some things wrong here. I encourage you to check out this podcast for detailed discussion of the theory and its applications. I hope this piece has provided a basic discussion of MMT and given some insight into the rot that is Neoliberalism.
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