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I came across a post from the “Fix the Debt” campaign last month called “The Top Five Worst Reasons Why the National Debt Should Matter to You.” It's a post full of debt/deficit lies that cry out for correction. That's what I'll provide in this series.

1. High debt levels = fewer jobs and lower wages

In times of fiscal and economic uncertainty, consumers and businesses reduce investment and delay projects because investment is costly to reverse. Higher government borrowing can also drive up interest rates once the economy recovers, reducing the access and affordability of funds for consumers and businesses to borrow and invest in new ventures and ideas. This can hold back the economy, resulting in fewer jobs and lower wages down the road.
Response: What's with the colloquial use of the 'equals sign' in this statement? Is the “Fix the Debt” campaign trying to say that there's an identity between high debt levels and fewer jobs/lower wages? Is it trying to say that fewer jobs/lower wages cause high debt? Are they trying to say that there's mutual causation between the two over time? Or are they trying to say something more complex than these things?

The summary statement after the headline indicates that the “equals” is an ambiguous way of making the straightforward claim that high debt levels trigger a causal chain ending with fewer jobs and lower wages. Here are two ways of addressing this claim: is it true, or even likely, given the data; and even if it is true, then so what?

Addressing “truth” first, it's not! There's plenty of evidence (See Part Two) refuting the idea that high public debt levels cause fewer jobs and lower wages in nations like the United States that use a non-convertible fiat currency, a floating exchange rate, and have no debts in currencies they do not issue.

In fact, even before 1971, when the United States closed the gold window allowing convertibility to gold on international exchanges and arrived at our current fiat currency system, the data still refute this claimed identity and suggest, that, if anything, the causation is reversed. In Part Two I've added a historical addendum dating from 1930 to the present showing that the evidence refutes this theory about the causes of higher unemployment.

Read it and see what's happened for yourself; but the upshot is that this theory is pure fiction. Its narrative hasn't happened once in the United States since 1930.

Now, on to “so what.” Let's, for the sake of argument, say that high debt or debt-to-GDP levels did cause high unemployment, and that Government debt is a problem. The “Fix the Debt” campaign wants to respond to this by cutting Government deficit spending, raising taxes and following a long-term deficit reduction program featuring cuts to social safety net programs.

But why follow that unnecessarily painful economy-contracting, middle-class depriving strategy? The United States is a fiat currency sovereign. It doesn't have to borrow back its own currency and reserves from people who are holding those.

It doesn't have to sell any more debt instruments, providing unearned profits primarily to wealthy individuals and foreign nations. Congress can either provide the Treasury Department with the authority to create whatever money it needs to repay the debt as it falls due and to perform whatever deficit spending chooses to appropriate; or the Executive branch can use existing Platinum Coin Seigniorage (PCS) authority to fill the public purse with all the dollar reserves needed to do both of these things.

I've outlined how this works in numerous posts at this site and others, also in my kindle e-book. The process is very straightforward, will not cause inflation, and is legal under current law. So, if the “Fix the Debt” campaign is really worried about high unemployment and fixing the debt, then I challenge “Fix the Debt” to support my petition for the President to order the Secretary to mint a $60 T platinum coin immediately to accomplish this without in any way compromising the safety net or hurting the economy.

I don't think “Fix the Debt” will support this proposal however. The reason why is that “Fix the Debt” is a front group for a very long-term effort by Peter G. Peterson to gut the social safety net and privatize Social Security. Peterson and the various front groups he funds through the Peter G. Peterson Foundation aren't really interested in fixing the debt. They understand that the public debt is no danger to a fiat sovereign like the US, and doesn't cause high unemployment.

What they are really interested in is persuading the public that patriotism demands crippling the safety net in the name of fiscal responsibility. If they were not, and they really think that “teh debt” is a cause of high unemployment, then they would join me in supporting one of the two proposals I advanced earlier for “Fixing the Debt.”

(Cross-posted from New Economic Perspectives.)

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Comment Preferences

  •  It makes sense once you realize (8+ / 0-)

    It's not about the debt.
    It never was about the debt.
    It never will be about the debt.

    It's about getting rid of programs conservatives don't like.

    As soon as we have another GOP administration we'll be back to "Deficits don't matter. Reagan taught us that."

    If the pilot's good, see, I mean if he's reeeally sharp, he can barrel that baby in so low... oh you oughta see it sometime. It's a sight. A big plane like a '52... varrrooom! Its jet exhaust... frying chickens in the barnyard!

    by Major Kong on Sat Aug 24, 2013 at 11:49:49 AM PDT

  •  money has to be kept artificially scarce (3+ / 0-)
    Recommended by:
    NoMoreLies, psyched, cynndara

    otherwise the government might use it to make people's lives better, and we can't have that, can we?

    We don't have a problem with SS/Medicare. In fact, we could fund them out of the budget if we wanted. And if we did, we wouldn't have to pretend to fund it by levying a regressive payroll tax, the way we do now.

    But then the secret would be out, and people would realize that the government could do far, far more than it does to ensure employment and full availability of social services (pensions, medical care, public transit, education, etc.)

    The deficit serves as a great excuse for the politicians to refuse to enact beneficial programs and thus keep the people immiserated, divided, and easily fleeced. "We would love to help, really we would, but we gotta watch out for that deficit!"

    Once that myth is exploded, how will they be able to refuse to help without looking like the greedy, cold-hearted Wall Street tools they are?

    "In America, the law is king." --Thomas Paine

    by limpidglass on Sat Aug 24, 2013 at 12:03:07 PM PDT

    •  Artificially scarce money (1+ / 0-)
      Recommended by:
      jellyyork

      limpidglass said:

      The deficit serves as a great excuse for the politicians to refuse to enact beneficial programs and thus keep the people immiserated, divided, and easily fleeced.
      Exactly. And even if a liberal president or legislator wants to help the downtrodden, the politicians will say that the best way to do that is to start at the top: Grant money to the bankers who will see to it that it is distributed wisely down the line.

      And being a president who recognizes that life is hierarchical, from God on down, he sees truth in that. Times are tough and we must all bear our burden. Even the destitute must bear their share, but their reward will be great in the next life.

      When there are emergencies, such as many bombs needed to make things safe for democracy overseas, it is okay to increase the deficit and fund the arms makers. But don't worry, we will balance the budget later if everyone contributes his share through sequestration.
      .
      .


      For the first time in human history, we possess both the means for destroying all life on Earth or realizing a paradise on the planet--Michio Kaku.

      by psyched on Sat Aug 24, 2013 at 03:07:03 PM PDT

      [ Parent ]

    •  That's my mission (1+ / 0-)
      Recommended by:
      hestal

      Getting the secret out. Join me!

  •  Puritanism is America's renewable source of power (2+ / 0-)
    Recommended by:
    psyched, achronon

    Harnessing Americans' innate Puritanism has been making lots of money for a few people a since colonial days. All this current deficit hoopla is just pop-culture Puritanism.

  •  The only reason we have a national debt (3+ / 0-)
    Recommended by:
    NoMoreLies, psyched, achronon

    is because Congress has delegated its responsibility for managing the currency to loan sharks. The Federal Reserve gives free dollars to banksters (investors) and then they lend them back to the Treasury to collect a dividend for having the Treasury keep their treasure safe. On top of that, instead of setting tax rates to insure that the dollars come back to Washington as revenue in a timely fashion, Congress interrupts the cycle by rationing dollars and distributing them to privileged populations (contractors who control lots of jobs whose holders they are expected to deliver at election time).
    Not providing for the general welfare, it turns out, cannot be considered a bribe nor extortion. Never mind that so many Congress critters are so inept that nobody wants them to do any work.
    Whose fault is it that such miserable candidates are put forward? Don't ask what the political parties are good for, if not grooming and promoting qualified candidates for public service.

    •  The only reason America has a national debt (0+ / 0-)

      is because it is a country, which makes (sometimes unwise) investments; not a massive commodity exporting company disguised as a country.

      Debt held by the government is a feature, not a bug.

      The number of countries which have truly zero national debt (or a perennial surplus exceeding and wiping out said debt) is vanishingly small. Their status as "perennial" creditors with zero national debt  is generally nonpersistent.

    •  I like it! (1+ / 0-)
      Recommended by:
      Had Enough Right Wing BS
      Congress has delegated its responsibility for managing the currency to loan sharks.
  •  The Peterson claim is preposterous. (2+ / 0-)
    Recommended by:
    Had Enough Right Wing BS, hestal

    In fact,  high government debt for the last century has usually been associated (not just in America, but around the world) with high levels of government spending on public welfare programs.  These programs have artificially stimulated and propped up wage and employment levels, and despite the criticism they routinely garner from corporatsi, have provided HIGHER employment and HIGHER wages overall in their national economies than in nations without that higher level of government spending and consequent debt.  And as long as the debts were undertaken in the nation's own currency and not backed in gold or foreign currency, the price was paid in a constant cycle of high inflation which sapped stockpiled wealth but thereby encouraged "velocity" or movement of money throughout the economy and caused minimal harm to the working classes who spent their pay for immediate needs.  We see the reverse of this in the IMF and "troika" demands levied on Greece and other debtor nations, where the loss of government spending leads to a profound loss of jobs and steep decline in real wages.

    What Peterson and his crowd object to is having to pay decent wages and pensions to workers who, having a decent standard of living and some legal security, dare to consider themselves the equals of their social "betters".  These parasites deserve nothing less than full state appropriation of their private hoards and introduction to the Real World of working honestly for their livings.

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