The following presumption is commonly offered in favor of austerity in times of high unemployment, as if unemployment were akin to a fallow field recovering its fertility in resting from crop production.
“. . . national debt is a means of boosting today’s consumption at the cost of future generations.”
The thing is, money is a fiction. If you think strictly in terms of goods produced and consumed, it is not so clear how a money debt incurred by the state accomplishes this shift of consumption from the future. There are no time machines that can export future production back to us in the present — or ship bales of cash forward in time to “pay” for these exports from the future.
We only have the present moment in which to live and act. We may choose to live in anticipation of the future, better or worse, but we can only act in this present moment. Whatever we are doing with money, we cannot make decisions for our posterity, only for ourselves. This is the great tragedy of involuntary unemployment, brought about by public austerity in a time of private retrenchment: it is a waste of time and life. We can never get back the time when we could have been productive. We cannot save up our productive powers for a future time.
That’s not to say we cannot invest productively. We could use our time and resources now — time and resources that cannot be recovered if squandered in the idleness of pointless austerity — to build for a better future. We have enough foresight for that, I think.
The one sure way we can ensure that our posterity is poorer is to run down the infrastructure, dumb down the young, lay waste to the environment, all in the name of containing money deficits. Money deficits which are simply fictions, symbolic constructions.
I am not saying money isn’t useful. It is a very clever institutional invention that let’s us keep score and coordinate our behavior in the system of production and distribution that is the economy. We use money to calculate our chances, hedge our bets and figure the odds as well as weigh the costs and benefits. Money is an all-purpose incentive and means of motivating people and property.
But, let’s think for a moment about what it means, this claim that we can “burden” later generations by using money and debt to marshal resources in the present. If we fail to use resources in the present productively, if we fail to put people to work doing worthwhile things in the present, we lose them, we lose the time and the opportunity . . . forever.
If the state borrows money, it typically issues marketable bonds that embody a promise to pay principal and interest on some fixed schedule. The state will levy money taxes in the future in order to keep those promises. If you are familiar with the concept of present value, you will understand that the bond is exactly worth at issue the present value of the anticipated future taxes to repay principal and interest. The stream of payments to the bondholder is exactly equal in value to the stream of payments from taxpayers that fund the bond.
Now here’s the tricky part: if the bondholder and the taxpayer are the same person, then the bondholder has in hand, in the form of the bond, the funds he needs to pay the taxes necessary to fund the bond. Of course, realistically, there may not be a precise correspondence between the bondholder and the taxpayer. The point of the thought experiment is simply to establish that the future is not “burdened”. Taken together, collectively, to the extent that bondholders and taxpayers form a common community, there is no burden, because the taxes are paid in money funds from money funds circulated by paying off the bond.
Creating the debt, in and of itself, has no consequence for future consumption, places no constraint on future public or private choices.
Of course, public policy can have consequences for the future. What public goods we choose to invest in, the bridges we build, the knowledge we develop, the communities we nurture — these things matter to the future.
I won’t say public debt is inconsequential. We need it as a vehicle for savings and for hedging the payments systems. We need an efficient fiscal system for collecting taxes, particularly taxes on economic rents. But, that’s another comment for a future time.
Note: originally published as a comment at Naked Capitalism, where I am now banned from commenting, apparently because I think Yves Smith is a bit addled, especially where MMT is concerned.
