Great Leap Forward

Taxes and the Federal Budgeting Process

Here’s an excellent editorial written by two followers of MMT*, Duane Catlett and Dan Metzger:

I’ll quote an excerpt but you should go read the whole piece. They correctly argue that if you’ve got a government that issues its own sovereign currency, affordability is never the issue. What matters is the real resource constraint. If you have unused resources, government can always put them to work. The budget should be set with a view to “functionality” (ie functional finance)–to mobilize resources toward the public purpose. The “financial” outcome is not a relevant consideration. Nor is inflation the issue, up to the point of fulll employment of all resources. That is not to say that government spending (and taxing) decisions are never inflationary before full employment. But “rightly directed” government spending (and taxing) can move the economy to full employment without causing inflation.

Here’s the excerpt.

Both political parties are dominated by the false view that the federal budget must be balanced. The only difference is that conservatives think the government has a spending problem and liberals think it is a revenue problem. Both are wrong and it is hurting America’s competitive global advantages.

In the modern world of fiat currency the federal government must focus on real resources (available materials, factories, infrastructure, labor, knowledge) instead of financial resources (money and bonds) in managing the economy. Money is the vehicle that allows the smooth movement of goods and services from sellers to buyers in the economy. The federal government as the sole issuer of the U.S. dollar can issue all the money it needs to move any resources of the nation….

The Congressional budget exercise should not be about achieving a balanced federal budget. The budget should be developed to assure that all available resources of the nation are put to good use. There is plenty of work to be done, and we can avoid high unemployment. The federal government can employ all the resources not employed by private industry. If unemployment is high, as it is now, federal deficits are too small….

The threat to our future generations is not from a gigantic national debt, which is in reality a gigantic collection of safe and secure savings instruments that will be held by our future generations. The real threat results from the U.S. Congress’ failure to responsibly spend money into circulation to fix our failing bridges, highways, waterways, sanitation systems, public schools, state universities and other public services that we citizens rely on in our daily lives.

*Duane Catlett lives in Clancy. He is a retired career Ph.D chemist and materials technology manager. He is a student of Modern Money Theory and the role of government in our economy. Dan Metzger  lives in Santa Fe, N.M. He is a retired Ph.D physicist and engineering manager. He is a serious student of Modern Money Theory.


One Response to “Taxes and the Federal Budgeting Process”

CezaryWJuly 3rd, 2014 at 9:50 am

Really cool article written by non-economists, 🙂

Now, its more clear what's the function of congress. Defining public purpose, searching for macro policies to serve it, evaluate existing policies in relation to actual achievement of planned objectives, continuous improvement.