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.)