This Thursday, Andrew Boyd{1} will be in town for the Berlin launch of Beautiful Trouble{2}, something of an “An encyclopedia for creative activism” as described by Sandra Cuff, of the Vancouver Media Co-op. As a contributor, I will join Andrew for the launch. Please come and join us.
My contributions to the book where on the subject of organizing around debt as a political focus. Beyond the two essays in the book, I have written quite a bit about this already{3}. The event on Thursday is a book launch, not a lecture, so I’ll talk for 15 minutes or so, since tactics are an important focus in the book, and Andrew will certainly cover some of them, I want to try to go a little more theoretical and attempt an macroeconomics of debt in 15 minutes. We’ll see how it goes.
Here’s a bit of primer.
If a modern monetary economy is to have either growth or savings it requires a deficit somewhere.
This is not an opinion, or an ideologically biased point of view. It is an arithmetic fact based on the what money means in actually existing modern economies.
The key identities here are the “Sectoral Balances.” The “sectors” are private, public, and international. And the three balances in question are net private savings, the total amount the private sector, including households, can save, along with the public balance, that is the amount the Government taxes minus what it spends, and the “current account balance,” which the balance between imports and exports.
If you sum these three balances the total is always zero. That is because there is only a limited amount of money in the economy at any time, and therefore any surplus in one balance must inevitably show up as a deficit in another.
If economy needs more money, either because it is growing, or because people or corporations want or need to save more, either the budget deficit needs to increase or the trade imports need to go down relative to exports. If neither of these things happen, then neither economic growth, nor increased saving is possible. This is why if wealth is to grow, either a government deficit or trade surplus is required. Of course, the world as a whole can not have a trade surplus. A trade surplus in any nation, must be offset by a trade deficit in another. Thus, within a modern monetary economy, the only means for an wealth to grow in a balanced trade environment is for the Government to run a budgetary deficit.
In other words, if the private sector is carrying too much debt, this means the public sector is likely taxing too much or spending too little. Government needs to increase it’s deficit.
Government spending, and also government borrowing is essential for the functioning of our economy. Back in the year 2000, when the economy was on over-drive and the US Federal Reserve bank was ratcheting interest rates in an attempt to cool down an economy it felt was in overdrive, Scott F. Grannis, Chief Economist of a US asset management firm, delivered a remarkable paper at the Cato Institute 18th Annual Monetary Conference, a right-wing affair co-sponsored by the Economist. Grannis, like other fund managers was terrified. What terrified him was that the combination of a government budgetary surplus and the fed’s tight monetary policy would result in a scarcity of government treasuries. It’s worth quoting him.
Grannis argues “The world needs Treasuries, and would be worse off without them. They are a public good just like our justice system, our national defense, and our network of interstate highways. […] We would be foolish to pay down the national debt.” Although Grannis interest are ultimately self-serving, the preservation of a risk-free investment, his point holds true. Bill Mitchell reports a similar situation taking place on Australia, during a period of budgetary surplus the government wanted to “pay down it’s debt,” and the financial industry went ballistic, for fear of a scarcity of risk-free Treasuries to hold in their portfolios.
Money, like Treasuries, is simply a form of Public debt. The fact is that Public debt, no matter if it’s in the form of accounts, currency or treasuries, is the basis of the modern monetary economy. We’d all be broke without it. Money enters the economy as government spending, and exits the economy as tax payments. If the government has a balanced budget, no extra money remains in circulation, and there can be no increase in private savings. If the Government has a budgetary surplus, this means that private wealth is decreased.
For this reason, as Grannis says, “Debt is a Public Good,” in the same way the infrastructure such as roads create the capacity for transport, government debt creates the capacity for commerce. Fiscal policy should never be interpreted from the budgetary balance alone, but must always keep the Sectoral Balances in mind. The government must spend enough to ensure that scarcity of its’s debt does not strangle the economy, which almost always means it must spend more than it taxes, if it fails to do so, then the result would either be economic stagnation or global trade imbalances. As we can see from the words of Scott F. Grannis, the bankers know this.
While public debt is a public good, private debt is a burden, often a crippling one. A sensible fiscal policy would be to use government spending to reduce private debt, especially household debt.
Understanding the way the Sectoral Balances function is key to understanding what is going on in the economy today. For instance, austerity measures reduce the government deficit, which in turn reduces private sector savings, or rather, increases private sector debt. Imbalances of political power within the private sector, for example between corporations and household, mean that the burden of this debt mostly born by households. The only way to reduce such household debt is either increase corporate debt or increase public debt, or decrease trade deficits. This not only explains why household debt is exploding, but also explains the Euro crisis. Germany has a large trade surplus, thus other countries, like Greece have a trade deficit. If the Euro is to be stable, Greece can only decrease its trade deficit if Germany increases its budgetary deficit. Somethings got to give.
Organizing around debt means uniting against insane policies that promote the interests of rich corporations and rich countries against common households and poorer countries. Much of the debt born by households and the debt born by peripheral nations is a result of bad government and bad economic policy.
To quote The Debtors’ Song{4}:
If us debtors get together,
all together, every one
we can heal, and house and teach each other
and do the work that must be done.Them creditors, they don’t help us none,
they just get in the way,
their profits are what drags us down,
we must refuse to pay.
Look forward to discussing this with some of you tonight at Stammtisch{5} and this Thursday at the Beautiful Trouble Booklaunch!
{1} http://andrewboyd.com/
{2} http://beautifultrouble.org/event/beautiful-trouble-book-launch-berlin/
{3} http://www.dmytri.info/collected-texts-related-to-the-debtors-party-initiative-updated/
{4} http://www.dmytri.info/debtors-song/
{5} http://bit.ly/buchhandlung
