Social Infrastructure Package: Oh My

Looks like the MMTers (Modern Monetary Theory people)
are losing this round. The social infrastructure package which started off as a $6 trillion Bernie Sanders ambition, then shrunk to a $3.5 trillion package, is now lingering around $1.75 trillion or so. Various financial analysts think this a big deal, but it is not. $1.75 trillion spread over 10 years is a measly $175 billion annually, less than one quarter of the U.S. annual military budget. Apparently the powers-that-be believe that a powerful fighting force will gain a greater return on investment than a well-educated, civilized people.

Maybe the Democrats could revert to the Sander’s $6 trillion package, spread it over 100 years, and make everyone happy. The progressives could claim victory because they will have gotten a $6 trillion package. The Party’s conservative wing could claim victory because they limited the additional spending to $60 billion annually. Even the Republicans would be thrilled because they could point to the $6 trillion number and call the Democrats spendthrifts.

This has got to blow the MMTers away. The Modern Monetary Theory people understand the vast charade which is going on. All the concern about federal debt is nonsense, investment in people and physical infrastructure is what will advance the Nation. Debt financed federal deficits is a policy choice, it is an accounting convention of which we choose to abide.

As a sovereign nation with its own free floating currency, the sovereign, the U.S., in our case, can create all the money it needs without taxation or borrowing, taxation and borrowing are necessary, however, to prevent inflation in the goods, services and asset markets (actually, borrowing is never necessary but has other practical applications). With this in mind, the U.S. can invest the necessary funds for a strong future nation, restrained only by the inflationary impact of such investment. There will be a lag between the investment and the eventual supply of goods and services adequate to meet the additional money created through the investment. This is where the inflation comes in.

If you are worried about the current U.S. debt, a large chuck of it, $5.5 trillion or so, sits on the Federal Reserve’s (FEDs) balance sheet and it can be purchased by a platinum coin created by the Treasury Department’s U.S. Mint, or held in perpetuity by the FED where it is cost free to the U.S. taxpayer, or simply extinguished through an Act of Congress in combination with the creation of a new FED intangible asset account to prevent the hit to the FED’s balance sheet–a hit which would otherwise eventually pass to the U.S. taxpayer.

Higher government investment will need to crowd out private investment, not for lack of investable funds which are virtually infinite, but in order to prevent inflation due to excessive investment demand. This, of course, is why the social infrastructure package is resisted, it would be an enlargement of government at the expense of the private sector, but I would argue, for the benefit of the people and the Nation at large.

The Nation does not need more private sector investment which churns out $15 an hour jobs alongside a growing class of billionaires and millionaires: Elon Musk–$306.5 billion, Jeff Bezos–$192.9 billion, Warren Buffett–$104.7 billion . . . . The Nation needs investment in human capital which will create good paying jobs and to better distribute corporate gains among the poor and lower middle income groups whose dire straits are the result of an over reliance on the private sector.