Our Government is Seriously Lying to Us About the Economy

Max Mastellone
5 min readJul 14, 2017

The US monetary system allows for far more freedom in the conduct of monetary policy than has been traditionally pursued by Congress, the Treasury and the Federal Reserve Bank. The consequences of not taking advantage of those freedoms have been regular, artificially created economic crises that reverberate throughout our economy, having the greatest impact unsurprisingly, on middle and working-class families. The following may sound to some of you like fake news because of how different it is from what you have been taught about how our economy works.

It is not fake news.

Please read through this piece and then do your own research on Modern Monetary Theory. I have provided an accessible primer at the end of the article.

These are all verifiable facts:

  • As a monetarily sovereign nation, the US created and denominated its currency by law
  • In 1971, when President Nixon took the US off the gold standard, the dollar became a fiat currency, one that is not backed by any valuable commodity
  • While on the gold standard, if the government wanted to increase the money supply it would have to increase the gold reserves proportionally
  • Now, with a fiat currency, the Feds can create an unlimited amount of dollars if it chose to
  • States, counties, cities, all businesses and the public are not monetarily sovereign and must use the government issued dollar for all financial transactions. Thus, unlike the US government, all of them need some form of revenue to pay their obligations. The points about fiat currency discussed here do not apply to them.
  • Taxes DO NOT fund Federal government spending. Since all the money in circulation was created by the government by paying its obligations, it must first spend in order for businesses and individuals to have the money to pay their taxes. NOT the other way around, as commonly thought
  • The US government does not borrow money; therefore, it has no debt. Since the government creates new money at the stroke of a computer key, it has no reason to borrow its own dollars.
  • The Treasury bonds and bills that the government holds are commonly referred to as debt, but they really are simply public savings. The Feds do not sell T bonds as a means of raising money to pay obligations. Again, they have no need to. This practice is but another means of controlling the money supply. When it spends big, the government will schedule a bond sale in order to draw off the excess money supply.

Based upon these facts, several conclusions may be drawn. It should first be stated that these facts are promulgated by non-traditional economists and others who advocate Modern Monetary Theory. These folks have informed various government officials of the facts and the recommendations that derive from the facts. It is interesting to note that Stephanie Kelton, an economist formerly at the University of Missouri at Kansas City and major MMT figure, was Bernie Sanders’ economic advisor during the campaign. Not much of MMT rubbed off on him. Kelton and the other MMT advocates have been met by considerable resistance and inertia. To a degree, this reaction is understandable because the information is so radically different from conventional wisdom and from how the government runs the economy. But one would think that the amazingly liberating ideas offered by MMT would appeal to elected officials who spend lots of time complaining that they do not have the money to do what society demands.

Now to the conclusions. Since our monetarily sovereign nation can never run out of money, it can never default, never become bankrupt. Consequently, assertions such as “Social Security is running out of money, or, the cost of Medicare is getting too high, or, we can’t afford the food stamp program”, are false. They are made out of ignorance of how our monetary system works, or for political considerations. It is widely known that our nation’s infrastructure is crumbling. Considering our new understanding of monetary sovereignty, there is nothing preventing the government from establishing a public works project that would provide good paying jobs to many Americans to repair and upgrade the roads, airports, water systems bridges, railroads and more. It would not require raising taxes one cent. It would not mean money would have to be taken from another government program.

We have already addressed the mythology about the “national debt”. What about that other scary word, the deficit? Well, MMT economists point out that a deficit in one part of the economy is counterbalanced by a surplus in another part of the economy in the exact amount. When the federal government holds the surplus, there is an equal deficit throughout the non-governmental segment of the economy, and vice versa. Government surpluses deprive the rest of the economy of working capital. Since the government can create money at will, it has no need for a surplus. What is often pejoratively called “deficit spending” by some, is actually the desired state of affairs for the economy in general. The US government does not require tax revenue to cover expenses, state governments do. Understanding that the government requires no income to function makes the notion of a deficit or a “balanced budget” inapplicable. Although taxes are collected, they are not counted as income against which to balance outflows. The rate of government spending should be determined by factors such as level of employment, poverty rate and social goods in general. Inflation is controlled by adjusting tax rates.

The questions that jump out are, with all this being true, why aren’t the Feds operating the economy according to this view? Why needlessly alarm the public with all the unfounded dire economic pronouncements? In my reading on MMT thus far I have come across only very partial explanations from the economists. I continue to look for those answers, but my expectation is that the answers will turn out to be more political than economic. Ignorance of the facts discussed here is one. Among those government officials who do grasp MMT, skepticism about it actually working as described is a factor. One might view it as comfort with the familiar.

My personal reaction is to wonder who benefits from perpetuating this economic mythology. Does maintaining public economic insecurity and disappointment keep us off balance and thus less of a threat to the rulers? I would speculate that were the US government to adopt MMT principles and begin to spend without regard to imaginary revenue-based constraints, it would be easier for Democratic Socialist ideas, such as those put forward by Sen. Bernie Sanders in his urging us toward a political revolution, to take hold. Observing that the 1 percent/RNC-DNC cabal that runs the country are dedicated to neoliberal policies that only benefit the wealthy, and observing the disdain for progressive policies also displayed by Establishment Democrats (for Republicans it goes without saying), anything that facilitates movement toward policies that benefit the general population will be vigorously opposed by those forces.

Social media is how I learned about MMT and is the platform that has gotten the word out better than any other. I see MMT as a valuable instrument that progressives should grab hold of and use as an organizing tool in their campaign against crony capitalism, the 1 percent and the RNC-DNC political monopoly.

In that vein, I urge you to investigate MMT yourself and promote it widely through social media.

This primer by Warren Mosler is a fine place to start: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf