Disconnecting incomes from the production of goods and services is the largest step taken in economics since the concept of money was first imagined as having a place in the barter system. The barter system itself didn’t actually begin to die until ’71 when America, as the issuer of the accepted currency of trade, disconnected that currency from gold reserves. While that fish is still flopping around in death throes on the dock, its fate, along with American supremacy, is sealed with the final death blow coming from AI.
This has the potential of finally creating a free market independent of political manipulation to preserve outdated processes and a corrupt status quo power structure. There is only one remaining tie between politics and market forces left to be severed and that is the perception of a finite currency dependent upon tax revenue. Luckily, this is only a perception and not a force of nature or something embedded in the existing economic structures of most modern countries. This is not to say that the misconception will be easy to correct, only that it is a misconception over existing currencies that will have to be corrected, no matter how persistent it is or how well it meshes with our common assumptions of wise fiscal policy.
Taxation has never actually funded government spending in most countries. It was only a method allowing the extraction of currency from the economy to allow governments policy room to spend to provision themselves with new currency without creating inflation against existing gold reserves or exchange rates. Most modern economies have a central bank and an issuing Treasury type entity that handled this or advised their governments with accounting procedures and debt/surplus reports. If the currency supply was less than the value of reserves the issuer could “create” money freely, but if the supply exceeded the reserve value such creation would mean inflation of the currency and taxes would have to be collected or gold procured to avoid it. To my knowledge, none of them had any process to directly apply collected taxes to spending. Spending by the issuing authority “creates” money and taxes “cancel” money. End of story.
When these economies abandoned the restraints of the gold standard they still relied upon the accounting procedures in place and the concept of “debt” being a bad thing was never fully negated with the new reality. Once the value of gold in reserve was removed from the positive side of the balance sheet these governments were faced with numbers that related to the entire currency supplies in circulation with the label of “debt” still attached to them. That would scare the bejesus out of anyone not familiar with the complexities of accounting involved, and it offered political rhetorical fodder that plays perfectly to those who might benefit from austerity politics.
Debt means an obligation to be repaid in the minds of most people, not simply a total of the net value of an economy. This is how it works for anyone who doesn’t have the ability to create the currency, so why shouldn’t it work for governments that few people trust? It took very little manipulation of public perception to position business as the source of money and government as an “overhead” cost to the economy in the minds of voters, and businesses were more than happy to perpetuate that falsehood to gain power over the political system.
All that needed to be added to any discussion of spending by the government was/is the question “How will you pay for it?” and the failure of any proposal is all but guaranteed. The zero sum math of the gold standard accounting system simply doesn’t support any spending of government as long as it must be accompanied by tax revenue (an oxymoron) or perceived detrimental effects of increased “debt”. In every discussion I read about UBI or any needed social spending the authors present their version of taxation plans to answer this question, only feeding the imminent failure of their ideas. The proper answer to the question is “We simply pay for it.”, leaving taxation as a method of controlling investment behavior and as an emergency brake for the economy should it ever become so productive as to threaten inflation of the currency (doubtful, see Japan).
