Keith Evans
Sep 5, 2018 · 5 min read

Taxation makes people unemployed until they can satisfy their tax obligation. This is how governments drive acceptance of currencies and make it possible to provision themselves without revenue. In a modern economy, especially with a fiat currency, taxation never “pays for” government and should not be expected to. The government needs no “pay fors”, as it is the monopoly issuer of the currency, and it must spend that currency into existence before it can collect taxes, so the entire concept of paying for spending with taxation is false from the start.

America suffers from many forms of illiteracy, but economic illiteracy may be the most damaging. Most Americans have no clue how their money is created or how their bank loans interact with public money creation, lumping it altogether as simply “money”. It was quite easy to project the image of government as a competing “user” of the money when most Americans view it as such from their personal budgeting experience learned from the time they received their first allowance. One has to be a good steward of their finances, spending only what they can earn and refraining from borrowing unless it is necessary, so they expect the same from their government.

With a democratic system of governance that requires politicians to be elected with a majority of voter approval this is a very difficult hurdle to overcome, even if a politician wished to. The concept of government “creating” money has been vilified so successfully by pandering to the ignorance of voters that it is now all but impossible to portray it as even a good thing, much less necessary to economic survival. Add in the pressure on politicians from interests that benefit greatly from austerity fiscal policies, such as banks, and the desire to go along to get along is overwhelming, even if politicians understand how money works. This is how we get a “debt clock” ticking away over Times Square to remind people that they are all going to die if the government doesn’t “get its house in order”.

The truth is that the US dollar is nothing but a unit of account that denominates trade and contracts, not a physical “thing” that is in finite quantity and must be “gotten” from someone before government can spend, either taxed or borrowed. Our founders got it right when they gave Congress the monopoly authority to issue the currency, even before they knew what that currency would be, and mandated that it spend (coin) it into existence “for the common welfare” (Article 1: Section 8 of the Constitution).

They made no mention of balanced budgets (which would have been impossible when starting from scratch) or a “national debt” that would come to be the driving force in our political rhetoric. They simply said that the Congress should spend what is required to assure the people the ability to realize the guarantees intended to be conveyed by the document as inalienable rights. To say that our current political leadership has failed in this would be a gross understatement, and whether one attributes their failure to ignorance or corruption is moot. Our economic survival as a nation depends upon our correcting it.

When one correctly views our government as the “source” of our money, not a “user” of it as we are, the role of taxes and borrowing in our economy are turned on their head from the accepted “common knowledge”. An economist friend quoted the opening line of The Big Short in reference to this when she said “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” When the government spends, that spending becomes someone’s asset in the non-government sector. The red ink of the government is the only net source of black ink we have in the economy, but all efforts currently are aimed at curtailing that source in deference to a mostly misunderstood accounting entity that is mislabeled as “debt”.

Because our monetary system uses the standard dual entry spreadsheet method one cannot simply make an entry “appear from thin air” in the non-government sector without a balancing entry in the government sector. Since the “dollar” is actually nothing more than a tax credit made available to the private sector to utilize in commerce by “spending in deficit”, that balancing entry signifies that the “GOVERNMENT OWES” the private sector a dollar of tax credit for every dollar it spends. When those dollars come back to the government side of the ledger they cancel, and are “CANCELED” by that debt.

Canceled currency cannot be re-spent, so “ALL” spending is via new currency creation. Taxes “FUND NOTHING”, and their accounting only serves to advise Congress of the point of deficit for spending so it can instruct Treasury to issue sufficient bonds to “MATCH” (not fund) that deficit to satisfy a self imposed mandate to do so in the Federal Reserve Act (1913) intended to defend our now non-existent gold reserve. The law was only preserved after we left the gold standard to allow the Fed to affect interest rates by buying and selling bonds in the secondary market, but that is proving far less than effective at doing any more than maintaining an unemployment target, which is a very questionable use of monetary policy that many economists are saying we should end.

Given that employment and unemployment are both products of the currency and taxation, it should be the primary mandate of Congress to assure full employment at a livable wage for “ALL” citizens. I believe that this is best approached by implementing a federally funded (with the fiat currency spent directly to reserves, bypassing bond issues at the Treasury) guaranteed job program to be administered at the local level. This would mean local and state governments employing anyone who wishes a job and is willing and able to work, at a wage and benefit level sufficient to support their family in dignity. The jobs should be tailored to the talents and training of the applicants, offering paid training where necessary, and should be aimed at building social capital, not efficiency or profit.

Such a program would set the floor for labor in the private sector employment market for wages and benefits, as well as offering employers a stable of workers available to them with their social and job skills intact, for simply outbidding the program. With much of what is now volunteer work being properly organized and funded the program would be a big boon to local governments in serving their citizens, and I have no doubt that those governments could find ways to productively utilize the labor that would be free to them. With local administration the program could be tailored to the needs of each community and offer benefits to everyone in their own communities that would revitalize local economies while providing opportunity to workers that would assure them of providing for their families.

I’m sorry for making this so long, but I feel it’s important to understand the economics of my suggestion, and not just throw it out there without solid ground for how to accomplish it. Anyone with a modicum of logic can see that our “national debt” is nothing more than a record (to the penny) of money that has been created and not yet used to satisfy a federal tax obligation, not something we, as taxpayers, are responsible for. Realizing this is critical to any discussion of spending at the federal level, so I felt it necessary to provide the economic background ahead of many objections about affordability.

    Keith Evans

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    Meandering to a different drummer.