Occupy Wall Street has the passion, the numbers, and is squarely focused on the right villains. The question is can they come up with real-world, workable solutions to our country’s financial problems.
To that end this article shines a spotlight on some economic myths, that if the masses grasp, they could transform the country. These simple, but little understood ideas, should become a rallying cry for OccupyWallStreet because right now the 1% are using several widely accepted myths to transfer wealth from the 99%.
The “debt” myth
First we must overturn the idea that the U.S. is saddled with too much “debt” and is nearly insolvent or bankrupt. With this firmly embedded in our culture it is understandable, and almost acceptable, to have very high unemployment, or a large segment of the population who are broke themselves. Because of the imaginary “debt” problem everyone advocates cutting back spending, or raising taxes, both of which would result in even more financial strain on the 99%.
The truth is the U.S. is the richest country in the world BY FAR. With one-quarter the population of China, our economy is nearly 3 times larger than theirs. We are so rich as a country that there is no reason why most of us can’t prosper, while we also provide social safety nets for those down on their luck, or disabled. The question isn’t “if” we can fix things, and “if” we have enough money, it is “how” to fix things because we do have enough money, productivity, resources, ingenuity, drive, and imagination. But if you think the US is broke, you can more easily be scammed into doing ridiculous things like giving the rich tax breaks while raising taxes on the poor and middle class. Or giving corporations subsidies (corporate welfare) while eliminating social welfare like medicare or unemployment benefits. Heck, someone has to pay if we’re broke – right?
But we are not broke as a nation. The lie that we are in “debt” as a nation needs to be understood by the 99% before any real change can happen. Otherwise Occupy Wall Street is likely to go down an errant path similar to the Tea Party, where the answer is to “tighten our belts”.
If I were a conspiracy theorist I would say the top 1% purposely created the “debt myth” in order to convince the 99% that there isn’t enough money to go around. If we believe that than many will agree that we can’t fund things like Social Security and health care. Plus, if the government is broke, then it is clear they mismanage money and we should give all resources and tax breaks to the wealthy and businesses because, since they aren’t broke, they are the only ones we can trust with the money.
I’m not a conspiracy theorist so I choose to believe that most in the top 1% also believe the myth that the country has a major “debt” that needs to be paid back, and we are quickly going broke. This myth is repeated by the media, by our politicians, and by ourselves so much that we all just assume it to be true. However, the truth is that the so-called “debt” is a misnomer. It is the wrong name because it is not debt. It is nothing like your debt, or my debt, or even a business’ debt.
A simplistic way to understand this truth is to realize that if there was no US Federal Government “debt”, there would be no US dollars in circulation. Think about that – there was a day #1 of the US dollar being printed and distributed. If we “balanced our checkbook” at the end of that year by taxing out what the government spent in, there would be no dollars in circulation. More on this concept here, here and here.
The “debt” is simply the total US deficit spending since inception. As I describe here, when a population grows, and gets more productive, and when more people save (especially today when the wealthy and corporations are sitting on huge piles of cash), the more the government must pump money into the economy to allow the populace to have something to transact in. So “debt” is spending. It is the spending that must happen when the private sector is growing and saving. And when that government can just print money out of thin air, it does, and it doesn’t need to be paid back. After all, who is going to pay them back? Those who are saving? Those who are expecting a wage for their work? Well, we do tax everyone, but you can’t tax 100% of the money that is spent in, otherwise there is no money in circulation. Why on earth we call spending “debt” is beyond me (well, I know it is a relic of our gold standard origins, but that’s another story).
So the U.S. “debt” is nothing at all like household debt. The government should not “balance their checkbook”. Your debt, my debt and all private sector debts are completely different from what we currently call U.S. Federal government “debt” when it is simply “spending”. You and I have to pay our loans off unless of course we have an unlimited earning capacity or a printing press. The government does have a printing press, and is backed by the world’s largest and most productive economy that desires to save those dollars effectively removing them from circulation, and has grown exponentially in their need and use of dollars thanks to population growth and productivity growth.
Once you understand this concept, you realize that the “debt” will never be paid back, nor should it ever be paid back? Paying it back means taxing it out of the system. That is a horrendous idea. Surpluses are taxing more out of the system than the government spends in. This is a bad idea unless you want to contract the economy. So “debt” or deficits puts money into the economy. Balanced budgets take out 100% of what is spent in. And “surpluses” take it out more than what is spent in. Republicans, who claim not to like big government, should hate surpluses. Surpluses are the government taking more money from the private sector than it spends in. But obviously they don’t get this point.
Can you imagine what Occupy Wall Street could do with the knowledge that we NEED government spending right now? Instead of misguided “debt ceiling” debates, and jobs killing austerity measures, we would be talking about what the money should be spent on. Instead of Obama saying “I have a jobs bill, and here is how we are going to pay for it” he could say “I have a jobs bill that is 100% spending and tax CUTS.” The ONLY reason to raise taxes in a down economy is if you want fairness in the tax system – in which case you raise taxes on the rich, and lower them on everyone else.
China funds the U.S. myth
The China “funds” U.S. spending myth, and that we are in debt to them. Another nonsense economic myth. The truth is we fund them. The U.S. economy is nearly 3 times larger than China’s economy. They rely on us. They sell us cheap goods, and we pay them in US dollars. That keeps their factories humming, and people employed in China. The Chinese turn around and invest their US dollars in treasuries. This investment is akin to you or I taking our money and putting it into our local bank in a savings account. So is our bank now in “debt”? If we start with $10,000 in deposits in our bank is our bank $10,000 worse off than they were before? How about if we sell so many goods that we have $1 trillion, or $10 trillion dollars to put into that same savings account, is the bank now nearing insolvency, and quickly going broke? Of course not.
These two lies – that we have a huge “debt”, and that China is funding us, are upside down thinking. They are myths. Once turned right side up, we as a country can actually start to propose solutions to our economic problems. We aren’t broke – we have simply misallocated resources. We don’t have to cut back, we simply need to spend wisely. We don’t have to raise taxes, we need fairness in the tax system.
If Occupy Wall Street builds a foundation on accurate beliefs of the U.S. financial system – a system that is 3x larger than the 2nd largest economy despite one-quarter of the population – we’ll realize we are a rich country and we don’t need to leave anyone behind. We don’t need to raise taxes on the middle class.
Social Security unfunded and/or Ponzi myth
Once you understand that we are not in debt trouble, and the Chinese don’t fund us, you begin to unravel other myths, like Social Security being a Ponzi scheme, or that is an “unfunded liability”. The reason all of these are myths, and not true is because a) the U.S. government can print money any time it wants, and b) the trust and faith in the US dollar is backed by the largest most productive economy in the world. So we CAN print money to fund things. In fact, in a technical sense that is exactly what the government does for 100% of its spending. Most believe that taxes are used to pay for government spending. But that is also not true. First came government spending, taxes came later. This is always true. The government could simply spend a lot less, and then tax nothing. The reason for taxes is to force the population to want and need to earn US dollars so that it becomes reliant on it, which gives a fiat currency the “faith” it requires to exist. (There is plenty on the web about this idea. All of these concepts are part of an economic description of our current monetary system called MMT. It is a little understood brand of economic thinking, but is the most accurate.)
Isn’t it funny how the military never runs out of money, but everyone says that Social Security is going to run out of money? Both have the same funding source, except that we pay a Social Security tax which was just a clever ploy by FDR to keep Congress from ever being able to take it away from us. In other words, if you and I paid a Social Security tax, we will both demand we get that money paid back to us when we retire. The government can always fund it, and thanks to FDR’s clever move, they always will.
This article is a very general primer on a very complex subject. Many will challenge these ideas, but they are all backed by economic science. A science that predicted we would have a financial crisis like the one we just had back in 1973, while the so-called experts like Alan Greenspan and Ben Bernanke didn’t see it when it was right under their noses because their economic science is flawed.
The bottom line – we are an incredibly rich country, but the 1% have used economic myths to enrich themselves at the expense of the 99% without most of us noticing it until there was 20% underemployment, a financial crisis, and a massive housing bubble. Let’s hope OccupyWallStreet can help get the country back on the right track by grasping the economic truths, and overcoming our economic myths.