The Perfect Way to Fund Government

as an improvement on an idea that, for the record, did not originate with me

Photo by 金 运 on Unsplash

[This article began life as a Response to a Medium article written by Lauren Rieff, “Empire Decay & Money Headaches” (published in Data Driven Investor). The central theme of Reiff’s article is the mountainous and ever-increasing debt accrued by our (U.S.) federal government.]

The one solution for the problem of the central government’s debt that Reiff considers — and rebuffs — is the one proffered by MMT (“modern monetary theory”). MMT began life as a better (I say) way to describe how our monetary system works. As Rieff relates, MMT has, however, become a prescriptive program for funding government: since the central government and the central bank (our Federal Reserve System) can contrive to supply the money needed to purchase any amount of debt created by the federal government, it is in that sense impossible for its debt to become so great that the federal government could no longer pay for it (i.e., be forced to default on its debt). As Reiff correctly points out — as proponents of MMT admit — with MMT the central bank/central government Leviathan would still be in the business of ‘managing’ the economy, in that taxation would have to be used to deal with inflation. I agree with her that MMT is not a solution to the problem of funding government.

One proposal of which Reiff is apparently unaware is called by its proponents “just money” (JM). [As the subtitle of this article indicates, I have never been associated in any way with the development of that proposal; it was brought to my attention, upon reading a Medium article I had written, by one of its proponents.] There, money would simply be created — ‘printed’ — to fund the central government, without using debt in the process. (The amount it would be allowed to create/spend would be governed by a “monetary authority.”)

As I see it, ‘just money’ is a better option than MMT is. One problem with JM, though, is that spending by the federal government would not be limited, except perhaps as a response to inflation. It is also a weakness of the proposal, to my mind, that government (or at least JM’s ‘monetary authority’) would still be in the business of ‘managing’ the economy, at least in trying to manage inflation. Another weakness of the JM proposal is that it only addresses funding the central government. The ‘just money’ proposal can, however, be a basis for the perfect solution to the problem of funding government.

This proposal would: 1) eliminate creating public debt of any kind, at any level of government; 2) fund all government (not just the federal government); 3) put all government on a budget (there would be a set amount of money that would be provided for government to spend, an amount not determined by government — or any other ‘authority’, as in JM); and 4) best of all, eliminate taxation of all kinds.

All of that would be accomplished by setting the amount of money that would be provided for government at the current per capita rate of total government spending (all spending by all government this year divided by the present population). Forever afterward, the amount of money to be provided for all government each year would be determined by today’s per capita rate of total government spending multiplied by the size of the nation’s population that year: as it grew, the amount of money provided for government would grow; in the unlikely event that the size of the population were to fall the amount of money provided for government would decrease.

As I see it, all of that money should be made available initially to the central government. The money not spent there would be apportioned to the states, based on their populations. (That process would presumably be repeated between state and local government within the states.) The national representatives and senators would realize that the less money they spent there, the more money would be sent back home, to benefit the people who elected them. They would have an incentive to minimize the amount spent by the federal government, maximizing the amount of money sent to the states.

Meanwhile, some of the money provided for government would used to pay off the debt that has been accumulated, as it came due. As that mountain of debt was gradually reduced in size more money would become available for other uses.

To be clear, just as the ‘just money’ proposal envisions, the money provided to fund government would be created as needed. The amount of money to be provided for government would, however, be determined by the size of the population. Rather than be a possible source of inflation, the funding of government would be a completely stabilizing influence on the economy, to include the level of prices. Best of all, all taxation/public debt would be eliminated (as long as total spending by government did not exceed it current per capita level).

This proposal could be implemented in any nation with a central bank as part of its economic system — which is to say any nation on the planet — with a single legislative Act.

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Stephen Yearwood

unaffiliated, non-ideological, unpaid: M.A. in political economy (where philosophy and economics intersect) with a focus in money/distributive justice