By Carey List
When the current hysteria around COVID-19 settles down there’s going to be a lot of things under the microscope. Did the media report accurately or did they often encourage panic and fear of the unknown? Was shutting down the economy of the entire world justified given the seriousness of the outbreak? For now there are too many unknowns about COVID-19, how it spreads, and how many are infected, and so overreaction may be the wisest course right now, and perhaps even justified when we can look back on it better informed. But one thing that will definitely be under the microscope after this is over is how exactly we were able to instantly create money out of thin air to issue much needed relief to a collapsed economy. Regardless of whether we are currently reacting appropriately to this pandemic, the fiction of monetary scarcity that bankers and politicians have been feeding us for decades now stands exposed for all to see, and nothing will ever be the same.
Suddenly, governments around the world are able to create trillions (with a T) of dollars to devote to unemployment relief, healthcare needs, or bailing out banks on Wall Street. The latter we have been accustomed to for years. It is the former part about the money going to the needs of the people which is so new. “Trump seeks $500 billion in checks for the taxpayers” blares the New York Times. Suddenly the U.S has over two trillion dollars for the COVID-19 stimulus package. Did Wall Street lose big time? No problem, we’ll just have the Federal Reserve conjure up however many trillions are necessary to make it go away. And now that people can see that money is a fiction, and that it can be created at any time and for any reason, no one will accept the standard line that “it would be nice, but how are you going to pay for it?”
For years corrupt politicians have told us that we simply don’t have enough money to put into our hospitals, our schools, and all of our other productive infrastructure. When banks go broke making bad bets in their casino economy trading worthless paper, we can scrounge up trillions of dollars to help buy up those “toxic assets.” But actual physical assets that promote the general welfare of the population? Unheard of, until this disease started threatening these same elderly, corrupt politicians and bankers, and they started to realize we are all in this together, and that the well-being of my neighbor has a direct impact on my well-being.
Then all of a sudden money was no object. Rest assured, the trillions of dollars governments in the West are creating right now to battle the coronavirus could have been spent at any time in the last several decades when savage austerity in our healthcare systems was instead pushed relentlessly. Notice I said in the West and not also in China, because China has been successfully investing public credit productively for decades, both domestically and now around the world with their Belt and Road Initiative, building roads, ports, trains, schools and hospitals in virtually every country around the world that has been left destitute by years of impoverishment at the hands of IMF loans and conditionalities. No country understands the value of public credit for productive physical investment better than China. They were able to rapidly finance and build all kinds of incredible responses to the coronavirus because they have been doing it for infrastructure generally for more than 15 years.
We must never again allow them to swindle us with their pathetic lies. Money is a fiction! We can create it for whatever we want. We should create it for productive investment, and not bailing out bankers, but like any tool, money is neutral, and can be used for good or evil. What we need to focus on now is throwing out all the corrupt politicians who have been pushing austerity for years, electing new blood, and forcing them to issue credit in line with the needs of the country, and not the needs of the bankers and bond-traders.
Governments can create credit based upon the future value the investments will create in society, and the future tax revenue that the economic growth will bring. This used to be a truism among politicians and other leaders of society. Alexander Hamilton, the founder of America’s economic system, wrote extensively about the need for such “internal improvements” that increase the productive powers of labor and the need for proper credit mechanisms to finance them. “Good roads, canals, and navigable rivers, by diminishing the expense of carriage, put the remote parts of a country more nearly upon a level with those in the neighborhood of the town. They are, upon that account, the greatest of all improvements,” he wrote in his Report on Manufactures. He wrote extensively on promoting the productive powers of the nation through government investment, and saw it as fulfilling his constitutional obligation to promote the general welfare.
In 1792 Hamilton wrote to the National Gazette, “Persuaded as the secretary is, that the proper funding of the present debt, will render it a national blessing; yet he is so far from acceding to the position, in the latitude in which it is sometimes laid down, that “public debts are public benefits,” a position inviting to prodigality, and liable to a dangerous abuse,—that he ardently wishes to see it incorporated, as a fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of extinguishment. This he regards as the true secret for rendering public credit immortal.”
In other words, we can issue public credit, but it has to go towards productive investment that stimulates economic growth that will allow the government to pay back the debt. Endless debt accumulation was not seen as a good thing, it was seen as liable to be abused and inviting wasteful spending, say on buying up the worthless credit default swaps of some City of London tentacle to save them from bankruptcy. We must let the speculators go bankrupt, and publicly issued credit should flow to rebuild crumbling infrastructure, and build new schools, hospitals, power plants, and transportation grids. We must make the distinction between productive physical investment and worthless paper trading.
But for decades it has been treated as inflationary heresy by central bankers and their lapdogs in the media and government that credit can simply be created and spent on needs. This scare tactic has always been a lie. It now stands exposed. The money could have been created at any time, they just chose not to. We must make the bankers understand that from now they won’t have that choice to make. If anything good can come of this crisis, it is the oligarchy showing their hand in a desperate flop sweat. Of course they will try to exploit this crisis for their own benefit. We must not let them. We cannot go back to the neoliberal economic order which brought this austerity and inability to confront this current crisis. We must learn from studying how China was able to mount a more aggressive and expensive approach than the U.S. or the EU, despite their population being larger and their economy being smaller. The key is understanding how they funded their “people’s war” against the virus.
That governments can issue credit for the needs of its citizens has been a school of thought gaining traction in progressive circles for years now. MMT, or modern monetary theory, is becoming the de facto economic policy platform of progressives, and will certainly be pushed even more as a result of this crisis. But joining them now will be everyone else, who have seen that money is a fiction, and can be created at any time and for any reason. It is time for all of us to stand up and make sure it is created for our reason.
Coming out of this crisis we need to recognize that we are all in this together, and start to build a multipolar global alliance for peace and development, and throw out any politician or banker who stands in the way. When the next outbreak occurs, we need to have the best international relations possible, and building those relations between nations must begin now. There is much we can learn from one another, and no shortage of productive investments we could be making, from rebuilding existing infrastructure, to crash programs for nuclear fusion and a global Hyperloop rail network. China built a hospital in 10 days. We should be building phase 1 of an industrial base on the Moon with them to build and launch future missions from. The work we have to do, like the future we have in front of us, is limitless, if we stop believing the bankers myth of scarcity.
Carey List is an engineer who loves history, and lives in Ontario, Canada. He can be reached at [email protected]
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.