Thursday, July 3, 2014

Happy July 4th - Having hope in our government again!

I have had numerous interactions with friends – conservative, liberal, and other – over the matters on which I have been writing (how our monetary system actually works and how to best use it). Some of these friends are well versed in economic issues, banking and finance, trading, and business. 

I have noticed a common theme.

  • None of them can find fault in the technical arguments about how the monetary system actually works.
  • They agree with the facts I have laid out such as how sectors must balance, how central banks function, how governments spend money into existence and tax some of it back, that there is no financial limit on the issuance of national currency, etc.
  • Note that so far we’re strictly talking about how things work – one can apply this knowledge from either a right or left political persuasion.
  • Once we reach that point, there is often a resistance to the logical implication...that it is economically damaging NOT to use the system properly, such as allowing increased deficits when the private sector seeks to save more.
  • Finally, many will even agree that solving critical economic issues such as unemployment is technically doable and would be great "if it worked", but they again resist actually supporting such a position.

I find this curious. 
What’s going on? 

The reason that most often arises is that they simply don’t like the fact that government money plays a key role in the success of the private sector economy. In essence, they don’t want the government’s involvement, despite conclusive evidence that it is essential to the success of our capitalist system and the prosperity of society as a whole, and that this can even be done without expansion of the government itself in terms of more hired bureaucrats. 

It seems that many people are more afraid of what the government will do with this knowledge than they are concerned with the pain inflicted on so many by ignoring the truth and refusing to allow the monetary system to be optimized for the benefit of all. This is simply tragic, as anyone following the news since the 2008 crisis can see. 

Unfortunately, this isn’t new. There are a select few who do understand how things work and they appear to want to keep it a secret. For example, Nobel economist Paul Samuelson was once quoted:
“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.” 

Now this is quite remarkable, no? He is essentially saying that there is merit to the view that we should use fear to deceive people about how money actually works (i.e. we don’t actually have to balance the budget, and generally we shouldn't) because if they had true knowledge it might be used irresponsibly. Now such a fear might have grounds, but I am of the view that openness is better than deceit when it comes to democratic principles and the maintenance of liberty. There are surely other ways to control reckless government spending. In fact, hiding the truth has likely just given control of the purse strings to those who understand how to use it for their benefit, often to the detriment of the citizenry. (Have you ever seen a war or a bank bailout we couldn’t afford?) 

For my conservative and Libertarian friends who seem to fear most this thing called “government” (in the USA, this is ourselves acting collectively through our representatives), my appeal is that you don’t let your mistrust get in the way of using the very system we designed for our collective benefit (and I especially mean benefit to the private sector economy). 

It seems many are not afraid to support and use the nation’s powerful military to its full potential despite the very real threat to democracy such large permanent standing forces have been throughout history. How much more should we use the powerful monetary system we have created to ensure the economy is strong, our resources are productive, and the well-being of our people is maximized! Imagine if we allowed a state to be invaded but we didn't send in troops out of fear that our government would be irresponsible deploying its power for such ends - instead we'll have them stationed at the border to care for refugees. Yet we have sidelined our powerful monetary system while leaving millions unemployed. We have the solution standing ready but we don’t want to use it. 

I may not persuade you with a brief post like this, but if I can at least pry open the minds of a few to begin your own journey of understanding money, perhaps we can get somewhere. I’ve walked in your shoes. Until I delved into the real workings of modern money systems, I held many faulty beliefs about “balanced budgets”, “fiscal responsibility”. I have read my fill of the great Libertarians such as Hayek and Bastiat who warned us of government tyranny. But there is a wide chasm between Hayek's dire predictions of Stalinism or Nazism and the typical representative government, and there are other very real threats from non-government powers such as oligarchs and banking giants that are also grave threats to liberty. I’m hoping you’ll be willing to hope again in what we've built, even if it means taking a road less traveled and saying goodbye to some old ideas. 

So allow me to press on a little further. Despite the constant rhetoric from both sides, our government simply isn’t as bad (when our party isn’t in power) or as good (when our party is in power) as we often like to believe. And just as importantly, for all the government bashing going on, the private sector isn’t without similar flaws and ills either! Let’s just be pragmatic here. Big institutions of all kinds can get pretty inefficient and even corrupt. If you want to point out the evils of power, you really have to look at both sides - government and non-government alike. 

It is so often claimed that the government is just inefficient and wasteful, bureaucratic, lacks creativity and innovation, and stands in the way of the private sector with its excessive regulations. Whereas the “free market economy” (I’m still trying to find one of these) is what creates and innovates, is efficient and self-regulating, and if just left alone will bring the prosperity we all desire. 

But is this really accurate? 

Let’s just take a few examples to the contrary.

Innovation and creativity: 

Government departments, and funded organizations, universities, research labs, and the hard working individuals working in all these institutions have invented a huge array of advanced technologies and scientific discoveries we take for granted every day. GPS, the Internet, Google, baby formula, microchips, vaccines, bar codes, aerodynamic semi-trucks, … the list could go on and on.

And is the private sector without its fair share of lackluster firms? How many companies can you point to that stopped innovating, lacked the creativity to see technological change, and were made obsolete? The industry I work in is full of them. Certainly plenty of innovation has come from entrepreneurs, but one can also say that much successful commercialization of innovation has come after government funded the initial inventions. Venture capital is all too ready to jump in after the hard work has been done, but let’s not discount what the public sector has accomplished on our behalf. It is quite remarkable and deserves more recognition.

Hard working and efficient: 

We can all find a few examples to the contrary, but take an honest look at our educators (I’m married to one), those in the military and our first responders, those regulators who work tirelessly pursuing perpetrators of fraud, corruption, pollution, and poor quality, the scientists in research labs, the judges and public defenders, etc. Most of these people are serving us in some way and work hard every day to make a difference. Perhaps if they all wore fatigues we would stop and appreciate them more often. Maybe if we told dedicated teachers we appreciate their service as often as we did the courageous military personnel, the latter might be deployed less often!

So what about the private sector? Name a large corporation that isn’t prone to waste, excess, has some lazy workers, and suffers from inefficiency throughout its large bureaucratic organization. The Dilbert cartoon was popular for a reason! Again, let's be objective. 


I won’t defend the sophomoric and often dysfunctional behavior in our nation’s capital. We need good leaders who will be true selfless public servants, fathers and mothers (we need more women in politics for sure!), and states-persons for our nation. 

And I certainly won’t disparage the millions of great businesses, farms, and community banks that are heart of our economy. However, let’s be honest with where many of our problems lie. Are we so quick to forget the fraud and corruption of Enron and MCI? What about the Exxon and BP oil disasters? What has been the cause of the tremendous global economic crises that have wreaked havoc with tens of millions of lives to this day? The global financial institutions have settled numerous investigations with multi-billion dollar fines in order to avoid facing up to the alleged fraud and criminal activity. And they say we just need less government oversight and it will all be okay? When has the government last caused as much economic hardship and personal pain to millions of individuals as the large financial sector has in the past decade?

In conclusion:

Why am I saying all this? Because the disproportionate sense of anti-government sentiment is paralyzing us from acting on knowledge that could transform our economy and bring real prosperity. And it likely won’t get better until we recognize this.  

Now lest I be misunderstood, I am not at all advocating for government running everything, nor am I an anti-capitalist. I have been a successful entrepreneur for the past twenty years and a strong believer in business and market-based solutions. 

I’m also not arguing for one political approach or another -- I would love to see conservatives and liberals and every other flavor grasp the working of money and debate how best to use it from their perspectives (there's plenty left to debate!) But I am saying that it is intellectually dishonest and collectively self-defeating to think of “government” as the main obstacle and the private sector as the best solution to everything

Our monetary system requires government fiscal policy to work well – it’s a fact we can’t ignore even if we don’t like it. 

In reality, if we understood it, we would grow to like it a lot. It doesn't change the fact that government must be constrained and limited; that we need budgets and accountability; that transparency is essential to good public policy. Let's debate the right uses and approaches, but do so with everyone at the table around an accurate framework of how government money works in our economy.

So as we celebrate the founding of this remarkable nation with its constitution and form of government that our founding fathers and mothers fought so hard for, let's honor them by respecting the essential role that government can play in our collective lives, while working to redeem it from any corruption, greed, and ignorance that deprives we, the people, from the full enjoyment of life, liberty and pursuit of happiness. 

Our monetary system, like all else the constitution established, is of the people and for the people. Understand it. Use it. Have hope again in ourselves and our government system!