Assumptions

The numbers in this post are made up. The trade sector is ignored. And, of course, the economy is far more complex.

But, this simplified example of government spending is good enough to demonstrate how you've been duped. Lied to. Punished.

And, I'm sorry to say. You voted for this.

Who creates the money

Only two entities create money out of thin air.

The currency issuing government, when it spends.

The government regulated banks, when they lend.

Let's assume that ScoMo rules his government with an iron fist, and that the big four bank CEOs, on behalf of their US shareholders, do the same.

So to make a point about concentration of power, 5 people, all serving the US, create all the money out of thin air, and determine who gets it. 4 of them are unelected. They all own lots of assets, a moral hazard for them all. It's power in the wrong hands.

The sheep might describe them as 'unrepresentative swill'. If only the sheep knew what they were doing.

With ScoMo leading the way, what could go wrong?

Government spends just the tax it collects

In our first example of spending, the neoliberal government has convinced you that it has to live within its means (tax) just as you have to (salary, wages etc). The government's pain is the same as your pain.

Neoliberals love a surplus (govt spend < tax for a given period), even though the government is, in their incorrect way of thinking, collecting more tax than it needs.

Neoliberals (allegedly) hate a deficit (govt spend > tax for a given period).

This is the first deception.

Deficits are good for the non-government sector if it wants to save.

It's a simple matter of accounting. For a given period, in aggregate, a government deficit is equal to a non-government surplus.

Conversely, a government surplus is equal to a non-government dis-saving.

The second deception is that the government, which can create any amount of its currency out of thin air, borrows the deficit to make you think that it had to balance the books. Just like you're running up your credit card debt to make ends meet.

You cut your spending to limit your use of credit. With your tacit agreement, the government does the same. It's known as austerity, and it hurts lots of people.

You're left with the misunderstanding that a deficit is a debt. It's not. It's an accounting balance. That is all it is. An addition of all the debits and credits since records have been kept.

But, doesn't our government borrow an amount equivalent to the deficit? It does that to fool you, and that is a debt to be repaid.

But, it's not a problem. How can a currency issuing government renege on debt in its own currency?

Bonds are really business welfare. It's an interest gift from the government, a safe return on money that's not earning more, or isn't invested or hasn't been used to repay other debt.

In the following example, the government is trying to balance its books, that is, spend an amount equivalent to its tax revenue.

It's very unlikely that this spend is sufficient, in current circumstances, to fully employ all idle resources (labour and machines). A neoliberal government doesn't represent idle resources.

It's very unlikely that this spend is sufficient, in current circumstances, to generate excessive inflation.

The total spend in the economy for a given period to fully employ resources is assumed to be 320.

The total spend in the economy for a given period to generate excessive inflation is assumed to be 360.

The neoliberal spend is well short of both.

Idle resources are 40. This is life under neoliberalism. Not enough government spending at the bottom end. Too much left to markets that have been corrupted and aren't working.

Neoliberal government cuts taxes

Neoliberal governments represent the rentier plutocrat and technocrat classes. They would have you believe that tax cuts are necessary to boost business investment leading to more jobs. There's no proof of that. Rentiers are, by definition, nonproductive. Tax cuts mainly go into their pockets.

Investment is usually driven by consumer spending and innovation, not tax cuts to rentiers.

Consumer spending would be boosted by tax cuts if the sheep received meaningful tax cuts. Tax cuts are skewed in favour of the top end who don't spend their extra income in the real economy of goods and services. They are much more likely to buy another nonproductive asset.

Plutocrats invest in tax avoidance schemes proposed by technocrats. Plutocrats invest in corrupt politicians and bureaucrats. Some governments even invest in tax havens so that plutocrats and technocrats can avoid their taxes.

Neoliberals believe that idle resources dampen inflation, the main concern of those who own assets (Phillips Curve). There's no evidence of an inverse relationship between unemployment and inflation. It's another myth to justify deliberate unemployment of labour.

When a neoliberal government cuts taxes, and as well, wants a balanced budget, spending must be cut. In our example, idle resources increase. There's insufficient spending from all sectors.

The banking sector neglects the real economy of goods and services and mainly directs new money to purchase of non-productive assets (property, shares, share buybacks).

Government spending in an economic downturn

Professor Bill Mitchell

"In times of economic decline, the automatic stabilisers work in the opposite direction and push the fiscal balance towards deficit, into deficit, or into a larger deficit. These automatic movements in aggregate demand play an important counter-cyclical attenuating role. So when GDP is declining due to falling aggregate demand, the automatic stabilisers work to add demand (falling taxes and rising welfare payments). When GDP growth is rising, the automatic stabilisers start to pull demand back as the economy adjusts (rising taxes and falling welfare payments)."

In this example, the automatic stabilisers have kicked in but not enough to prevent a deficit or, more importantly, an increase in idle resources. Our neoliberal government keeps spending equal to tax revenue regardless of what's going on.

In full view, ScoMo is spending billions on dud planes, and promoting a property bubble, while punishing the unemployed and underemployed by not spending enough to fully employ them.

Enlightened government introduces a Job Guarantee

Professor Bill Mitchell is responsible for MMT's Job Guarantee. The government becomes the employer of last resort. In his words:

"An employment buffer stock scheme involves the government offering an infinite demand for labour. This means that the scheme will expand and contract on demand from workers for jobs."

"The essence of the Job Guarantee (JG) is that the government provides an unconditional, open ended job offer at a socially-inclusive minimum wage to anyone who desires to work."

"Instead of a person becoming unemployed when aggregate demand falls below the level required to maintain full employment, the person is able to enter the JG workforce."

"Thus, the JG pool expands (declines) when private sector activity declines (expands)."

"Hence the JG fulfils an absorption function, which minimises the costs associated with the flux of economic activity when aggregate spending fluctuates."

"It means that instead of the government setting some fixed 'budget' amount for a program, which then limits the scope of the spending, the government maintains an open-ended spending commitment and allows the actual expenditure in any period to be determined by how many workers turn up to get a Job Guarantee position."

"This is what we call spending on a 'price rule'. The government sets the price and lets the quantity float."

"Accordingly, the outlays on the program vary according to the strength of the non-government sector economy."

Summary

A compassionate government will always have its eye on fully employing all available resources, and especially labour.

If its target spending is equivalent to its tax revenue which it's predisposed to reduce, it will be a coincidence if full employment happens.

If it's predisposed to spend on its donors, and its assets, as is the case, it's not going to spend on health and education for the sheep which its donors don't use.

A neoliberal government will look after assets before sheep.

Unemployment is a policy decision. It's not an unintended outcome.

In the decades after the war, governments selected full employment, and voters held them accountable. Governments built houses when the markets would not.

The creation of fiat currencies in the 70s, and the acceptance of a pernicious ideology (neoliberalism) has generated a massive growth in inequality, indebtedness and unemployment. It's consigned young people to the scrapheap when most of them have worked their butts off to get ahead. The great irony is that the technocrats, who sold their souls to the devil, are not being spared. Their indebted children are working in drive-throughs, and their thoughts of living in swank gated communities are fading rapidly.

The tragedy is that the sheep have no idea about energy and economics, and now it's too late for most of them.

If you can, downsize and get out of debt. Relocate to a place that you'd feel comfortable in, if you were living a pre-industrial revolution lifestyle. Sooner than you think, you'll only have the energy from the sun to sustain you.