Despite this loss of compensation, American workers have seen their total personal income increase by 8.7%. This feat is made possible by government spending and stimulus checks. It’s a good thing that the U.S. government can’t run out of money... Because if it could, it would have already done so as it attempts to plug up the massive hole in the economy caused by the pandemic... With so many people out of work, total salaries and wages have decreased. Aggregate compensation of employees has declined from an annual rate of $11.7 trillion in January 2020 to $10.5 trillion in April. That’s a 10.2% decline. on [tax] revenue. The federal government has no more money at its disposal when the federal budget is in surplus, than when the budget is in deficit. Total federal expense is whatever the federal government chooses it to be. There is no inherent financial limit. I’m sure that last sentence made the heads of many fiscal conservatives explode. But technically, everything Mosler said is true. The government doesn’t have to tax first in order to spend. Nor does the government need to borrow money to fund its spending. Due to a congressional mandate, the U.S. Treasury must sell debt to make up for any shortfall between spending and tax revenue. But that’s a self-imposed requirement.
However, despite this loss of compensation, American workers have seen their total personal income increase by 8.7%. This feat is made possible by government spending and stimulus checks. Transfer payments, which include expanded unemployment insurance benefits, have more than offset the amount of lost wages and salaries. Of course, the sharp increase in spending – coupled with lower tax receipts – has caused the federal budget deficit to explode. Even before the pandemic, the budget deficit had already grown to nearly 5% of U.S. GDP. In the first quarter of 2020, the deficit was the equivalent of 9% of GDP. And the second quarter deficit may exceed 10% of GDP. Again, because of the government’s self- imposed restriction, it must “finance” this deficit with debt issuance. Total U.S. federal debt now stands at around $25.7 trillion. That’s up from $23.2 trillion at the beginning of the year. And the federal debt has more than doubled from the beginning of 2010, when it was just $12.3 trillion. MMT downplays the dangers of government borrowing. After all, federal debt issuance increases the net financial assets of the private sector. Federal debt is a liability of the government, but it’s also an asset held by households, corporations, and other investors. Anyone holding Treasuries during the stock market crash this past March is thankful that government debt exists. It typically acts as a ballast in a portfolio during economic shocks.
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June 2020
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