There's a phrase that gets bandied around a lot by people seeking to calm volatile markets, especially when the volatility is happening in a single ominous direction: the fundamentals of the economy are strong.
What the mean by this is that the underlying circumstances of our nation's prosperity still exist unchanged by the temporary circumstances that otherwise afflict us, so that when this, too, does pass, we can count on industry and commerce to rebound and the economic growth to resume as strong as ever.
I happen to agree that the fundamentals of our economy are strong, but I don't think they will stay that way without not just swift but committed and continuous action during the global health crisis, because quite frankly the fundamentals of our economy need to eat, they need to be housed, they need stability and security and safety.
The fundamentals of our economy, you see, are people.
And not just individual persons in isolation but networks and communities of people, people who work together, create together, band together, live together, shop together. The tremendous value amassed in a company like Amazon is created by the labor of its workforce and by the labor — whose value is stored in money — of its loyal customer base. Jeff Bezos on his own could not have created a single job, or at least not one that would outlast the change he had in his pocket to pay wages. The forces of supply and demand that guide the holy invisible hand of the free market depends on people needing things, wanting things, and most importantly in our financial system, having the means to buy things, by which I mean both the ability to pay and the opportunity to purchase them.
When the United States went off the gold standard and backed its currency with nothing more than the full faith and credit of the United States, dollars became a promissory note of a different sort: they promised that the United States of America would still exist and that its marketplace would be prosperous and prominent enough to be worth doing business within. That would be a risky proposition to start from scratch, but at the point we made the transition, people already readily believed in the spending power of the dollar. That's still the world we live in today, to the point that we no longer need a physical item to represent a dollar or some quantity of dollars.
When Steve Mnuchin or anyone else stands in front of a bank of cameras and says the fundamentals of our economy are strong, they are trying to project an image of a world to come where we step out from the shadow of global pandemic and just resume business as usual. But how can we do that if we have 20% or higher unemployment, businesses shuttered, main streets emptied, people displaced and houseless? We can't. It's not possible.
There's a heterodox philosophy of economics called modern monetary theory (MMT) which holds that the very idea of deficit spending is antiquated because the United States issues its own money. The government could in theory spend a trillion dollars that did not exist before it spent it, with no one holding the marker for it, no interest to pay.
In small ways, we already do this. In large ways, the capitalist free market does it. Big money transactions happen every day based on how the market values things that makes them worth more money than ever went into them. We measure these transactions in dollars, but the United States never issued those dollars. Nobody did. And this does not cause runaway inflation. It does not devalue the US dollar. If anything, it demonstrates its robustness.
The wealth valued in dollars far exceeds the value of physical currency the US prints. The dollar is at this point a dream agreed upon.
I'm not a proponent of MMT in the broader sense. I think a lot of criticism of it comes from reasonable fears of things like hyperinflation. I think it's important there be some sense of gravity about spending, some sense of restraint. I don't know that embracing MMT officially would mean there isn't, just that it wouldn't come from worrying about deficits and national debt.
But I'm not an ideologue. I'm much more utilitarian. This is why I'm not bothered with what we call a social program, whether it's democratic socialism or modified capitalism or some other beast. That's marketing.
I think the trial of the times in which we find ourselves cry out for bold, unorthodox solutions, such as making emergency spending during an event like a global pandemic come in the form of issuing money rather than borrowing it. If that is a bridge too far for the current policymakers, I think it is necessary at least to suspend normal worries about deficit financing that can only lead to an inevitable downward spiral of austerity that hurts the people who are the foundation of our actual economy.
Just agree that deficit financing, in a sense, will not "count". Because if it's possible to spend money to keep people safe and secure during the crisis, we could come out of it with an economy ready to roar back to life and get up to full strength very quickly. Conversely, if we choose not to pay that sort of upkeep during the crisis, we might come out of it with less additional debt, but with an economy that is weakened and shrunken to the point that the debt we already carry overwhelms it.
Economists generally agree (to the extent that economists can agree) that the absolute size of the national debt is less important than how big it is relative to the size of our economy. The debt's going to go up during the crisis. It's going to continue to rise as the economy struggles to recover. But a dollar of social spending generates more economic activity than that dollar is worth.
There are points of diminishing returns and limits to everything. Whether it's possible to spend our way out of a recession or depression is something that people don't agree on, but I think the historical record for deficit financing (spending money we don't have) during a crisis is better than the historical record for austerity.
Most of the national debt is public debt — money we the people essentially borrow from ourselves, against future earnings. The conservative line is "If my household spends money it doesn't have, we go broke." but the government is in this regards more like a business: every quarter it buys some things it needs to keep running and so long as its credit is good it might take out loans or open a charge account to pay some invoices later, off the profits it knows is coming. It's not a perfect analogy, but it's better than the household one.
One regard in which it differs from a business is that the government's not making money on its purchase orders to be invoiced at a later date. Rather, it doing this enables the conditions that allow businesses and people (the backbone of our economy) to make money, and some portion of that is collected as taxes, and some portion of that pays down the national debt.
And the other regard is that it is, in a sense, its own creditor. We don't necessarily have to fully embrace something as radical as MMT, but if we're borrowing money from ourselves, why don't we... cut ourselves a little slack when times are tough? We know we're good for it, when the crisis ends and things turn around. We know it'll be worth it in the long run.
Because the fundamentals of the economy are strong.
And they will remain strong, if we can take care of them.
And that takes money.
Money which we — that is, the country — that is, the government — control.
We don't have to spend like there's no tomorrow, just spend to ensure there is one. Think of it as sus-spending: spending money to keep the strong economy that is currently in medically-induced coma breathing long enough for it to survive the illness which put it there.
I'm not just talking about cash payments to individuals. What if we the people paid all those movie theaters that are closing to maintain their properties and keep their payrolls so that when the all-clear is sounded, they're ready to open? What if we were paying all those restaurants trying to get by suddenly on takeout and delivery to maintain their businesses while they did so?
Boeing wants a bailout. The airlines want a bailout. What if instead of big cash infusions we had ongoing programs to help maintain the apparatus of the economy, the businesses and the people?
Some of that money and otherwise furloughed personnel and sidelined expertise could be put to work delivering solutions for this crisis and for mitigating the next one. What if the film studios and the theaters had as part of their participation a directive to work on a vehicle for delivering new releases to people stuck at home? "The theaters have no motivation for that." Well, they would, because that would become part of their business model. The government has been quietly planning for 18 months and beyond of viral upheaval, even as they speak in terms of weeks. Experts have said that if we let up on suppression too early, we're going to see the same outbreaks resume, so we either keep playing whack-a-mole with the virus and coming in and out of hiding for a year or two, or we figure out things that work for the long-term.
If it helps, don't think of it as spending money at all. Think of it as redistributing risk and reward so that everybody shares more widely in both. If a factory automates, the workers whose labor built the company's value should share in the production gains from that. If technology or circumstances changes the way we watch movies, it hurts the theater owners less if everybody is cut in on the proceeds.
Andrew Yang called his Universal Basic Income proposal a freedom dividend. This would be a similar idea, but it would be a prosperity dividend. There's a lot of prosperity lying around basically unused, and way more prosperity in our future we can borrow against. I mean, if that bet doesn't pay off then we're basically screwed anyway, right?
This might seem radical, it might seem unthinkable. There would surely be unintended consequences, second and third order effects that we would have to watch for and adjust for as we go. But when we compare that to the predictable effects of lost jobs, lost homes, lost livelihoods and lost lives during a period of widespread economic dormancy in some places and uncontrolled upheaval in others, I think the risks are more manageable and the range of likely outcomes better.
The fundamentals of our economy are people.
Do you know what that word means, "fundamental"? Like a lot of words we use, it's from Latin. Same root as "found" as in the verb "to found" a city or a company, and "foundation", as in what you build a house on. There's another usage that doesn't get much play in modern English, and that's your fundament, as in the thing you're probably sitting on as you read this. No, not your chair. The part of you that sits upon the chair.
There's a very famous novel called Atlas Shrugged that Ayn Rand wrote because her philosophy, being utter fantasy, can't be functionally demonstrated in the real world. The title alludes to the titan Atlas who is said to hold up the sky, and is often depicted fancifully as holding the literal world on his shoulders. The title refers to the idea that given the chance, Atlas would probably choose to relax his shoulders a bit, even once.
In Rand's fantastic formulation, Atlas represents the irreplaceable geniuses with big ideas, like how only Edison could have invented light bulbs or practical electrical power and only Bell could have invented the telephone and only Fulton could have perfected the steam engine... oh, but of course, you who are reading this probably knew from my first example that's not true at all. None of those technological achievements could have happened without the sum of available knowledge and technology making them possible, and at the point they became possible, multiple people grasped the potential and in some cases they literally raced each other to the patent office (when they weren't co-opting or sabotaging each other).
Here in the real world, the giant who bears the weight of the world on their shoulders is not an individual sitting at the top of a corporate org chart but the masses of people whose work makes our life possible, whose labor provides the value that makes stock in Amazon so valuable on the market.
Here, today, across the country and across the world, those would subscribe to a Randian view are forcibly having their eyes opened to the fact that they have been sitting comfortably atop a pile of people whose lives and labor they have not properly valued before. Governors and mayors are declaring that we must keep essential services going among shutdowns and lockdowns and when they see that they mean grocery stores and restaurants and delivery services and transportation services whose workers are employed at-will, overworked, and underpaid. Figuring out how to keep these businesses going in the coming weeks and months is an inevitable and obvious hurdle.
Right beyond that one is how we keep the theater ushers and bookstore clerks and school custodians and teachers and all the other working-class people who would be the customers of those essential services looped into those services.
I honestly see only two ways to go.
If you love free market capitalism and hate centrally-planned government-controlled economies, you're not going to like the other one. Because in the other one, the government assumes control of the production and distribution of food and medicine and other necessities and just starts rationing them out as well as they can figure out how to based on what they assume people need.
Does that sound like anybody's idea of a good time?
I got to say, I'm not a fan of that idea. I would not endorse that plan except as a desperate, last-resort measure to keep people alive.
But that's where we're going to wind up, if we don't keep money circulating. It doesn't really ultimately matter where that money comes from — borrowed from the future, issued by the government, or appropriated from the ultrawealthy — because one way or the other, it's got to happen to avoid that nightmare scenario. The economy functions on spending, on money changing hands, on one person who needs or wants something spending money that winds up in the hands of another person (or more often in fractions, in many people's hands), and so on. Each dollar infused gets spent more than once. The point is to put them where they're needed, and keep putting them there.
And hey, if we do this... some part of this, any version of this... maybe we'll learn some interesting things about the real nature of money, wealth, and prosperity. Maybe we'll figure out some things that are worth doing long-term, just to keep things on more of an even keel in the uncertain waters of the future and to hedge against the next catastrophe.
The fundamentals of the economy are people.
You have to take care of your people or you don't, fundamentally, have an economy.
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