The Monetary Theory of Happiness

A government that puts its monetary system to the service of its citizens and businesses views money as an instrument to improve their prosperity. In the absence of this belief, government action is ineffective or effective for just a minority. This degenerates into “poverty in the midst of plenty” to quote Keynes, who illustrated perfectly his argument by describing a situation where houses are in short supply but where no one can live in the existing ones due to a lack of means ! The government must therefore put forward all of its resources to serve the nation. To this end, public deficits must not encounter any obstacle or limit in order to restore full employment, with the accomplishment of this being the very reason of existence of a government. There is a system that allows the restoration and reconciliation of these two seemingly contradictory fundamental components of our economic life. However, the political will and courage that are required to implement it are lacking.

The debt variable

Successive crises have highlighted the deficiencies of our economic models where the debt variable is strangely absent despite the preponderant and active role it plays in our economies. Our current economic system of course takes into account the variables of price and salaries. It is also determined by the central bank that, through its traditional instrument of controlling interest rates, possesses a formidable driver able to boost our prosperity. However, the essential ingredient of debt seems to be cruelly missing from our current economic models where no one has as of yet had the guts to include the credit variable. The association of economists, and with it the rating agencies that are a parasite to the system, are thus late to this globalisation and seem to have remained at the previous stage of narrow-minded economists where all debt must necessarily be offset by credit of equivalent value. Since our economic models do not include debt, its effects of course go unspoken of.

Our thinkers limit themselves to academic considerations

Our financial stability and prosperity nevertheless depend as much on monetary policy (that is to say the setting of interest rates) as it does on unorthodox tools and drivers (like liquidity injections and therefore debt). However, our political leaders and our economic thinkers limit themselves to academic considerations where the deficit component is totally excluded. The balance of measures and approaches is thus biased from the get-go and the imbalances are therefore being systematically magnified by decisions and positions that dismiss with a backhander the (often beneficial) effects of debt.The central banks, ministers of finance and the budget, regulatory bodies, universities and academic research centres must thus understand and include the active (and often “smoothing”) function of debt in the economic network. With our economic situation that can no longer be accurately defined as a (by definition closed) circuit, a profound rethink is imposing itself in light of these questions: What is the nature of our debts and how are they classed as being private debt, corporate debt and public debt? At what point does debt become excessive? At what level of investment does the economic growth of a country become reliant on foreign funds?Are credit and bonds the only mechanisms for redistributing resources? Why are risks not more evenly spread among the different parties involved? Isn’t it logical that the purveyors of credit take on a certain risk of non-reimbursement of their investments in exchange for the interest billed?

The quality of life is closely correlated to the government’s debt levels

The answers to these questions must also necessarily be expressed with backing from a considerable amount of evidence that is often denied by the economic profession and by the political class. In fact, the recourse to borrowing allows households and individuals to stabilise their consumption and daily lives in a situation where their incomes fluctuate and are uncertain in times of crisis. It also allows businesses that have an erratic turnover to regulate their investments and their production. In the end, credit allows the government to proceed with its public spending without taxing its citizens too much, all the while bestowing on it the precious drivers needed to relaunch entire swathes of its economy. Finally, public debt offers liquidity to economic actors by administering a sort of oil to their cogs with, as a bonus, necessarily positive outcomes on private and company investment. The quality of life of the citizen and the improvement of economic conditions are therefore closely correlated to the government’s debt levels, because macroeconomic volatility and uncertainties would be exacerbated if the call for sufficient amounts of credit was refused. In short, without public deficits, there’s no growth!

Sovereign states should learn to love their public deficits.

It is indeed debt that will allow our societies to modernise, develop, prosper and maintain confidence in better days. Our material comfort, the evolution of our attitudes and even the flourishing of our democracies do in fact owe to this ability to take on debt, and to this willingness and ability to live, albeit partially, on credit. Without debt and without the transmission belt of financial tools, we would still be poor, our Western world wouldn’t have been able to play its pioneering role in global growth and modernisation, the average citizen would certainly not have been able to consume, become a home owner or simply buy a mobile phone, and companies wouldn’t have been able to invest and develop… Sovereign states – that is to say those who issue their own currency free from any indexation – should learn to love, at the very least wrest control of, their public deficits. This is because a nation that controls its currency is able to recover growth and to support employment thanks to the driver of public spending, and this is without risking defaulting on payment. Money is just a precondition, a simple means, a banal instrument that any responsible government must use to mobilise all its national resources to ensure full employment, support to businesses encountering difficulties and other vital public services.