Economics: an inexact science

The raising of America’s debt ceiling has again been in the headlines these last few weeks. It was in 1917 that this practice began in the US, not to put the brakes on public spending as many believe, but to give flexibility to the executive branch during its participation in the First World War. Prior to this date, it was Congress that defined the means of funding spending, either by issuing 30-year bonds, or by levying new taxes. The American law of 1917 on the debt ceiling was in truth a breath of fresh air for the administration that at the time had pretty much complete freedom in its handling of military spending. This now-archaic practice still endures because the US Congress has to regularly raise the ceiling so that the administration can pay its bills, but not without remonstrations from conservative politicians who complain of what is in their eyes irresponsible spending.

Some avant-garde minds are suggesting, however, that the executive circumvent its obligation to go before a decidedly politicised Congress by minting a platinum coin worth a trillion dollars. With this, the Treasury would be able to fund the government’s policies, not by issuing new bonds or raising the debt ceiling, but by injecting necessary Federal Reserve funds by means of monetary creation. Such initiatives – relayed to the USA by voices such as Nobel Prize for economics winner Paul Krugman or the journalist Joe Weisenthal – are strong educational messages sent out for the public. In fact, unions like the US and the EU don’t have to worry about the sum total of their public deficits given that they have total control over the creation of their respective currencies. These sovereign nations – that hence never find themselves short of cash – could make use of this immense power to combat the climate crisis by creating as much money as necessary to transform their economies. In short, a paradigm shift is asserting itself with great urgency, but which will only materialise if the public understands how money works.

Because economic science isn’t all that scientific: it is almost entirely subjective. With its jargon invading our lives, it is therefore vital that we understand that the economy is at our service. The impotence of our governments in the face of the world of finance, and our feelings of frustration in the face of language and codes that are intentionally obscurantist, have had as an effect widespread disaffection. A textual description would be most precious, because the understanding of economics can be easily broken down into few basic ideas that could be made clear to the people. Since economics is a “post-mortem” discipline (in that it notices the facts only after they’ve taken place), how can it still claim to influence the political figures who often take refuge behind their dogmas?

Do austerity, orthodoxy, and economic conservatism really want to reabsorb deficits? Or are they simply pretexts to roll state powers back even further, dismantling what remains of social programmes on their way, to end up with an anorexic government that would of course lead to a bulimic private sector, with finance being the first to profit ? It is now time to bring Keynes back into the debate who in 1936 concluded his work General Theory with a call to “socialisation” of investment, a matter too serious to leave to the sole recourse of financial markets. This is why it is vital that we understand how this monopoly of monetary creation works, which must be put to the service of the public good. In the absence of this kind of determination, government action is ineffective or works for only a minority. This degenerates into “poverty in the midst of plenty”, to quote Keynes again who demonstrated perfectly his proposition by describing a situation “where houses are plenty but where no one can afford them”.