The analogy of a country’s budget being like a household's budget is often used as an argument for austerity measures (suspiciously, only used against social programs, not programs that benefit elites). But this analogy has several fallacies. Thread. 1/17
First, most deficit spending that invests in the general population, such as infrastructure, education, social uplift, environmental sustainability, etc. lead to economic growth (& if done right wage-led growth) that increases income & thus tax revenue. 2/17
This is supported by economic historians. Both in the US & internationally severe austerity measures have always lead to a death spiral of decreased economic activity, decreased employment, decreased wages & decreased tax revenue. 3/17
On the other hand, economic historians point out that using fiscal & monetary policies for full employment, wage-led growth & social uplift have historically benefited countries in the long run – even if/when countries go into deficits to invest in themselves. 4/17
Another fallacy with the analogy of a country’s budget being like a household's budget is that unlike you or I, federal governments can use monetary policy to increase the money supply to pay off debts. Of course, increasing the money supply can create inflation. 5/17
There is a lot of misinformation & propaganda around inflation, so it’s incredibly important to take a moment to understand what causes inflation, when inflation is good & when it’s bad. 6/17
Inflation can happen when fiscal & monetary policies increase the money supply and/or demand faster than the economy can increase production. When there is relatively more money to lay claim to a relatively smaller output, prices go up. 7/17
Over the past 50 years, fiscal & monetary policies have been primarily tuned for the benefit of elites & the top 1%. Thus, prices of basic goods & services have been going up every year, while wages have stayed stagnant. 8/17
In this sense, inflation is like a tax. The 99% have been taxed via increased costs of goods & services (i.e. inflation) for the benefit of the 1%. This type of inflation has contributed greatly to wealth gap over the past 50 years.
We've taxed the poor to pay the rich. 9/17
We've taxed the poor to pay the rich. 9/17
So inflation must always be bad, right? Well, not exactly.
The problem with inflation (& monetary policy in general) over the past 50 years is that it has been specifically weaponized for the benefit of the wealthiest at the expense of everyone else. 10/17
The problem with inflation (& monetary policy in general) over the past 50 years is that it has been specifically weaponized for the benefit of the wealthiest at the expense of everyone else. 10/17
Inflation is the increase in prices of goods & services. But throughout the economy inflation is NEVER universal. Some prices might go up, while others stay flat, or even go down. This fact is of utmost importance. 11/17
This is because we ALL buy some goods & services & we ALL sell other goods & services. If the prices of things we sell go up faster than the prices of things we buy, well that’s good. If the prices of things we buy go up faster than the prices of things we sell, that’s bad. 12/17
We need to realize that we ALL sell something @ a price. For the vast majority, we sell our labor for wages. So, if the prices of wages stay stagnant, while the prices of the goods & services we need go up (as has happened over the past 50 years) that’s very, very bad. 13/17
BUT, if the prices of wages go up faster than the prices of the goods & services we buy, well that’s actually good!
That type of inflation decreases wealth inequality. 14/17
That type of inflation decreases wealth inequality. 14/17
This is why progressive & leftist economists talk about wage-led growth. Rather than using fiscal & monetary policy for the benefit of only those at the top, we can use fiscal & monetary policy that benefits everyone. 15/17
Not only can we do it, but we can do it with fiscal & monetary policies that increase economic equity! We can do it with wage-led growth to reverse the trend of the last 50 years of the wealthy getting wealthier, while wages have remained stagnant for the rest of us. 17/17
For anyone interested in a fuller discussion & an excellent resource on understanding economics (free of propaganda nonsense) I highly recommend Robin Hahnel's ABC's of Political Economy:
plutobooks.com/9780745334974/…
plutobooks.com/9780745334974/…
