The key to understanding money, taxes, unemployment, inflation, and national debt is to start with the following question: how does the government get ahold of the real resources (workers, buildings, cars, computers, fuel, etc.) that it needs to do the job of governing? 1/
There are a number of ways you might imagine, each with pros and cons. For instance, the government could ask for volunteers and donations. This tends not to work very well, for obvious reasons. 2/
Another method would be confiscation: if the government needs a car, it could simply take it from you, at gunpoint. Obviously this would work, but has the distinct disadvantage of being massively unpopular. 3/
If the citizens have a money or banking system going, the government could try to use that, but then gov runs the risk of running out of money or going bankrupt. Don't really want to mess with that if you can avoid it. 4/
Consider instead the following proposal. For lack of a better name, let's call it the "debt and credit" system. It has two parts to it (can you guess what they are??). First, the gov forces most or all of its citizens into debt. 5/
It does so by simply declaring "you all now owe us. And if you don't pay...*points to army*" Government can now tell the people what they need to do to pay down that debt. And it tells them that payment will only be accepted in one form: government credits. 6/
The government will sell these credits to people, in exchange for goods and labor. And why are people doing work and selling their stuff to government in exchange for nothing more than "credits"? Because they need the credits to pay down the debt, or else...*gestures at army*. 7/
The government then sells the credits, to get the labor and real resources that it needs to do the job of governing. The people with the credits can then use them to pay down the debt, or sell them to other citizens so those people can pay down their debt to government. 8/
What happens at the moment that government declares that the citizens are in debt? Suddenly the citizens are all looking for opportunities to do work to earn the credits. In econo-speak, we call that "unemployment." 9/
How much are the credits worth? Answer: whatever the government says they're worth. If you have a debt of 10 credits, and the gov says it will pay 1 credit per hour, then you'll have to work 10 hours, and the credits are worth 1 hour of work. Or, if gov says it will 10/
pay 10 credits per hour, then you'll only have to work 1 hour, and each credit is worth 6 minutes worth of work. Since everybody is in need of the credits, and the government is the source of the credits, the government decides what they're worth. 11/
In the example above where each credit is worth 1 hour of work, you can get the 10 credits you need to settle your debt by working for 10 hours. This means that the gov pays out 10 credits, then takes back 10 credits when you pay your debt. Call it a "balanced budget." 12/
But what if you wanted to save some credits? Maybe you know you won't be able to work next month. Or maybe you'd like to get some of these credits and sell them to other people. Then you'll have to do more than 10 hours worth of work; maybe you do 12 hours of work. 13/
This means you take in 12 credits, then give the gov back 10. You've run a "budget surplus" of 2 credits. The gov meanwhile has given out 12 credits but only taken back 10, for a "budget deficit" of the same 2. The gov deficit supplied the credits that become your savings. 14/
Now you (or somebody else you sell them to) are sitting on a savings of 2 credits. If the government thinks this is a good thing (who doesn't support saving for the future?), it can try to encourage more people to do it, by paying them. It can make you the following offer: 15/
"You give us the credit back. In exchange we'll give you a Treasury Credit, which is nothing more than a fancier credit which pays interest, for, say, a year. After a year, you give us back the Treasury Credit, and we'll give you back your normal credit." 16/
If you really want to, you can call this "borrowing": the government is taking credits away and promising to return them later, paying interest in the meanwhile...but really it's just substituting a normal credit for a different one that pays interest. 17/
Does the government have to do this "borrowing?" No. Will the "debt and credit" system collapse if nobody wants to swap their normal credits for Treasury Credits? No. Does the government particularly care how much Treasury Credit is outstanding at any given time? No. 18/
If you haven't figured it out yet, go back and read that story again, except replace "debt" with "tax," "credits" with "dollars," and "Treasury Credit" with "national debt." If this was new to you then congratulations: you've just begun to #LearnMMT (Modern Monetary Theory) /end
Bonus: Is this a good system? It does involve gunpoints and forced debt. But also it lets people decide how they can contribute to society: if you're good at building cars and not good at cooking, then you can offer to sell cars to the gov instead of food. The market decides. 1/2
Bottom line: it's the system we have. If you've got an idea for a better system, then we're listening. In the meanwhile, #LearnMMT to understand this one better. /endForRealThisTime
