Oh brilliant. I produce a post trying to explain in non-mathematical terms the equivalence of government debt and interest-bearing money in a fiat money regime. And I immediately get hammered for - variously - writing about the "money tree", playing accounting tricks instead of doing real economics, and inventing a scenario where no-one ever has to pay taxes and governments just print endless amounts of money. How on earth my critics managed to deduce that lot from my post I don't know, but I will at least address the last of these, which is the only serious point. I was awfully tempted to ask my "economics" critic to define "real economics".....
Anyway. let me explain. No, I did not, and do not, suggest that governments can just print money ad infinitum to meet their spending obligations. And no, I did not, and do not, suggest that no-one needs to pay taxes. On the contrary.
Taxes are ESSENTIAL in a fiat currency regime. The value of the currency - and of the associated debt (since interest-bearing government debt is simply a stream of future private sector money claims) - depends on the government's ability to tax its population. If it can't then fiat currency is worthless - and by extension, so is debt. Which is why every recorded example of hyperinflation (when fiat currency becomes worthless) is associated with severely dysfunctional government, social chaos and - often - regime change, usually following a severe POLITICAL shock such as losing a war. A dysfunctional government can't tax its population: a traumatised and angry population can't be taxed. Hyperinflation is primarily a political phenomenon.
Those of you who were hoping that my endorsement of money issuance as a means of meeting government spending commitments meant that I was coming round to the idea of higher spending commitments unsupported by additional production and/or taxation are going to be disappointed, I'm afraid. I haven't converted to your cause. I stand exactly where I did before - increased government spending must support, or be supported by, increased production in the real economy, OR it must be supported by higher taxes - which must be subject to democratic approval. If it is supported neither by increased production nor higher taxes, then it will be unsustainable however it is funded.
The same fiscal discipline needs to be applied whether governments choose to meet their spending commitments by creating money or issuing debt. THERE IS NO DIFFERENCE. Money printing is NOT an opportunity to do things that you couldn't do if you had to borrow the money. The horror we have of money printing arises from those few times in history when governments have met spending commitments by printing money without the necessary fiscal discipline, and the result has been inflation. Someone asked me whether Zimbabwe's behaviour undermined my argument that governments can meet their spending commitments through money issuance without it being inflationary. But my argument was that RESPONSIBLE governments can meet their spending commitments through money issuance, just as RESPONSIBLE governments can meet their spending commitments through debt issuance. Zimbabwe had an irresponsible, inept and malicious government that was hell-bent on trashing the only significant industry - agriculture - to further its political ends. It couldn't raise money through debt issuance, because no-one in their right minds would lend to it, so it printed the money instead. How this undermines my argument is a mystery to me.
So money printing is not a free lunch. There is a catch, which is that it has to be supported by production and taxation. Just like debt.
What is really depressing is that the post wasn't even about money issuance. It was about the role of debt in a fiat money regime, and the importance of government acting as a savings bank for its citizens. Somehow that got lost in all the money printing hysteria.
I hope this is all nicely clear now.
Related post: Government debt isn't what you think it is