Fiscal Conservatism Has It’s Place – Just Not at the Federal Level

You and I, our local city and county governments, and our state governments all need to operate, as fiscal conservatives, within a budget. Our expenses all need to be covered by some form of income like wages, tips, selling a product, issuing bonds, or collecting taxes. The main reason for balancing income and expenses is because individuals, businesses, cities, states have no authorization for creating money. We all need income, government created money, to pay expenses.\

The federal government’s power to create money gives it unique power to focus on balancing the national economy instead of its budget. It can add money to the economy to make it grow or help fix a national (natural or man-made) disaster. It can remove money, through taxes, from the economy to slow it down. Keeping the national economy balanced between jobs and inflation is the responsibility of the federal government and using fiat money to do that.

Keeping the economy balanced may require deficit spending. As long as the additional money results in a growing economy, more jobs, and the deficit remains small relative to the nation’s total economic output, or gross domestic product (GDP), i.e. low inflation, the additional spending is responsible and the economy remains in balance.

This responsibility to balance the economy with deficit spending is not what most of us consider fiscally conservative. However, it is within the power of the federal government to do so when needed.

This federal power can be used to fix national economic catastrophes as it did in the Great Recession of 2008/9. Quite suddenly the national economy, via risky banking activities, was coming up vastly short of cash. Only the federal government had the power to replace what was lost. It created hundreds of billions of dollars to replace the cash shortage when the bottom fell out of the artificially bloated/securitized home mortgage market.

Thankfully, there was no requirement for a federal balanced budget, fiscal conservatism, to prevent this federal action. The federal government was thus able to log into a federal bank computer terminal, enter the primary account number for each bank that needed rescue and key in the billions each bank had lost to make them whole again. They also bought ownership in the auto industry from the same computer terminals by purchasing company stocks with more money created out of thin air.

This same kind of federal money magic happens each time Republicans increase our military spending while also reducing federal income with massive tax breaks for billionaires and corporations. However, this kind of deficit spending has negligible impact on balancing the national economy. There is no real job growth or better wages for workers to spend and grow the economy. Economic growth is anemic. The magic money just keeps the existing defense industry running to replace equipment used for fighting our unnecessary wars. Our GDP is little changed from all the new money given to defense contractors who reward their executives like Dick Cheney with bonuses. It becomes money chasing money and some is used by company board of directors to buy back company shares and artificially inflate share value. The market looks great as the extra cash inflates stock prices, but the national economy isn’t browing.

Obviously, there has been no fiscal conservatism at the federal level for some time, nor should there be. The question is, if the federal government can create money to solve national problems like the Great Recession and the Great Depression, how can new money be better used such that there is actual growth in the GDP and real problem solving by creating jobs with living wages?

Most Republican deficits protect and empower the wealthy and create massive economic inequality. Reps believe only those at the top of their imaginary social hierarchy deserve government welfare. These deficits don’t create jobs, don’t grow the nations’s GDP, and tend to boost the stock market that is 80% owned by the one percent.

A better way to use the government’s magic money is to fund programs that grow the nation’s GDP. How about an initiative to reverse our growing climate crisis? The federal government could buy controlling interests of dirty energy companies, as they did the auto industries, and change the industry goal from fossil fuel extraction to expanding clean energy sources.

In addition, let’s stop increasing defense spending and reverse tax breaks for the wealthy and corporations. This may not be good for the stock markets, but who is mostly impacted by this? The wealthy and don’t they have far too much wealth to start with?

If the federal government were forced into fiscal conservatism and had to balance its budget instead of balancing the economy, our economy could not be rescued or protected from another financial crisis nor could it help solve national problems like it did after other Great Recessions, or needs to do now to minimize the Sixth Great Extinction.

Read The Deficit Myth for more details.