In the free book Seven Deadly Innocent Frauds of Economic Policy Warren Mosler discusses fraud # 2.

Deadly Innocent Fraud #2:

With government deficits, we are leaving our debt burden to our children.

Fact:

Collectively, in real terms, there is no such burden possible. Debt or no debt, our children get to consume whatever they can produce.

One of the things he points out in the discussion of this fraud is the following:

When we operate at less than our potential – at less than full employment – then we are depriving our children of the real goods and services we could be producing on their behalf. Likewise, when we cut back on our support of higher education, we are depriving our children of the knowledge they’ll need to be the very best they can be in their future. So also, when we cut back on basic research and space exploration, we are depriving our children of all the fruits of that labor that instead we are transferring to the unemployment lines.

So yes, those alive get to consume this year’s output, and also get to decide to use some of the output as “investment goods and services,” which should increase future output. And yes, Congress has a big say in who consumes this year’s output. Potential distributional issues due to previous federal deficits can be readily addressed by Congress and distribution can be legally altered to their satisfaction.

So, if we are passing on any debt to our children it is the diminished economic capacity of our nation because we refused to use the tools at hand to get full employment. Ironically, a further debt is that we will leave our children inadequately educated to make the best out of that future economy because we refused to use the resources we had to invest in their education.

From Warren Mosler’s free book Seven Deadly Innocent Frauds of Economic Policy.

Deadly Innocent Fraud #3:
Federal Government budget deficits take away savings.

Fact:
Federal Government budget deficits ADD to savings.
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So what is the role of deficits in regard to policy? It’s very simple. Whenever spending falls short of sustaining our output and employment, when we don’t have enough spending power to buy what’s for sale in that big department store we call the economy, government can act to make sure that our own output is sold by either cutting taxes or increasing government spending.

Taxes function to regulate our spending power and the economy in general. If the “right” level of taxation needed to support output and employment happens to be a lot less than government spending, that resulting budget deficit is nothing to be afraid of regarding solvency, sustainability, or doing bad by our children.

If people want to work and earn money but don’t want to spend it, fine! Government can either keep cutting taxes until we decide to spend and buy our own output, and/or buy the output (award contracts for infrastructure repairs, national security, medical research, and the like). The choices are political. The right-sized deficit is the one that gets us to where we want to be with regards to output and employment, as well as the size of government we want, no matter how large or how small a deficit that might be.

What matters is the real life – output and employment – size of the deficit, which is an accounting statistic. In the 1940’s, an economist named Abba Lerner called this, “Functional Finance,” and wrote a book by that name (which is still very relevant today).

It was interesting to read how many economics experts of the highest caliber did not understand this until Warren Mosler explained this to them. It is obvious that the academic discipline of economics is different from the academic discipline of accounting. However, if economists don’t know how to do the accounting of the money on which they opine, should they stop offering opinions on that for which they cannot account?