Daily Archives: January 22, 2021

This Is No Way To Do Federal Government Budgeting

CNBC has the article Joe Biden’s business allies discuss ways to pay for infrastructure plan, including a carbon tax.

I wonder if it would be helpful for Bernie Sanders to explain to Joe Biden how USA money is created, and how that affects the way we pay for government programs. If Biden only understood this, he could determine if taxes need to be raised to keep the deficit in check or it would be economically wise to “pay for it” with some increase in the “deficit”.

If Biden is hamstrung with outmoded ideas about Federal Government spending, then we might find it hard to do all the things the government should be funding with new Federal Reserve Bank created money. The economy isn’t going to get much stimulation from new government spending if we tax money out of the private sector for every dollar the government needs to spend into the economy. Of course you can’t spend any amount you want into the economy, but it would be useful to consider what the actual limits are. Ultimately the limit is governed by the possibility of creating inflation, but the limit is way above zero.

If we can stimulate the economy, then, by definition, the economy grows larger. So the new money is chasing newly produced goods, and inflation of too much money chasing too few goods is not a problem.