What Does It Mean When Politicians Say “We Can’t Afford It”?

Consider that the US Federal Government is the source of ALL US Dollars in existence.

Consider that the US Federal Government can create US Dollars at will, whenever it is deemed necessary.

Consider that the US Federal Government’s ability to spend money is not constrained by the availability of US Dollars, as they can simply create more.

Consider that there are occasional major expenses for which that question is never asked.

Specific examples from recent history of spending without asking are:

  • The $2T tax cut of 2018
  • The invasion of Iraq
  • The invasion of Afghanistan

The largest example from US history of spending without asking was WW2.

What Does Constrain US Federal Government Spending?

The real resources available within the economy. In order for the US Government to buy something, it has to be available. It has to exist.

Someone needs to grow it, dig it up, make it, or provide it as a service.

If no one is available or willing to do that, the US Federal Government can’t buy it.

This is not a constraint defined by the supply of money, but rather by the supply of real resources in the economy.

How Did the US Federal Government Pay For Really Expensive Stuff in the Past?

Literally, by shifting priorities.

The US Federal Government can buy ANYTHING whose price is denominated in US Dollars. This does not mean the US Federal Government can buy EVERYTHING whose price is denominated in US Dollars.

Perhaps the best example of this was WW2.

WW2 cost 36% of GDP. I believe this is the largest single expense ever incurred by the US Federal Government.

To put this in perspective, the transcontinental railroad cost 2%, the moon landings cost 3%, and the current US Government military activities around the world costs 3.5%.

So how did we manage to spend 36% of GDP on one project?

By shifting resources.

During WW2, car manufacturers stopped making cars and trucks for consumers. They manufactured exclusively for the war department.

During WW2, all copper was diverted to the war effort. This is why we had aluminium pennies and some buildings still, to this day, have aluminium electrical wiring.

During WW2, households recycled stuff for the war effort.

My grandparents told me about everyone saving used tin foil (which was apparently made of tin at that time) for regular collection for the war effort.

Why did we shift resources in the economy to the war effort? Because there was a sense it was important. It was important enough to do, even at the cost of other things.

It’s a Question of Priorities

WW2 was a priority for the national leaders.

The invasion of Afghanistan was a priority for the national leaders.

The invasion of Iraq was a priority for the national leaders.

The 2018 tax cut was a priority for the national leaders.

The Green New Deal?

Medicare for All?

Right now, to our national leaders, they’re not important enough to do.

So they tell us “We Can’t Afford It”.

Video of Stephanie Kelton Explaining This

In the video below, Stephanie Kelton explains how a government who issues currency (for example, the US) pays for stuff.

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