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Are Modern Monetary Theorists writing the U.S. government’s annual financial report?

May 13, 2019

In late March, the Treasury Department issued the latest annual financial report of the U.S. government. The financial statements include a balance sheet reporting $3.8 trillion in assets and $25.4 trillion in liabilities. Subtracting $25.4 trillion from $3.8 trillion leaves you with lots of trillions of dollars of negative net position.

Should “we” be concerned?

Introducing the balance sheet, the authors of this report give us the following comforting sentences:

There are, however, other significant resources available to the government that extend beyond the assets presented in these Balance Sheets. Those resources include Stewardship Land and Heritage Assets in addition to the government’s sovereign powers to tax and set monetary policy.

In other words, maybe we don’t have to worry as much, given that the government can tax us, and inflate the value of our money away.

This argument smells a bit like Modern Monetary Theory (MMT). MMT proponents discount concerns about government deficits and debt, given governments can create money. The prospects for inflation are also discounted by MMT proponents, who claim that governments can control the money supply by taxing excess money out of circulation.

MMT has gained some recent growing popularity, and has also sparked heated debate and criticism. The accounting angles to the debate are certainly interesting, and a topic for another day.

But for now, consider the claim in those sentences above that the government possesses the “sovereign powers to tax and set monetary policy.”

Our government certainly has the power to tax, and to set monetary policy. Those powers have been established in our Constitution.

But our Constitution is grounded in some more fundamental principles. It starts with three important words – “We the People.”

We have a republic in the United States of America, if we can keep it, anyway. It is a republic grounded in popular sovereignty. The government is not our king – that’s what we rebelled against.

Our government’s annual financial report should help secure the integrity of the public purse, and the accountability of our government to the people.

As a reporting entity, however, here we have the government telling us that it possesses the sovereign power – in a document it should humbly present to us for a record of its stewardship (or lack thereof).

Those sentences noted above have appeared in the federal government’s annual financial report, in various forms, every year since 2000. From 2007 to 2011, with the backdrop of the worst economic and financial crisis since the Great Depression, they even added “and the power to print additional currency” to the power to set monetary policy.

This year, however, we had an interesting development.

Those sentences stopped referring to the “Government’s sovereign powers to tax and set monetary policy.” Instead, they now call the government “the government.”

They stopped capitalizing the G in government – in those sentences, and in the rest of the document!

As Neil Armstrong once said, “That’s one small step for a man, one giant leap for mankind.”

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