Imagine that I, as an Australian citizen, have performed an extraordinary deed for my country. To reward my efforts, the Australian Federal Government takes the unprecedented step of granting me three unique means of financing my spending. In the first instance, it provides me with a printing press that enables me to produce as many Australian $100 notes I like and spend them into existence. Secondly, it provides me with an open cheque-book that allows me to write cheques to whatever value I like and spend them into existence. The cheques never bounce. If I exhaust my cheque-book, I immediately receive a replacement. Finally, I am given a bottomless, plastic swipe card that enables me to conduct electronic transactions to whatever value I like. The transactions are always accepted as payment. Following an electronic purchase, the balance appearing on the seller‟s bank account rises by the value of the transaction.
Now, answer this question: Would I have any need to earn money, borrow money, tap into my savings, or sell some of my existing assets to finance my spending? The answer, of course, is no. My spending power would effectively be unlimited. Moreover, my spending power would bear no relation to my financial circumstances prior to being rewarded in the above manner. Irrespective of whether I previously possessed net financial assets worth $1 million or net liabilities of $1 million, my capacity to spend would be exactly the same. If I was in the latter position, all I would have to do vis-à-vis the former position is write myself an additional cheque to the value of $2 million.
What's the relevance of this? Although somewhat simplified, this is precisely the same privileged position enjoyed by every currency-issuing central government.
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Abstract: Despite what mainstream economists preach, currency-issuing central governments have no budget constraint. It is therefore incumbent upon them to use their unique spending and taxing powers to achieve the broader goal of sustainable development. Their failure to do so has meant that nations have fallen well short of realising their full potential. Rather than accept the neo-liberal myth that ‘small government is best’, the citizens of a nation should welcome the central-government’s responsible use of their unique spending and taxing powers to provide sufficient public goods and critical infrastructure, achieve and maintain full employment, resolve critical social and environmental concerns, and meet the requirements of an aging population. Should central governments fail in their responsibility to prudently use their unique powers, public disapproval is best registered through the ballot box, not through degenerative debates that distort the facts about the operation of a modern, fiat-currency economy.