No government deficits – society's unnecessary straitjacket

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Deficits are part of how the state regulates the market and protects citizens and nature. Neoliberalism attacks this.

How is money created? Can we afford to work? Sweden's Riksbank's prize in economic science in memory of Alfred Nobel in 2022 suggested that banks have an important role for the social economy even if this may include financial crises.

Of course, banks may be needed. Of course, regulations and deposit guarantees are good, for which the economic award praised the award winners.

But the big problem for society's economy with unilaterally relying on banks is something else.

Government deficits increasingly prohibited

Neoliberalism has increasingly prohibited the state from running a deficit. So have society's real needs - e.g. healthcare, the railway and climate change - had to stand back for the belief that we can't really afford it. This deficit ban is called saving in the barns. This means a strict and permanent austerity policy.

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Two of the state's most important resources are otherwise that it can create money and redistribute society's resources via taxes. This school is called post-Keynesianism or Modern Monetary Theory.

The Covid and Ukraine inflation is due to various factors of production that have nothing to do with money production. Reducing the money supply only makes production more difficult. This then reinforces inflation, as it occurs when productivity is weaker than the money supply. We must invest in production.

Money does not arise by itself

Money does not arise by itself. When the government does not create enough money, the private banks are allowed to do this.

The banks create the money you borrow out of thin air

The money you borrow, creates the bank when you sign the loan contract. The Bank of England has been trying to explain for several years this. When you pay off the loan, the loaned money ceases to exist. The value of the money is that you have mortgaged part of your future work as a debt to the bank. The fact that you pay your debt to the bank means that the money has lost the mortgaged work input and thus its value and ceases to exist.

Government tax payments cease to exist

Money also ceases to exist when people pay government taxes.

If the government doesn't create money, everyone else is required to borrow more and more. This makes the richest very rich and many others very indebted.

Financial crisis when people cannot borrow more

But in the end, people can't take out new loans or, even worse, they may start paying off their existing loans. Then the amount of money decreases. So we get more frequent and heavier financial crises if the state does not combine sufficient taxation with realistic deficits.

In other words, when society handles money production via banks, we get recurring financial crises. With every crisis, the richest get richer, while more and more ordinary people are knocked out. Unemployment, ill health and environmental problems then spread because if the state does not create money, we can not only afford to work, but then we can hardly afford a society.

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If you want an in-depth look at the subject, read the following.

A tight budget does not in itself reduce inflation

Can we afford to fight inflation? How is money created and destroyed? There is a money-fixed view of inflation in the Tidö Agreement, the government's budget and the 2022 awarding of Sweden's Riksbank's prize in economic science in memory of Alfred Nobel.

The Tidö government wants to fight inflation and at the same time cut back on schools, healthcare, welfare, defence, environmental protection, railway maintenance and a host of other areas. Sometimes it is about insufficient investments in relation to what assessors such as authorities believe that inflation requires. The government is really cutting back on climate investments.

Sweden's Riksbank's prize in economic science in memory of Alfred Nobel in 2022 suggests that banks have an important role for the social economy even if this may include financial crises.

The Tidö government sees a tight budget as fighting inflation. VAT reductions and tax reductions for various groups are not in themselves inflation-reducing policies, but right-wing policies that believe that everything will be solved if you favor the rich. However, more money for the rich can lead to greater private financial capital. This can also increase inflation as financial capital has not reached production for a long time.

Austerity policies slowed down supply chains

The memory of the slow recovery after 2008 caused many producers to shut down their production when the pandemic hit. It happened, for example, with timber and semiconductors (see, for example, Bloomberg's podcast Odd Lots 26/4, 2021 and 22/2, 2021 respectively). The shortage of semiconductors forced car manufacturers to shut down. This in turn spilled over into the used car market.

Prices skyrocketed

When the pandemic hit, companies did not expect fiscal policy to intervene. Once it did, business tried to scale up production again. This created chaos in supply chains. This is in line with the theories of economist John Maynard Keynes and business researcher Mariana Mazzucato. They learn that the state sets the pace in production. The companies just pick up the slack. Had the companies been able to trust that the state would keep production going, which is contrary to austerity policies, inflation after the pandemic could have been lower.

Interest rates do not control the economy

Interest rates do not control the economy. This makes the central banks' monetary policy an extremely ineffective and blunt tool. Economics professor Richard Werner has examined the historical empirical evidence on whether interest rates control the development of the economy. The result was that interest rates do not control this. Fiscal policy is a much more effective tool for managing the economy. This means that the state can work with budget changes in recessions and booms to influence production and demand. However, a deficit-driven fiscal policy has no necessary connection with high inflation. Other methods to lower inflation are to strengthen competition. Among other things, Staren could offer good labor market policy programs to solve the job matching problems.. We might try credit restrictions for some sectors and support for others (for example energy).

Then there is an element of greedflation that has to do with disaster capitalism. It was the neoliberal economist Milton Friedman who figured out that in disasters, people are more ready for cuts in welfare and other right-wing policies. Many companies are making record profits today when prices have been raised without ordinary people's incomes being raised to the same extent. The companies have taken advantage of today's crisis awareness as a result of the pandemic, the semiconductor shortage and the war in Ukraine to raise prices. Perhaps increased corporate taxes, other taxes on capital and for those with the highest incomes would be appropriate? Even Ursula von der Leyen, president of the European Commission, has spoken about the need for increased taxes on those who profit from today's inflation to give to those who need it most.

Neoliberalism does not like government deficits

The appreciation of financial crises, favoring the rich and criticism of government deficits derives from neoliberalism. This won control over the public economy in the 1970s. Neoliberalism, among other things via the EU's Maastricht Treaty, has increasingly introduced restrictions for the state to run a deficit. So society's real needs – for example, research that keeps the country competitive in technology and pharmaceuticals, healthcare, the railway and climate change – have had to take a backseat to the belief that we can't really afford it. This deficit ban is called saving in the barns. This means a strict and permanent austerity policy.

One of the state's most important resources is, according to post-Keynesianism and Modern Monetary Theory, that the state can create money by running a deficit. Deficits simply mean that the government creates money. The state can also redistribute society's resources via taxes.

Inflation is due to too low productivity

The Covid and Ukraine inflation is due to various factors of production that have nothing to do with money production. Reducing the money supply only makes production more difficult. This then reinforces inflation, as it occurs when productivity is weaker than the money supply. We must invest in production.

So the Tidö Agreement's budget cuts in public activities thus risk lowering productivity and raising inflation.

Money does not arise by itself. When the government does not create enough money, the private banks are allowed to do this. Money has no value in itself. You cannot eat them or craft anything with them. When the money is for the most part digital, it is merely an estimate in relation to the productivity it is supposed to correspond to. Money is receipts for what is in the warehouse. Money is not the content of the store.

The banks create the money you borrow out of thin air

The money you, as a private person for example, borrow, is created by the bank when you sign the loan contract. The Bank of England has been trying to explain this for several years. When you pay off the loan, the loaned money ceases to exist. The value of the money is that you have mortgaged part of your future work as a debt to the bank. The fact that you pay your debt to the bank means that the money has lost the mortgaged work input and thus its value. When the loan is paid off, the money created as bank credits ceases to exist.

Money also ceases to exist when people pay government taxes. When the state sets the budget, it mortgages the people's labor for the coming budget year. This makes no difference to the people because we all have to work anyway. When the people pay state tax, they have paid their and the nation's tax debt to the state.

Money a tool for society's production

Since money has no value for a money creator like for an economically sovereign state, these are just a digital means to plan the coming year's production. The limits of production are not set by money. Money is just numbers for the state and not a scarce commodity.

The limits to how much money the state can create set the country's ability to produce. The country's ability consists of our know-how, of how many of the workforce are fit for work or sick, of how nature is doing and of our natural resources. Resources are also the people's needs for schooling, care, care and defense et cetera.

What the government decides to produce sets the rest of the economy in motion.

Indebted and poor private individuals

If the government does not create money, everyone else needs to borrow more and more for society to have money for production. For people to want to borrow, enough people must be poor enough to need to do so. Society can also increase the people's borrowing needs by turning things the people cannot spare into a scarce commodity. This is one of the reasons why some are fighting for market rents and for more private housing. Higher rents mean that more people are asking to buy their home. This makes the richest very rich and many others very indebted. Between 1999 and 2019, the richest percent became 500% richer. Sweden's private debt is a record high 274% of GDP. The national debt is a low 40%.

When the government does not create money through deficits, the private sector has to take on debt. The difference with the debts of an economically sovereign state is that those in the private sector can go bankrupt. An economically sovereign state can always create new money to pay its debts with. The only limit is the risk of inflation. Inflation avoids the state by allowing money creation to be matched by production investments. The government can also reduce the money supply, for example by raising taxes. During Corona, the Riksbank broke the deficit ban and created 2100 billion in pandemic support. 1700 of these billions, however, mostly went to save the banks' lending and maintain the value of shares and real estate. This did not sufficiently improve the deficiency in the economic conditions of production.

To save the climate

The richer private individuals are, the bigger their climate bill. In 2020, the richest percent in the world accounted for approximately 15 percent of global emissions. Around 63 million people emit more carbon dioxide than all EU citizens combined. Oxfam has also shown that the wealthiest ten percent of the world's population account for half of carbon dioxide emissions.
The fact that the state does not print money does not save the climate. However, we must work with a more circular economy, green energy, green technology and more with legal requirements on how long goods last and other environmental friendliness. Public sector activity is also more environmentally friendly than short-term private consumption.

Smaller government deficits do not lead to a reduced money supply either. In connection with the 1990s crisis, Sweden really started to reduce the government deficits. In 1996, according to Statistics Sweden, there were approx. 750 billion in Sweden. By the end of 2021, the amount of money had increased by 540 percent to almost 4800 billion. Meanwhile, Swedish GDP had only grown by 170% in current prices according to the book "Greedy Sweden" by Andreas Cervenka. But the private finances do not go to production or society's needs, but to creating new money through, for example, speculation around shares and real estate. The price increase for these two types of investment has long been around 10-20% a year. Financial production has long grown much faster than goods and service production, which is unsustainable.

Financial crises are the result

But in the end, people can't take out new loans or, even worse, they may start paying off their existing loans. Then the amount of money decreases. So we get more frequent and heavier financial crises if the state does not combine sufficient taxation with realistic deficits.

In other words, when society handles money production via banks, we get recurring financial crises. With every crisis, the richest get richer, while more and more ordinary people are knocked out. Unemployment, ill health and environmental problems then spread. Because if the state can't create money, we can neither afford to work nor even have a society.

The 2022 Nobel Prize used the logic that financial crises can be good for the economy. The Tidö Agreement and the government's budget seem to pave the way for both financial crises and inflation.

Vote for larger government deficits!

• Tax
• Resistance to deficits and investments leads to recession in Sweden
• The right tries to blame post-Covid inflation on welfare and deficit policies
• He who is in debt is not free - the untrue myth about Göran Persson and his heroic glory
• It was not the welfare that gave the race of the 90s.
• The Deficit Myth by Stephanie Kelton
• The Entrepreneurial State by Mariana Mazzucato