The Economy Will Come Back But With a Different Paradigm
by John Lawrence, October 4, 2020
It's not enough to have a full employment economy. What's also important is what those jobs and industries consist of. Are the jobs socially useful and constructive or are people fully employed fighting wars and polluting the environment? The American economy pre-pandemic consisted of 70% consumption. So people were employed selling stuff to other people. Investment in infrastructure was minimal. What's needed now is to put people to work building a green economy. Government will have to play a bigger role in this development. Some people are worried that this will add to the national debt. They didn't worry when the Federal Reserve spent a couple trillion bailing out the too big to fail banks. Also trillions have been added to the debt as stimulus during the pandemic. The fact of the matter is that deficits don't matter not because the US dollar is the world's reserve currency, but because the US has a sovereign currency and can print money whenever it pleases.
Historically, the US has had no problem selling US debt in the form of Treasury bonds to other countries. Because the dollar is the world's reserve currency, other countries purchased Treasuries so they would have dollars because most business is conducted in dollars worldwide. So what happens if other countries don't want to buy US debt? The same thing that happened during the Fed's trillion dollar bailout during the Great Recession. The Fed just printed the money, that's all. If it can print money to bail out banks, it can print money for government programs to rebuild infrastructure in accordance with a Green New Deal of Joe Biden's Green Deal which amount to about the same thing. The US does not need other countries to buy its debt. It can just be swallowed by the Fed's money printing machine and disappear on the Fed's balance sheet.
With the government spending money to build a green economy, it does not all have to be deficit spending, but, if it were, like I've explained above, this is no big deal because the US dollar is a sovereign currency. However, money can also be generated by revising the tax code so that the rich pay their fair share. Some enterprises will generate a return on investment as the Tennesee Valley Authority did which was created by the original New Deal. Also the bloated military budget can be reduced. Socially useful jobs can be created replacing the many socially useless jobs that comprised the full employment economy before the pandemic. The limitation of Fed money printing is 1) inflation and 2) the value of the dollar. So far the Fed's prolific money printing has not been cause for concern since there has been no inflation and the dollar has not lost value vis a vis other currencies.
In order to combat the nation's real enemies - global warming and future pandemics - the US needs to reorient its priorities. This means that the government will have to play a larger role in the economy and limit some economic activities that now exist, for example, fracking and oil production. This does not mean that jobs will be subtracted from the economy. They will be replaced by different jobs, more constructive and socially useful jobs. In terms of consumption, American consumption should probably be reduced to be in line with consumption in other major developed countries like the EU, for example. As other countries develop, they will emulate the US in terms of consumption and lifestyle. Americans have historically overconsumed with respect to their share of the earth's finite resources. Consumption worldwide needs to come into balance as developing countries start consuming more. Because of this Americans need to consume less. Instead of the present level of US consumption and the concomitant lack of saving, Americans need to start saving more and building wealth for the middle class instead of going into debt to maintain a certain overconsuming lifestyle.
The good news is that there's no reason for a Biden administration not to go full steam ahead in converting the economy from an oil based one to one run on renewable energy. For sure government would play a bigger role than it has in an economy in which many socially destructive activities provide jobs. A Green New Deal (or Biden's Green deal if you prefer) can provide enough jobs for a full employment economy. They would also be better paying jobs than many jobs were in the pre-pandemic full employment economy. The quality of the jobs would be better and the output would be more socially constructive in terms of combating global warming among other things. Providing the money for a full employment green economy would be no problem as deficits can be taken on the Fed's balance sheet. The Fed can print money as necessary which in fact it has been doing consistently at least since the Great Recession with its policy of quantitative easing.
