How Will We Pay For It?

Has it occurred to you there are some things for which we NEVER ask that question.

In the fairly recent past:

  • The invasion of Afghanistan
  • The invasion of Iraq
  • The 2018 tax cuts

In a more distant past we didn’t ask this about WW2 or the moon landings.

Why is it this question is sometimes considered to be not relevan?

It’s because the ability of the US Federal Government is not constrained by a quantity of dollars, but rather by the productive capacity of our economy.

What does this mean?

All US Dollars are created out of thin air. Every one. The US Federal Government can buy anything whose price is denominated in US Dollars.

This does not mean the US Government can buy everything whose price is denominated in US Dollars. In order for the US Government to buy something, it has to be for sale, in one form or another. It has to exist as a real resource within the economy.

When WW2 broke out, we shifted our economy to allow us to provide for the war effort. We did this in a big way.

Car manufactures stopped making cars for consumers and only made vehicles for the military.

All copper was redirected to the war effort. This is why we had aluminum pennies and aluminum electrical wiring.

Households kept used tin foil (which per my grandparents were actually tin) and saved it for pickup to support the war effort.

Women left their homes every morning to work in offices and factories.

When JFK committed that we would send a man to the moon and bring him safely home before the decade ended, we didn’t have a clue how to do this.

The US Federal Government started spending on ways to figure this out. Money went to universities, engineering firms, and manufacturers.

We had to invent not just new materials, but new ways of testing engineering designs, and manufacturing.

We figured it out.

How can this happen? How can it be that the economy can be reorganized on such a massive scale, so quickly?

It’s a matter of national priorities. WW2 was a “all hands on deck” national emergency. We were willing to spend whatever it took. The moon landings were not quite the existential threat, but we committed ourselves to it and we made it happen.

The amount we spent is more accurately measured as a percentage of GDP than as a dollar amount. Both because of the long term effect of inflation, and of the difference of the size of the economy over time.

So what did we spend on big projects in the past?

EventPercent of GDP
Transcontinental Railroad2%
Moon Landings3%
WW236% (not a typo)

The moral of the story is, if it’s important enough to do, we find a way to restructure the economy to make it happen. The way we restructure the economy is through government contracts.

The government literally pays for what is considered to be our national priorities. Then we do the work needed to fulfill those contracts.

Back to modern times. How can we pay for a Green New Deal? How can we pay for Medical for All?

The same way the US Federal Government pays for anything, and everything. Through a Congressional Appropriation.

How often does the US Government pass laws that structure the economy? The answer is constantly. Take one important example.

Every five years Congress adjusts and reissues the Farm Bill. The Farm Bill is essentially the rules of the food industry. If Congress decides the food industry should be structured differently, they’ll do it.

So back to current debates about big projects. The question is not how will we pay for it, but are these things important enough to devote real resources on?

Which brings me to this article, which is what inspired this blog post in the first place.

The Green New Deal: How We Will Pay For It Isn’t ‘A Thing’ – And Inflation Isn’t Either

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