Government borrowing is near pointless.

Musgrave, Ralph S. (2010): Government borrowing is near pointless. Unpublished.

Abstract

The currently larger than normal national debts in numerous countries makes this a good time to look at the rationale behind government debt. Four of the main reasons are considered here. The conclusion is that they range from hopeless to unimpressive. First there are political reasons which can be demolished in a few sentences. Second there is having government ‘borrow and spend’ with a view to stimulus. The main flaw in this policy is that where a government issues its own currency and borrows units of its currency, it is borrowing something which it can create itself in limitless quantities: similar to, and as pointless as a dairy farmer buying milk in a shop. In relation to stimulus, a zero borrowing system was set out long ago by Karl Marx, Milton Friedman, and others: it is called ‘Functional Finance’. This is a viable alternative to borrow and spend. Moreover, quantitative easing amounts to a move in the direction of functional finance and an admission of the weaknesses in borrow and spend. Third there is borrowing with a view to the purchase of assets, like infrastructure investments. The arguments for borrowing here are passable. Fourth there is borrowing to smooth out the erratic timing of government expenditure and income from taxation. The arguments for borrowing here are poor. On balance, the arguments for government debt are not impressive. Hopefully the arguments below will assist those trying to curb such debt.

• Item Type: MPRA Paper
• Language: English
• Keywords: Abba Lerner; Modern Monetary Theory; government borrowing; deficit; national debt; functional finance; stimulus; monetary base
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; H - Public Economics > H6 - National Budget, Deficit, and Debt

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Musgrave, R.S. (2010). ‘Government borrowing is pointless where a country issues its own currency.’ Munich Personal RePEc Archive paper No. 20057.