First, thanks for going back on topic and avoiding assumptions-of-bad-faith. We do largely agree, and communicating about these things is not easy. Consider that all of this is challenging practice of making sense of one another through this SHITTY communication medium.
> And yet half of Africa and significant parts of South America use dollars. Not because they're taxed in dollars.
That's not interesting or surprising. All you need is some people to be taxed and thus need a currency in order for it to have initial value. This tax-based value goes back to eras of kings long before modern capitalism. E.g. give soldiers some currency, tax some non-soldiers. The non-soldiers now have to figure out how to get the currency from the soldiers by doing something the soldiers want (providing them food, etc.) Even someone neither getting the currency or taxed could easily recognize that they could do something the soldiers want, get the currency, and then get the taxed-folks to do something for them.
The whole premise is that taxation makes some people demand the currency which is enough to create entire markets of demand. Taxation to induce demand for currency is a primary mechanism for creating markets as an alternative to the problems of top-down over-planned economies (better to just get others to figure out in an open market how to feed the soldiers than to make a top-down bureaucracy to plan every aspect of serving the soldiers' needs).
If I happen to know someone who knows someone who needs to pay taxes in Yen, then I know if I get some Yen, I could exchange it with my friend for something from them, they could exchange it etc.
Without taxes, we don't get fiat currency value, we only get credit-backed money (IOUs that get passed around essentially) and commodity-backed money.
The fact that USD is the dominant currency has to do with a ton of factors including U.S. military actions around the world that keep oil in dollars and such.
> exceptions…
Well, the profit focused thing doesn't itself create more currency. If I get a million dollars at the same day that everyone else's dollars grow by the same ratio to their previous holdings, it only causes inflation. I won't then have any more capital to invest than I did originally.
Obviously, if I put capital toward real wealth creation, everyone is richer. So, if increase in dollars overall is going along with actual growth in productivity, then we won't see inflation, and then it is real growth in wealth (and in dollars) as you say. But if the same investments happened without any growth in dollars, the wealth would still be there, we'd just risk deflation if it got extreme enough…
The banks etc. can create credit but not currency. MOST of the money in our economy is credit.
> Government spending is inherently non-productive (in the economic sense of not resulting in future economic growth). At best it is artificial demand.
That's separate from the inherent facts of the currency. It could be (for sake of discussion, I'll accept it) true that artificial demand, i.e. the skewing of the market by the government is always bad. Many argue that there's such things as market-failure and externalities etc. that call for correction by government actions. The point is that this is a separate discussion. Whether government interference in the market is ever good or never good (it's clearly not always good, that's undeniable), it is the effect on demand and on the market that is good or bad, not the government spending itself even though it is largely (but not exclusively) through spending and taxing that government influences the market.
> money spent by the government is used once, and then it's gone
That's false. Money spent by the government is gone only when it is taxed away. If it is spent and untaxed, it stays in circulation (or just in savings).
> That's why you can compare paying taxes with buying alcohol (and drinking it)
It's simpler. Federal taxes are literally just the deletion of dollars. Deleting them doesn't cause any real-world anything to be consumed. Taxes only ever make sense if there's concern about too many dollars in circulation or if you want to influence the world by deleting dollars in conjunction with certain actions or redistribute wealth by selecting deleting some people's dollars. If you think that's always wrong, you can be totally anti-tax. But the undeniable fact is that federal taxes delete dollars.
> governments don't invest. They are just unproductive users of funds
The federal government only ISSUES funds, it doesn't need to USE them ever. The government "invests" by issuing currency to people (whether government employees or private entities) that it believes will do some real-world productive investing. But the government doesn't get a return on the investment in dollars, it only gets it in the form of the productive effects for society.
> car registrations
Those are done at the STATE level. States do not issue currency. Everything about taxes and spending at the STATE level are different. NOTHING I'm saying applies.
> Nothing of value got produced at all.
It's certainly true, undeniable, that registered cars have no value in and of themselves. The entire bureaucracy (which can rightly be criticized) exists to offset the externalities that happen in a world of unregistered cars (e.g. hit-and-runs etc.) or to fund public goods (e.g. roads without tolls, which could be funded some other way. The whole system could be done differently, ideally with less bureaucratic waste. There's lots of ways to pay for roads or enforce the law. It's all just tangential at best to the discussion here.
> treasury certificates that certainly seem to have a due date
Well, Treasury Certificates stopped being issued to the public in 1975. I assume you mean Treasury Bonds. What is the "due date"? Just the date when the interest rate stops. The bond is worth a certain number of dollars today, more tomorrow, and at the "due date" it stops growing. You have no reason to wait to cash it in then.
What happens when the "debt" the government owes you is then "due"? You cash in the bond, then by whatever mechanism at the end of the day you either gain paper dollars or your bank account gets an increase in numbers in an accounting record and the Fed increases the bank's record in their accounting.
So what? The Federal government already needs to account for the fact that you have the bonds. When the bonds are cashed in, you have dollars instead of bonds. Nothing much changes for the Federal Government.
Unlike a bank that has to double-entry everything (all credit created through loans is also a bank liability), and unlike you paying off your credit card debt, the Federal Government just issues dollars out of nothing. They don't come from anywhere. They don't have to tax anyone first to get the dollars to give you when you cash in your bond.
The only caveat is if they don't tax away some dollars when they spend and give out new dollars, then there's a risk of inflation depending on how it all relates to real-world productivity (which, as you say, happens almost all in the private sector).
> The national debt is generally defined to be what the Treasury owes
Right. Owes as in like: is required to "print" as dollars whenever you cash in your bonds. So, whether it prints them now or later, effectively most dollars are out in the world in bonds, not in paper currency. So, banks and private citizens hold bonds. That is the form that private savings OF CURRENCY take in most cases. People don't stash paper bills.
Savings can be:
* Treasury bonds (the bulk of "National Debt")
* Real wealth (like if you stock up food supplies or commodities like gold)
* Other people's debts (the bulk of the money in our economy, and all at risk of default)
If you pay off all the Treasury bonds… https://www.npr.org/sections/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report https://www.npr.org/sections/money/2011/10/21/141510617/what...
Paying off the debt means that near-total of the savings that people have that are thought of as being effectively actual dollars (totally reliable, guaranteed, the Federal government cannot default in its own currency) would be forced to be moved to other forms of savings like stock investments or commodities. In other words, things that are not USD!
…or well, if all the treasury bonds were cashed in and no more issued (so it wasn't moving debt around but actually paying it off), then we'd all need real dollars like, I guess, actually printed bills. So, we turn all the treasury bonds into printed currency and… it's just a big bureaucratic accounting move that does NOTHING really. That's why the debt is effectively the currency because bonds are just exchangeable for dollars, i.e. they represent dollars in practice in the economy.
But the other way to pay off the debt would be to TAX all the dollars out of existence. So, a federal government surplus over many years would result in people simply being forced to cash in their treasury bonds in order to get the dollars to pay taxes, and then the dollars would be deleted, and then we'd be left with no currency.
You can't pay your taxes on your credit card!
Look 90% of your remarks are based on the misunderstanding that treasury bonds create currency. They do not. That was one of the rules introduced after the 1930 disaster.
Your argument is dependent on the financial system as it existed in, not even the 20th, but the 19th century. Taxes do not "delete" dollars. Treasury bonds do not create dollars. None of that is true.
The FED balance sheet, and the private fractional reserve banking is the ONLY thing that creates money in the united states (and similar systems exist in Europe, and other developed economies). There is NOTHING ELSE, and certainly not treasury bonds, that creates either credit or currency.
Second misunderstanding is about government spending. The point is not whether it distorts the market. According to Keynesian THEORY the point is to distort the market, so I do not think that government spending is bad in that regard. According to Keynesian practice ... let's not go there.
Government spending is bad because it inherently is not an investment in future wealth production. It is like the car registrations. It can "avoid" (to an extent) negative externalities of certain markets, like the police preventing theft to an extent, but it inherently does not produce. If everybody followed the law, government would be superfluous : in theory, under that condition, you could simply close the government up tomorrow, and nothing would change. THAT's why government spending is bad, and should take a back seat to private investment. Because in theory private investment leads to future wealth creation, whereas government spending is economically the equivalent of buying booze and drinking it.
> …or well, if all the treasury bonds were cashed in and no more issued (so it wasn't moving debt around but actually paying it off), then we'd all need real dollars like
This is my main issue with your line of thinking. No. Very simply, no. The two are different. FED balance sheet versus treasury bonds. They're like whales and teapots. They are entirely different things.
I'm not literally claiming that treasury bonds are USD or create them directly, but every time anyone gets a bond, they act the same as if they have dollars in savings. They aren't liquid USD, but your bonds you have saved mean you have that savings and don't need to save as much in other forms.
As long as people trade in bonds for more bonds, the creation of USD can be delayed indefinitely. But if everyone went to cash in their bonds all at once, it would force the government to effectively print USD because they would not opt to default instead.
The only other alternative would be to increase taxes (or reduce new spending) to avoid the net increase in USD. And, I guess that's what people think about when they worry about future generations being liable for the debt. But the point is that it would just be stupid for policy-makers to sabotage the citizenry just to keep from creating USD.
In the case of the debt coming "due" because enough bonds are cashed in at once, the policy decisions around that would be about coming up with the right spending and taxing plan to keep things going okay. That's where all the challenges lie. But among the tools that are available for what to do include the ability to (e.g.) print new dollars to give to all U.S. taxpayers (or just citizens?) to offset all the new dollars going to China etc.
So, China cashes in their bonds. Now they have a ton of USD they could save or spend etc. — maybe we think it's a safe calculation to undermine their spending power by giving more USD to citizens. Maybe we think that will undermine China's trust in the future (but they are already cashing in their bonds, so maybe they lost trust already). Maybe we tax exports to China… maybe that's a terrible idea.
There's all sorts of ways to fuck this up, and maybe it is a problem currently that we're spending via issuing Treasury Bonds instead of printing more money now (i.e. we are delaying dealing with the issue of printing money). There's real concerns.
But the one concern that doesn't exist is the one that we will default. However we avoid defaulting, it will have policy effects, and that's where we should be discussing what effects we should aim for and where unintended consequences may lie etc.
There's at least an argument that we should screw China in the long-term rather than screw our grandkids. We don't have to literally default on the debt, we can just devalue it by allowing inflation at the same time as we give new USD to citizens (or just let citizens keep more of what they already get by cutting taxes). Etc. etc. none of this part is simple.
> Government spending is bad because it inherently is not an investment in future wealth production
But that's not the definition of whether something is good or bad. It's also not a direct investment in future wealth production if I consume something, and we don't say that all consumption is bad. Most consumption is bad at being investment.
So when government spending is not an investment in future wealth production, what is it? It's, as we seem to both understand, a market distortion and/or wealth redistribution of some sort. Obviously, in any perspective where "the point is to distort the market" the idea is to distort it from worse to better. No theory says that any distortion is good