Let us see what kind of policy responses are possible.
Investment in social and productive infrastructure in all the villages creating enabling environment for rural enterprises is an urgent necessity, as it pave the way for those living on the margins to be part of the productive force with dignified and respectable wage.
Economic objectives for a country and the interesting provisioning process
Full employment, price stability, meeting the basic needs to ensure a decent living condition for all and sustainable, environmentally sensitive development should be the economic objective for any country; if not, it is meaningless for a Government to regulate the economic and livelihood activities which otherwise would run on its own. Government's policy objectives should be these, particularly when it provisions itself with the real resources (goods & services including labour) from the non-govt sector to itself in exchange for what it issues as currency of the country. And this supply of goods and services is the Real Tax paid by non-govt sector.
Government is the price setter
The value to that currency is imparted by the Government when it spends. As Mosler puts it, the absolute value to the State currency is introduced by the Government by the prices it pays when it spends, this is the only information transmitted with regard to the absolute value of the currency and all other prices are derived by the market expressing indifference levels between buyers and sellers. This is extremely important reality. It is the Government which supplies currency to the economy, it sets the prices when it buys goods and services, so if it pays higher prices, it devalues it's currency. Government, the monopoly of currency, sets the prices when it pays.
Taxes creates unemployment by design
"Taxation is the intervention that creates unemployment by design for the further purpose of the state being able to hire those it's tax caused to be unemployed. Residual unemployment is the evidence that the tax liabilities created more unemployed than the Govt hired. The JG works to transition the unemployed back to private sector employment and optimize output" - Warren Mosler. It is extremely difficult to determine the quantum of Govt spending necessary to reverse the unemployment. Job Guarantee is the only option.
Unemployment created by tax-liability and employment generated by Govt spending may not match most of the time. Once the provisioning cycle is over, if there is unemployment, it is an evidence that the Govt spending is inadequate to reverse the unemployment created by tax-liability.
Critical role of public sector
Private sector is the mainstay of the economy of a country and significant provider of employment. For the private sector, profit maximisation is the driving force, but for the public sector, social and strategic objective is vital.
Important and inevitable roles of public sector are planned development to ensure economic independence to the extent possible, including building the basic infrastructure, maintenance of the infrastructure created, ensuring balanced regional growth, bridging the gaps in industrial structure, operating critical minimum capacity in essential sectors all the time at any cost, counter-balancing the monopolies, investing to attain food, energy & technology independence, keeping buffer-stock of essential commodities, playing the role of stabilizer at the time of glut and shortage and creating financial & distribution infrastructure to the benefit of each and every citizen.
The above are the critical functions of the public sector. Both sectors are vital to the economy and mostly are complementary. Public sector should also act as counter-cyclical stabilizer, which is a critical role. Obviously, these roles cannot be driven by profit motive and the fiat monetary system suits this perfectly.
Provisioning the Govt is met by non-Govt sector
Provisioning the Govt is met by non-Govt sector - the individuals, enterprises and corporates. Private Sector plays a significant role in the economic activities and the private sector is the major employer.
Government regulates the economy
As the Govt controls and sets the terms of economic and livelihood activities (including how much of real resources (goods, labour and other services) is surrendered to the government sector by private in exchange for what it issues as currency, get that currency back as tax and extinguish it, how much surplus spending to incur to increase the money supply and meet the savings desire of the people, which acts as equity to the entire credit structure, that way being responsible for credit money creation) and creates unemployment by design by imposing tax-liability, it becomes incumbent on it to provide the transition job till private sector could absorb them. The provisioning structure also requires the non-Govt sector to be productive.
Public sector - the stabilizer
Private sector's utilisation of human resources expands or shrinks dependent on market condition; public sector should play counter-cyclical role, acting as employer of last resort, releasing the productive capacity of the nation at all times; Govt being the currency-issuer and price-setter, public sector can act as buffering and stabilizing anchor in any market condition; as Govt is the currency monopolist, it cannot abandon this duty to the market forces. Markets operate within the institutional structure set by the monopolist.
Government providing transitional jobs automatically increases government spending whenever jobs are lost in the private sector, and whenever the private sector expands, those under the transitional job guarantee program and the government spending will get reduced.
Growth and well-being of all
Present fiat money system could be utilised to create comprehensive public infrastructure which could be utilised by individuals and groups to produce essentials locally; an institutional structure from the national to village level, on the lines of MGNREGA, has to be in place; complete overhaul of all the policies and frameworks is necessary to reflect the operational realities of fiat monetary system. It will lay the foundation for growth and well-being, encompassing all its citizens through out the country.
Focus should be on the calamity response also. Otherwise, at the time of calamities, we may have to halt all our economic activities and may pay an irreparable price.
Act now....
Rajendra Rasu
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