One thing we think we know about war is that governments can always find the money to pay for it. This is one of the supposed criticisms that politics likes to peddle. When the demand for weaponry, armed personnel, and logistical support, all backed by patriotic fervour, is whipped into existence, it is said that the money can always be found to deliver it.
One of the questions that is going to arise from Trump's war on Iran is whether this is true or not. As the Financial Times has already reported, there is growing concern that the US is already running out of weaponry as a result of this conflict. Stockpiles of Tomahawk missiles are already heavily depleted, and there is concern that they may run out and that the capacity of the US Navy will be undermined as a consequence for several years to come.
I make the point for one obvious reason. As modern monetary theory always says, the constraint on activity is never the availability of money. The constraint on action is always the availability of real resources.
As a matter of fact, the USA can find the money to advance its war. As the creator of the world's reserve currency, we all pay the price for its military folly.
A bottomless pit of funds is available to Donald Trump to fight this war, but that will be meaningless and only inflationary if there are no weapons for him to buy. Right now, that looks to be the real crisis that he is facing.
I am not overly amused to discover that an economic truth MMT has long revealed might be so graphically demonstrated by this sequence of events. The lesson does, however, need to be learned. Economic management is all about meeting real needs through the management of real resources within known constraints, including those imposed by the planet. Managing cash flow is always a secondary issue. It only becomes a concern when politicians, deluded about the reality of the economy they manage and the resources available within it, create money to buy resources that do not exist. Then, and only then, will their money creation result in inflation.
Sometime soon, it looks as if the USA will learn this lesson the hard way. Then, because what happens in the USA tends to be exported worldwide, we will all suffer the consequences. In so many ways, it would have been so much better if the lessons of MMT had been learned in advance.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
In order to try and navigate this age of insanity I am thinking of keeping a pet brick close to hand, like a mobile phone. This is so I can beat my head against it. I have not yet decided what colour and type of brick I should use. It will need to be durable.
@ Toby Veall
Sounds to me as if you need a nice engineering brick.
There’s a selection here, but they’re only available in quantity. However, they do come in red or blue, demonstrating that MMT is blind to political philosophy, even though not to economic truth. (First metaphor of the morning.)
QUOTE
Engineering bricks are primarily used for structural purposes […] high compressive strength and low water absorption […] used in sewage systems, retaining walls and all types of groundworks.
END QUOTE
Too many metaphors for me to unpack in that description. Have fun with it!
https://brickwholesale.co.uk/bricks/engineering-bricks/
🙂
I recently opened a savings account with National Savings. On its website is proof MMT is alive and well in the UK. It says that unlike commercial banks which have a £120000 limit to their customer limit guarantee, National Savings have no limit as they are owned by the UK government.
Correct
An old but important clip
2005 – Fed reserve Chairman, Alan Greenspan, explains that it’s about resources
https://www.c-span.org/clip/house-committee/user-clip-greenspan-there-is-nothing-to-prevent-the-government-from-creating-as-much-money-as-it-wants/5028493
At 04:05 Paul Ryan asks about the security of state benefits for retirees.
Alan Greenspan: “I wouldn’t say the pay-as-you-go benefits are insecure in the sense that there is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase? So it is not a question of security. It is a question of the structure of a financial system which assures that the real resources are created for retirement as distinct from the cash. The cash itself is nice to have, but it has got to be in the context of the real resources being created at the time those benefits are paid and so that you can purchase real resources with the benefits, which of course are cash.”
.. .. So you can purchase real weapons, or, if you really wanted to, hospitals, houses, bridges roads schools etc…
So trump will finally realise that there are problems that he can’t solve by throwing money at them. I’d love to see his face when that penny drops, but I fear his personality disorder won’t allow any honest self-reflection. So instead expect further tantrums and aggrandisement, aggression, lies and and destruction. Mirror mirror etc.
How ironic that the “anti-war” 1st term convicted fraudster, sexual abuser Trump should, in becoming the “world war criminal” 2nd term President, so rapidly exhaust the enormously bloated US military of hardware, and do the same to Israel.
It makes you wonder what would happen if countries world wide started to move away from the dollar? The only thing that seems to prop up the States is the power of the dollar – used to price oil, World Bank loans, countries made to buy dollars to settle trading debts with them. An argument was made in the early 2000s about how the world propped up the dollar to enable it to have huge spending on the military etc., deficits that would lead markets to downgrade other currencies.
If a country has become such an unreliable ‘ally’ – why must we use their bloody money? I think that the violence the U.S. unleashes always has this factor in mind – it bullies us into using its currency and warns us what happens if we want to do our own thing.
‘Shining city on the hill’?
No. Not at all.
I maintain that we need Bancor.
Yes we do Richard, but we don’t need dollar-bullying.
The USA is raiding South Korea and other US defence dependent countries for missile detection systems and missiles.
The USA depleted it arms in the 12 Day War last year and surprise surprise has not been able to rebuild its stockpile.
Why? The US private military complex is not able to produce the weapons anyway quickly enough.
Lesson? The private military sector can never produce enough at the right price.
Answer? The state is better at this type of production at a lower cost.
Can states use the same approach for the benefit of their populations?
Of course they can. Think Covid. States can build a better world if they have the political resolve to do so.
The story of Covid and funding wars can be used to show modern money can and must be used to build a caring, sustainable world for everyone.
The USA and the Gulf States have been burning through patriot missiles at a rate of knots. Apparently, they can only replace these at a rate of about 7 per month unless they can somehow manage to massively ramp up production.
The Gulf States will already be looking at China to replace the dollar.
Yes Richard “meeting real needs through the management of real resources within known constraints,…. Managing cash flow is always a secondary issue. ”
The absolute vacuity of the UK’s debate on raising its defence spending to 3.5% or 5.0% of GDP is another classic example of starting the the discussion at the wrong (‘finance’) end – instead of what is needed in terms of actual equipment / weapons /vehicles / person power. We boasted that we already spent more on defence than most European countries – but are a bit bewildered that France was spending less but had more effective armed forces.
The whole media focus is still on ‘the percent’ and when we will achieve it, rather than do we really need nuclear subs, aircraft carriers without planes or escort vessels, armoured carriers that cost billions but still don’t work, a nuclear ‘deterrent’ under Trump’s control etc , Cyber warfare, drone warfare etc seem to pose new questions about real resources and real capability and real equipment that are just not being answered – as we drone on about financial percentages.