Yves here. To address the core issue J.D. Alt raises, as to why is it so difficult to get people to unlearn their fundamental understanding of how a fiat currency issuer like the US government works, the reasons include:

1. People do not like to admit they were wrong 2. Many people won’t even consider ideas that are not widely endorsed by Recognized Authorities 3. Understanding Modern Monetary Theory if you’ve been conventionally trained, takes some doing. It’s almost like trying to learn to write with your non-dominant hand

By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at New Economic Perspectives

It is literally painful to watch our political leaders’ efforts to rethink and restructure how we are going levy taxes on ourselves as a collective society. It is like watching a family member struggling with mental illness: the demons being wrestled with are imaginary—yet they have the palpable force somehow of a granite wall. And as the struggle with this palpable monolith unfolds, even we—the clear observers of reality—forget that it is imaginary; when we do remember, the pain becomes excruciating for the simple reason that we know it is completely unnecessary.

Why does our political system choose to believe and struggle with the imaginary constraint that taxes must pay for sovereign spending? How can we explain to ourselves, in the face of this rock-solid demon, that the simple logic of fiat money demonstrates that sovereign spending must occur first, with taxes collected after? How can we reassure our terrified and confused representatives in congress that if our sovereign government collects back fewer dollars than it issues and spends, the difference is not our collective “debt”—it is, in fact, our collective savings? But the demon will not allow us these explanations.

As is the case with every mental illness, the cruelest aspect to observe is how vulnerable our delusion is to being manipulated and taken advantage of by those who are self-serving and greedy. We actually believe the rich fat-cat when he tells us that if we choose to make him richer we, the poor strugglers, will be better off! How, we are told, can the rich fat-cat give us a new job if he is not made richer and fatter? We cannot, after all, give ourselves jobs—can we? Our sovereign government—which we cannot seem to understand represents our collective selves—can (and must) issue and spend fiat-currency. True! But that currency (our demons are whispering) cannot be spent by our collective selves to pay our individual selves wages to accomplish useful things for our families and local communities. The currency, instead (whisper, whisper) must be spent to fatten the fat-cat so that he can pay us wages to accomplish useful things for him. The pain of this logic makes you numb.

Our case is made all the more desperate by the fact that our “therapists”—the economic pundits and budget analyzers—are actively in collusion with the rich fat-cat. We lie down on the couch and are told that we have a deficit. The deficit we have arises from the fact that our sovereign government—which (whisper, whisper) is not really us but, instead, is a conspiring other who wishes nothing more than to confiscate our tax dollars—insists on spending more of those dollars than it can confiscate. So we therefore have a deficit which, even though it is not our fault, we will be forced to somehow make up and repay. Our simple hope that perhaps our tax dollars might provide us with beneficial public goods and services are dashed and trampled by mathematical calculations demonstrating there can never be enough tax dollars to pay for all the public goods we clearly need. Our only hope (whisper, whisper) is to further fatten the fat-cat so he can accomplish everything for us. If we fatten the fat-cat, he will educate us; he will grow our food; he will build our houses; he will cure our aches and pains; he will put gasoline in our fuel tank. All we have to do is give him everything we have: our farmland, our national parks and forests, our wildlife preserves, our streams and estuaries, our mountain tops. All we have to do is give him our air and our water to do with as he needs. All we have to do is make sure he is rich, because only if he is rich can we hope that he’ll give us a job and pay us to do something. We cannot expect him to hire us if he is not rich, can we? No. And we cannot expect him to hire even more of us if we do not make him fatter and richer still. This is all very logical, we are told, as we lie on the couch.

Finally, our prognosis is greatly diminished by the fact that there are influential people—leaders—who know very well that we are delusional, that taxes do not pay for federal spending, that our fiat-money deficit is not a “debt” that we owe to anyone, that fattening the profits of global corporations neither creates meaningful jobs or causes anything useful to be accomplished for our local communities. They know all these things, yet they are required (by what?) to remain silent or, at the very least, dissembling in their objections. They cannot come straight out and say, “Look here, this tax and deficit calculation is sheer nonsense. It is delusional gobbledygook! The sovereign government has to issue and spend its fiat money before it can collect it back in taxes. And that issuing and spending of fiat money is precisely how the sovereign government can pay us to accomplish everything we agree needs to be collectively accomplished.” The fat-cat needs to be put in his place. He just gets one vote, like all the rest of us. He doesn’t get to run the whole show. Unless we let him. Which we surely will as long as we suffer our monetary mental illness.