Sunday, 14 June 2015

MMT and The Problem with Government Bonds

Proponents of MMT are fond of arguing that the amount of government debt, i.e. the amount government bonds, that a government creates is not a problem. I have to take issue with this idea. The problem is that the interest on government bonds is paid by taxpayers in general, whereas the recipients of the interest are exclusively the bond holders. The greater the government debt, the greater the flow of money from the taxpayer in general to bondholders. This is clearly unfair to tax-paying-non-bond-holders... like me.

A possible counter argument is that the people that purchased government bonds are investing in the government and therefore the rest of us should be grateful for this service, and be happy to repay them with interest payments. The problem with this argument is that the money was not really investment at all. True investment is where you spend money on something that makes future production more efficient, like buying new machinery for a factory. But most of the money received from bond sales is simply spent on running costs, like wages. That's not investment at all.