Public Debt is a GOOD Thing. Here is why. | Carlos G. Hernández

## Introduction The popular narrative that public debt is inherently dangerous has hardened into a political truism across much of the spectrum. Yet a careful examination of modern monetary arrangements shows that public debt and fiat currency are technical necessities of sovereign money systems, not moral failings. The real question is not whether a government carries debt, but what that debt finances and whether the state uses its currency-issuing power to meet social needs. In a recent exchange with Carlos G. Hernández, author of Fiat Socialism, a coherent alternative emerges: treat fiat money and deficits as tools for securing full employment and public purpose, and rethink debt as the flip side of private sector financial security. ## Job guarantee and inflation A core premise Hernández advances is the job guarantee: a permanent public commitment that anyone who wants to work and is able to do so will be offered employment at a socially determined wage. This is not merely welfare with a different label; it is a macroeconomic anchor. By making full employment a stable, institutional feature of the economy—comparable to universal schooling or basic healthcare—the job guarantee reconfigures how we think about aggregate demand and price stability. Inflation need not be the inevitable companion of expansive fiscal policy. Hernández explains that inflation results when money chases too few goods, but that condition is as often caused by constraints on real resources as by monetary expansion. Historical episodes of hyperinflation commonly trace back to commodity shocks or collapses in output rather than the mechanical printing of money. In practice, the job guarantee serves as a price anchor: its wage establishes a floor for the price level and gives policy makers a clear fulcrum for calibrating aggregate demand. If prices rise above the anchor, the public employment wage can be adjusted, or fiscal and regulatory measures can be used to rein in excess demand. If unemployment persists, the state can expand the program rather than rely on painful private-sector adjustments. Japan is offered as an empirical counterweight to the simplistic money-supply doctrine. Over a period when the monetary base was expanded substantially, Japan experienced prolonged low inflation and even deflation for decades. This case undermines the dogma that increases in the monetary base mechanically produce inflation, and it highlights the importance of real economic slack and structural factors—aging demographics, productivity trends, and external commodity price movements—in shaping price dynamics. A job guarantee, in this reading, becomes a policy instrument precisely because it engages with labor markets and productive capacity directly, instead of treating money as an abstract scalar to be managed independently of the supply side. ## Deficits savings and debt One of the most subversive reframings Hernández offers is the accounting identity that public deficits equal private savings. What political rhetoric treats as a moral failing—running a government deficit—is actually the primary mechanism by which the private sector accumulates net financial assets denominated in the domestic currency. Households and firms save by holding government liabilities (or bank deposits ultimately backed by central bank reserves), and those liabilities originate in fiscal deficits. Public debt thus plays a functional role in modern economies: it supplies the private sector with safe, liquid stores of value. To demonize deficits while praising private savings is to misunderstand this symmetry. The relevant policy question is not whether deficits exist but whether their size and composition are consistent with full employment and price stability. Hernández invokes Lerner’s concept of a point where unemployment is negligible and inflation is stable—the elusive blend neoliberals treat as theological. Rather than fixating on arbitrary debt-to-GDP ratios, policy should focus on the deficit level compatible with mobilizing unused resources without overheating the economy. This perspective also reframes the moralism around “debt” as a universal burden. The debt-to-GDP ratio measures liabilities against an arbitrary flow variable and is often used to create fear: a society supposedly must “work off” its public debt. But in a sovereign currency regime, the government does not operate like a household. It issues currency that it alone can create. The private sector’s desire to accumulate financial claims is satisfied by public liabilities. Thus fiscal austerity intended to reduce debt often ends up destroying private sector net wealth, depressing demand, and increasing unemployment—creating the political and social problems austerity claims to cure. ## Fiat socialism and full employment Hernández’s term “fiat socialism” is provocative because it names both the technical reality of modern money and a normative project: use that reality to secure socialist ends—universal access to material needs, full employment, and public control over investment priorities—without resorting to commodity-based money like the gold standard. The gold standard, he argues, was never an egalitarian discipline; historically it fueled imperialism, extractive violence, and fiscal constraints that subordinated public welfare to the preferences of creditors and external powers. Fiat money, in contrast, permits democratic societies to directly underwrite public goods and living standards, provided the political will exists to deploy it wisely. The programmatic center of fiat socialism is the job guarantee combined with strategic public investment. A currency-issuing state can mobilize labor and materials to build housing, decarbonize infrastructure, expand care services, rehabilitate ecosystems, and finance education and health systems—all without depending on external creditors. This is monetary sovereignty in practice: the state issues the means of payment, spends it into existence, and then withdraws purchasing power through taxes to sustain price stability. When such spending prioritizes meeting basic needs rather than generating rents or speculative gains, the result is both higher material security and reduced inequality. Hernández also addresses the cultural dimension: money has value because a tax liability requires payment in that money. Taxes create demand for the currency; public spending supplies it. That cycle makes public liabilities socially useful. By pairing that functionalism with a commitment to universal employment and to allocating spending toward socially useful ends, fiat socialism seeks to convert the technical capacity of fiat currency into emancipatory outcomes—jobs, dignity, and a stable price level anchored by the job guarantee wage. ## Socialist strategy and closing If fiat socialism is to be anything more than a theoretical construct, it must confront geopolitics and political economy. Hernández points to the vulnerabilities of countries without monetary sovereignty—those that borrow in foreign currencies or depend on external creditors. Argentina and other nations illustrate how foreign-denominated debt and capital flight constrain domestic policy choices, making full employment or social spending politically costly because they risk currency collapse. Conversely, countries with sovereign currencies and credible institutions have more fiscal space to pursue employment-first policies. At strategy’s heart is a pragmatic alignment: winers and polities must forge institutional commitments—legislation, public investment plans, and a guaranteed employment framework—so that full employment becomes an entrenched public norm rather than an ad hoc response to crisis. Electoral platforms, union strategies, and social movements should aim to make the job guarantee administratively feasible and politically durable; this includes designing work programs that respect worker autonomy, channel labor i

Public Debt is a GOOD Thing. Here is why. | Carlos G. Hernández Current discourse on the left AND the right frames national debt as something like a doomsday barometer. But that's a big smoke screen. Public debt and fiat money are a necessity of modern monetary systems and not inherently good or bad. What the debt is being used for—the qualitative issue—that's the real thing we should all be worried about. Today I speak with Carlos García Hernández, author of Fiat Socialism. They discuss modern monetary theory, fiat money, debt, inflation, Japan, job guarantees, public deficits, national debt, and monetary sovereignty. The talk also looks at Argentina, BRICS, Marx, and the case for full employment, basic needs, and socialism without the gold standard. Links: Fiat Socialism at Lola Books: https://www.lolabooks.eu/products /fiat-socialism Fiat Socialism at Amazon: https://www.amazon.com/Fiat-Socialism-Achieving- socialism-monetary-ebook/dp/B0CHWM4KNC Neutrality Studies substack: https://pascallottaz. substack.com (Opt in for Academic Section from your profile settings: https://pascallottaz.substack. com/s/academic) Merch: https://neutralitystudies-shop.fourthwall.com Donation: https://neutralitystudies.com/donate Timestamps: 00:00:00 Introduction 00:00:34 MMT basics and fiat money 00:09:41 Job guarantee and inflation 00:14:14 Japan and the inflation myth 00:20:19 Deficits savings and debt 00:29:56 Argentina BRICS and foreign debt 00:34:12 Fiat socialism and full employment 00:42:12 Marx capitalism and crisis 00:49:22 Socialist strategy and closing #Pascal Welcome back, everybody, to Neutrality Studies. Today we have Carlos Garcia Hernandez, the author of *Fiat Socialism: Achieving the Goals of Socialism Through Modern Monetary Theory*—a book which, by the way, also exists in German and Spanish. So if you’re listening in another language, you can get the book in those languages as well. I’m very pleased to talk to the author today. Carlos, welcome. #Carlos G. Hernández Thank you very much. It’s a great pleasure to be here with you. #Pascal It's really great having you, and it's great having your book, of which you actually sent me a copy. I thank you for the analysis. You know, a lot of people don’t really know about modern monetary theory. I’ve talked about it on this channel a couple of times, but many people are very suspicious of -- 1 of 15 -- it, because it’s an economic theory that kind of says the opposite of what, even within the alternative media sphere, a lot of people believe—that money must be limited in its supply and its consumption, that unfettered fiat is the source of all problems, and only real gold can stabilize us. Modern monetary theory goes a bit against that idea. Whether it’s the one and only way of understanding money is another question, but in my view, it’s an important way of looking at it— especially for people on the left side of the political spectrum—because it actually solves a couple of problems. But let’s maybe start with the basics. Can you explain to us what the basic notions of modern monetary theory are, and how it differs from neoclassical economic theory? #Carlos G. Hernández Well, as you say, in modern monetary theory, money is not a commodity. Money is just keystrokes in the central bank. So the money issuer—the government—cannot run out of money, because it cannot run out of keystrokes in the central bank. That’s what we call monetary sovereignty. The government, through the central bank, can issue as much money as it wants, and it’s not backed by any commodity—not by gold, silver, or anything else. The way these keystrokes get their value is through taxes. Taxes give value to money because, in this sense, money is debt—a fiscal debt that you need to repay precisely with the IOUs and keystrokes issued by the government. So the government first spends, and then it collects part of those IOUs in the form of taxes, in order to give value to money. That’s the basic idea of fiat money on which modern monetary theory is based. #Pascal I think this is very central. Under modern monetary theory, the claim isn’t that governments can spend infinitely without any negative consequences. The point is to say, look, money itself plays a special role in the economy—it’s the debt part. So, for MMT, money without debt is an oxymoron. But we need to distinguish that from other forms of value, like, say, a gold nugget. Under MMT, money is debt. On the other hand, gold nuggets can be valuable, but they represent a different kind of value. Could you speak to that a bit? How is it that we can have money that is debt, and at the same time, stores of value that are not money and not debt? #Carlos G. Hernández Well, of course, gold has some market value because it’s used in different industrial activities. But gold, of course, is a commodity—you can run out of gold. If you don’t have more gold, then you can’ t use it as money or for anything else. The difference is that, as I said, the keystrokes in the central bank are not a commodity—you can’t run out of them. Of course, that doesn’t mean you can spend without limit or without any negative consequences. You can, of course, create inflation, meaning that the money you issue loses its value. But you cannot, in principle, run out of it. The problem is that if you create too much money compared to the goods and services available, then the money loses its value. That’s what we call inflation. -- 2 of 15 -- #Pascal Okay, so this differentiation is really important, right? Between money and, on the other hand, commodities. And we know historically, sometimes people used commodities as money, right? They’ d take a nugget of gold, shape it into a coin, stamp something on it, and then start using it as money. But the point is, MMT actually differentiates between these two categories, right? #Carlos G. Hernández Yeah, I mean, from a historical point of view, the gold standard—a real gold standard—has been used very few times, and only for short periods. Most of the time, normal societies have used fiat money in order to function. Of course, there was a technological problem, because when we say that taxes give value to money, and you’re trading with people who are not under the power of the central bank or the government, they don’t pay taxes in that money, in that currency. And of course, then you need another currency to trade with them, because for them it’s not relevant. They don’t pay taxes in your country, let’s say. So that was a technological problem that was historically solved by using gold and silver. But of course, since we now have the technological means to trade without using any kind of commodity, nowadays we also use national currencies to trade from one country to another. I mean, if you have credit in the Canadian central bank, in Canadian money, then you can use that money to buy Canadian goods. That’s the way it’s done now. So, since 1971—the Nixon shock—the... #Carlos G. Hernández The way to trade among countries isn’t gold anymore; it’s national currencies. #Pascal A lot of people, especially in the alternative media space, see that as something negative. They see gold as something inherently good because it has inherent value. And the fact that the government decoupled its money creation from that inherent value is just a trick—it’s a way for the government to undermine the real economy and the real value of money, and over time, inflate that value away. MMT looks at this whole process through a completely different lens, doesn’t it? #Carlos G. Hernández Yes. I mean, if you look at the role that gold has played historically, it’s been horrible. Human beings have been slaughtering and killing each other for millennia just to get someone else’s gold, which is horrible. So that negative view, I think, is totally basic. The way modern monetary theory approaches this problem is to say, well, you can use the capacity you have to create money out of thin air to produce goods and services that are useful for society, or you can use it to create arms -- 3 of 15 -- and destroy each other. But that’s a political choice. That’s a political choice you have to make yourself, or that every society has to decide on. The real value behind MMT is that it’s a method to create permanent full employment without causing inflation. That, in my opinion, is what MMT is. #Pascal This one you need to explain, because the standard view is that if you create money, then the money supply goes up, right? Compared to the availability of commodities in the real world, that automatically leads to inflation. The larger the money supply, the higher the inflationary pressure, right? And that’s what then devalues money under MMT. Is that correct or not? And if not, how does MMT actually explain why this relationship doesn’t hold? #Carlos G. Hernández Well, modern monetary theory is based on an idea called the job guarantee, meaning that everybody who wants to work and can work must receive a job, either through normal means in the private sector or in the permanent public sector. And if you don't find a job, then the government will provide you with one under what is called a job guarantee. That means full employment becomes an inner characteristic of the economic cycle—the cycle works with full employment. And that is, of course, a spending decision. The government can always spend enough money to hire everybody. So the job guarantee should have a salary that allows the worker to have a decent life, a decent living standard, and that becomes part of the economic cycle. That’s the same way we always work with other inner characteristics of the economic cycle. For example, we always have full schooling for children. We don’t say, “Now we have an economic crisis, so only 95% of children will be schooled,” or, “We’re going to let, I don’t know, 5% of the population die because they don’t have access to hospitals.” That only happens, for example, in the United States, but in very few other countries. I mean, we operate with some inner characteristics that are always there—for example, full schooling, healthcare—we don’t let people starve. We don’t say the optimal number of people who starve because they don’t have enough food is, let’s say, 10%, or anything like that. I mean, we operate with full survival of people, even if we’re in an economic crisis. So, in the same way we do with those things, we should do with employment—with full employment. We should always operate with full employment. And depending on the level you set for the salary of the job guarantee, prices will remain stable. The salary of the job guarantee anchors the price level, because you’ll always have a price level close to that salary. And that means you don’t create inflation by creating full employment. #Pascal But this is a normative aspiration, right? That full employment should be like full schooling—it should just be there. But again, the criticism then is, “Oh, so you just want to make money out of thin air to -- 4 of 15 -- give everybody money, and then everybody has jobs.” But money doesn’t grow on trees. Money is, you know, it’s connected—or it must be connected—to real value in the real world; otherwise, it will lose its value, and then we’re all screwed. And MMT just says, “Well, let’s look at that again.” For instance, in the case of Japan—I don’t know if you’ve studied this one, but maybe you have another case you can give us as an example of this relationship between expanding the monetary base and creating inflation. #Carlos G. Hernández Well, Japan is a very, very interesting example. The father of modern monetary theory, the Australian economist Bill Mitchell, calls Japan “my lab, my laboratory,” because it destroys all the neoliberal myths about money. We have a society in Japan where you have almost full employment. I mean, unemployment isn’t zero, but it’s very close to zero. And for decades they’ve tried to create inflation witho