Note to Congress: Full Employment is Your Job & Currency is Your Tool

Throughout its history, Congress has acknowledged the responsibility to maintain full employment. However, they have increasingly deferred to the central bank for this role, and that is a big mistake. Full employment requires the right balance of federal spending and taxation, both of which are in the domain of Congress.

When the “Full Employment Bill of 1945” was introduced, it made the following declaration:

All Americans able to work and seeking work have the right to useful, remunerative, regular, and full-time employment, and it is the policy of the United States to assure the existence at all times of sufficient employment opportunities to enable all Americans who have finished their schooling and who do not have full-time housekeeping responsibilities to freely exercise this right.

This language did not make it to the final version of the bill that President Harry Truman signed the following year, but it was evident that Congress had the power and the ability to provide for work for any individual left out of the private sector economy. This power had been used in full effect by paying soldiers and procuring armaments for World War II.

Three decades later, Senator Hubert Humphrey contended that the employment provisions of the Employment Act of 1946 had been “conveniently ignored.” Senator Humphrey aimed to pass legislation that would make direct job creation an explicit requirement of the federal government if and when other measures were not adequately providing enough work for the population. Shortly after his death in 1978, the Humphrey-Hawkins Full Employment Act was passed, but without the provisions he advocated for, and with others that contradicted and undermined the full employment goal. Unfortunately, this pushed more responsibility to the Fed.

Congress took a wrong turn. Breaking the link between fiscal policy and full employment has a direct impact on human lives. As economist Stephanie Kelton explains, the Fed’s so-called dual mandate of full employment and price stability may be the right goal but wrong institution.

Capitalism runs on sales. A $17 trillion economy last year needs at least $17 trillion this year to keep up or the U.S. enters into a recession and people lose jobs. The government is a net contributor of sales growth whenever its spending exceeds its taxation; contrary to much political rhetoric, this is a very good thing.  It helps maintain sales and employment levels when needed.

How does this work?

The effect of Congressional spending is that new currency enters the economy. Bank accounts are credited when orders are filled or income checks are deposited. Household incomes rise. Business sales and profits grow. Taxation reverses this process, removing money from the economy and reducing the spending power of businesses and households. As the currency-issuer, the federal government is the only entity that isn’t limited by its “revenues” for how much it can spend.

Given our multi-billion dollar trade deficits and the propensity of the private sector to want to save, both of which reduce sales, our government almost always has to spend more of its currency into the economy than it removes via taxes simply to keep our economy from recessions.

Can you see why this is completely normal? We have had government deficits for almost our entire history as a nation, for obvious reasons. We constantly need more currency to grow our economy and meet the growing demand for savings. Yet Congress continues to talk as though deficits are a sin, and we, the people, pay the price in sluggish economic recoveries, unnecessary unemployment and its resulting social problems, as well as underinvestment in our nation.

The federal government is the only entity that can always guarantee that those seeking a job can have one offered to them at a living wage, because it can always make payments in its own currency at the price it demands. Congress has a responsibility to manage the currency – via both tax policy and public-purpose spending – in a way that provides the economy with adequate spending capacity to fully employ those seeking work. This point was well understood for many decades, especially during and following World War II.

Yes, of course that responsibility also means not spending beyond the ability of the economy to produce, as that could be inflationary. However, the flip side is also true: Congress needs to be held accountable for starving the economy as much as overinflating it. Arguably, the former is the greater evil.

Congress must pay close attention to whether its tax policies and spending decisions are targeted for optimizing the “general welfare.”

If there is rising inequality, take a careful look at the structure of tax policy.

If there is unemployment, it is Congress, not the Fed, which must act.


Geoff Coventry is a founding member and owner of Tradewind Energy, Inc. Prior to this position, Geoff was a co-founder and vice president of NetSales, Inc. Additional postings by Geoff can be found on his blog “It’s The People’s Money.”

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