Who then is "the government"?
[I think I'm going to sticky this. I mean, if the State isn't where we think it is... --lambert]
Altogether, the post-2008 crash saw some $13 trillion in such obligations transferred onto the government’s balance sheet from high finance, euphemized as “the private sector” as if it were the core economy itself, rather than its calcifying shell. Instead of losing on their bad bets, bad loans, toxic mortgages and outright fraudulent claims, the financial institutions cleaned up, at public expense. They collected enough to create a new century’s power elite to lord it over “taxpayers” in industry, agriculture and commerce who will be charged to pay off this debt.
To get a sense of how that $13 trillion relates to other national projects, see this chart. Note also that TARP, at a trivial $700 billion, and coming at the end of the bailout process, had the role of (a) bringing the bailouts to "public" attention, (b) misdirecting attention to the billions, as opposed to the trillions*, and (c) normalizing them. (In this, as in so much else, the Obama and the Bush administration are more alike than different.) And now the bright side!
If there was a silver lining to all this, it has been to demonstrate that if the Treasury and Federal Reserve can create $13 trillion of public obligations – money – electronically on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastructure. The bailout of Wall Street showed how central banks can create money, as Modern Money Theory (MMT) explains. But rather than explaining how this phenomenon worked, the bailout was rammed through Congress under emergency conditions. Bankers threatened economic Armageddon if the government did not create the credit to save them from taking losses.
Even more remarkable is the attempt to convince the population that new money and debt creation to bail out Wall Street – and vest a new century of financial billionaires at public subsidy – cannot be mobilized just as readily to save labor and industry in the “real” economy. The Republicans and Obama administration appointees held over from the Bush and Clinton administration have joined to conjure up scare stories that Social Security and Medicare debts cannot be paid, although the government can quickly and with little debate take responsibility for paying trillions of dollars of bipartisan Finance-Care for the rich and their heirs.
In other words, we already have MMT; we live under it. Money is the creation of the state, and is indeed used for "public purpose."
The real questions, then, are: (1) What is the state, and (2) who is "the public"?
NOTE * The largest upward transfer of wealth in world history, according to Jamie Galbraith.
UPDATE Another way of saying this is that the real operations of the state need to have attention paid, as much as the real operations of the financial system.