Scarcity is not Optional
Scarcity is the starting point for economic analysis. It is the fundamental reality which we, as physical beings confront. All creatures struggle for nutrients and space, and all humans require various resources to survive. Without scarcity, choice is reduced to preference without tradeoffs. People would do what they wanted and their actions would have no impact on others. Scarcity imposes a need to ration, a need to be careful about allocation and a world where each of our consumption decisions affects the billions of other people who share our planet. Scarcity is not something we can wish away. It cannot be avoided by financial tricks. It cannot be suspended by a popular vote or by a powerful dictator.
Wealth of Nations
One of Adam Smith’s key insights was that a country’s consumption was proportional to how much it could produce. If a country produces 1,000,000 woolen coats, it can consume 1,000,000 woolen coats, or it can trade and consume an equivalent value of goods. Focusing on production cuts out the extraneous nonsense. You reap what you sow. The main reason why poor countries are poor is because they don’t produce much and vice versa.
Making a resource allocation politically determined instead of market determined does nothing to alleviate scarcity. Workers are still needed to work and natural resources are still consumed. If anything, additional resources are consumed as government production is generally less efficient than market production. There are arguments in favor of government production in various markets, but pretending that changing market to government production can get us more of everything is disingenuous and wrong. Discussions involving health care, in particular, are often plagued by this sort of sloppy thinking.
Debt and Finance
Does issuing debt increase the amount of natural resources in the world? No. Does it create more trained workers, more capital, or speed up innovation?
No (Update: Maybe). Therefore, debt issuance cannot expand the real economy. It can increase aggregate demand, if the central bank does not offset its effects. It can even transfer resources from one person to another. But unless a financial transaction changes real productive resources (for example, by lowering transactions costs), it can neither increase nor reduce real production, and thus consumption.