The debt hawks are to economics as the creationists are to biology.
The single most contentious subject in our economy is unemployment. Everyone is against it, but there is scant agreement about how to reduce it. Most of the suggested efforts involve federal spending of some sort, but there is widespread agreement among politicians, economists and the media, that the federal deficits and debt should not be increased.
So countless hours have been spent trying to find just the right combination of targeted spending and tax increases, that would reduce unemployment in a “revenue neutral” way, the belief being that some government spending and some tax cuts reduce unemployment while other spending and tax cuts do not.
As to which does which is not known by anyone, though ample, strong opinions are rife. So we offer this graph:
The above graph shows one of the more remarkable correspondences you will find in economics. Most of the time, when deficit growth goes up, unemployment tends to go down, and vice versa. Though one may argue that correspondence does not equal cause/effect, it certainly is suggestive. And what it suggests is this: Increases in federal deficit growth help prevent and cure unemployment, while decreases in federal deficit growth help cause and increase unemployment.
Yes, there are yearly exceptions. Unemployment is complex and there are no perfect correlations in economics, but the tendency is clear. The two lines are almost mirror images, save for recessions, when unemployment rises and federal debt rises to cure the recession.
Importantly, the graph doesn’t differentiate among different causes of deficit growth, nor does it identify where money is spent, nor whether tax decreases (if any) played a role. It merely shows that deficit increases — any deficit increases –reduce unemployment. This tells me that all the conversation about “revenue neutral,” or which taxes can be cut, or where money should be spent are not germane to unemployment, and merely reflect blue sky speculation by self-anointed experts.
In short, the graph seems to say: “Increase federal spending — any federal spending — and decrease federal taxes — any taxes, and stop all the mindless debate about things you know not.” Although I personally favor the immediate end to FICA taxes for Ten Reasons , I would accept seeing personal taxes reduced or eliminated.
And while I favor a simple stimulus in which a total of $1 trillion or more is sent to each state according to its population, I’ll settle for any equally ample spending idea. In short, deficits cure unemployment, so let’s have the deficits, now.
In 1971, we went made ourselves a monetarily sovereign nation, let’s not waste the opportunity this effort gave us.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity