The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
One problem with the science of economics is: The people who win the awards don’t understand the science. Examples: Paul Krugman and Joseph Stiglitz, who do not know the implications of Monetary Sovereignty. The effect of our most respected (or at least most prominent) economists expounding with false information, is to create a vast blanket of ignorance that has shaded from knowledge, not only our political leaders, but the voters who select them.
For your amusement and/or anger, here is yet another misleading article, this time written by Stephen Gandel, who in it quoted Mr. Stiglitz:
View from Davos: How Bad is a $1.5 Trillion Deficit?
Posted by Stephen Gandel Thursday, January 27, 2011 at 12:38 pm.
The title itself misleads by talking about the deficit being “bad,” when in fact it not only is good, but absolutely necessary. A growing economy requires a growing supply of money, and the misnamed “deficit” is the federal government’s method for supplying the economy with money.
Joseph Stiglitz is one of the many economists talking about debt at Davos. Now that we have the recovery, we will have to pay for it. The question is did we take the appropriate measures or did we overspend.
The notion of having to “pay for” the recovery some time in the future, is nonsensical. The recovery was enabled by yesterday’s federal spending, or perhaps more accurately, yesterday’s money creation.
On Thursday, the CBO estimated that the federal deficit in 2011 will reach nearly $1.5 trillion. That’s up from nearly $1.3 trillion last year. Three years after the financial crisis many had hoped what were supposed to be temporary budget deficits would be shrinking by now.
Shrinking deficits cause recessions and depressions See: Recession cause. The “many” who had “hoped” the deficits would shrink do not understand the realities of economics.
At a dinner of economists on Wednesday night, economist Carmen Reinhart predicted that the US was headed toward a crisis where we would be forced to cut many of our social services. Raghuram Rajan, a former chief economist at the IMF, said that the measures that the UK were making to deal with their deficit right now were a good move. He said we too should deal with our fiscal problems now, rather than putting them off.
Lacking knowledge of Monetary Sovereignty, Messrs. Reinhart and Rajan equate Europe’s monetarily non-sovereign problems with U.S. finances. The U.K, which is Monetarily Sovereign, has begun to punish its children and grandchildren by choking off the nation’s money supply, needlessly.
But not everyone thinks the US debt problem is so dire. While the total deficit is larger this year than last year, it is slightly smaller as a percentage of GDP than last year.
Not only does Mr. Gandel misunderstand Monetary Sovereignty, he doesn’t realize he is making the classic apples/oranges comparison: Debt/GDP. Debt is the total of outstanding T-securities issued since the beginning of our nation. GDP is a one-year measure of production. How an intelligent person can compare a one-year measure with a 200-year measure is beyond me.
What’s more, the US may have more ability to borrow than other countries because of the dominant role of the dollar in the world economy. The fact that our dollars are so widely seen as a safe asset gives America the ability to borrow more than say Greece or Ireland before hitting the breaking point.
It gets worse and worse. A Monetarily Sovereign nation does not need to borrow the currency it previously created and has the unlimited ability to create. There is no “breaking point.” If tomorrow, the U.S. stopped “borrowing” (i.e. creating T-securities from thin air and exchanging them for dollars it previously created from thin air), this would not reduce by even one cent the federal government’s ability to pay its bills. And mentioning monetarily non-sovereign nations (Greece and Ireland) in the same breath as the U.S. displays stunning ignorance of economics.
Nobel prize winning economist Joseph Stiglitz, who is also at Davos, said that while he is worried about some of the US states debt problem, he thinks (federal) debt may not be as bad as some people think. In fact, Stiglitz would even be for increasing our debt even more. As long as it was spent on things like infrastructure and education, which can produce jobs, and boost incomes.
Mr. Stiglitz is correct that the “debt may not be as bad as some people think,” unless one realizes the debt is too small, which is bad. But, Mr. Stigltiz is a victim of “first use syndrome,” wherein he thinks money ceases to exist after its first use. No, Mr. Stigltiz, the first use does not need to be infrastructure and education. It can be virtually anything – aid to the poor, aid to states, army pay or research and development – anything that gets money circulating in the economy.
So there is a debt cliff, but the US may not be there yet.
No, no, no, Mr. Gandel. There is no debt cliff, unless spending too little can be considered a cliff. I urge my readers to contact Mr. Gandel and beg him to familiarize himself with Monetary Sovereignty. If he, Mr. Stiglitz and Mr. Krugman don’t get it, how can the average voter, much less the politicians, understand?
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth.