Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Last month, the Chicago Tribune printed this letter I wrote:
”The ‘supercommitte’ needs to answer only one question: ‘How will a tax increase or spending decrease (also known as a ‘deficit cut’) reduce unemployment or grow the economy?’ If they, or the people who gave them their assignment, are unable to answer that question, the supercommittee should pack up and go home.
If their work will not reduce unemployment or grow the economy, what is their purpose?”
Short, sweet and specific. Yes, what is the purpose of the supercommittee if it won’t reduce unemployment or grow the economy? Here’s what Erskine Bowles thinks:
Supercommittee must not ‘fail the country,’ Bowles says, offering his own plan
Washington Post, By Lori Montgomery, Published: November 1
Erskine Bowles, the former White House chief of staff who has worked for months to tame the national debt . . .
“Tame the national debt” is a synonym for “reduce money growth,” which in turn is a synonym for “hamstring the economy.”
. . . bluntly warned members of a congressional panel Tuesday that they will “fail the country” if they do not break the impasse over taxes that is blocking a far-reaching agreement.
Bowles then surprised the committee by laying out a path to compromise that would split the difference between the competing debt-reduction proposals each side offered last week. He challenged Democrats to accept deeper cuts to federal health programs and Republicans to embrace $800 billion in new taxes, as House Speaker John A. Boehner (R-Ohio) did during this summer’s negotiations over the federal debt limit.
In other words, screw the less-than-wealthy (the people most in need of health care support), and screw everyone by raising taxes, thereby removing dollars from the economy.
Added to previous budget cuts, such a deal would slice $3.9 trillion from projected borrowing over the next decade, Bowles said . . .
Worried about borrowing, Mr. Bowles? How about simply stop borrowing. As a Monetarily Sovereign nation, with the unlimited ability to create dollars, why does the U.S. continue to borrow dollars?
. . . stabilize the debt as a percentage of the economy. . .
Completely nonsensical. By “the economy,” I assume he means Gross Domestic Product. But GDP = government spending + private consumption + investment + net exports. Because government spending is one of the elements of GDP, a reduction in government spending reduces GDP. Is that what we want – a reduced GDP? Will that help reduce unemployment or grow the economy?
Further, what is the magic “percentage of the economy” he wants, and what is his evidence there is any such ideal percentage? He has no evidence of anything, so he speaks in broad, sweeping (i.e. ignorant) terms.
“You all know what we have to do,” added Republican former senator Alan Simpson (Wyo.), who served with Bowles, a Democrat, as co-chairmen of President Obama’s fiscal commission last year. “In your gut, you know what we have to do.”
And that’s the problem. These people are dealing with their intuition, rather than with the facts of Monetary Sovereignty, and intuition about economics has not changed in hundreds of years, though economics itself changed diametrically in 1971.
. . . former Clinton White House budget director Alice Rivlin and former senator Pete Domenici (R-N.M.) . . . urged the supercommittee members to set aside their differences on taxes and entitlements and craft a plan that would achieve as much as $4 trillion in savings, warning that nothing less than the country’s economic future is at stake.
Remember the formula for GDP? Visualize what a $4 trillion cut in federal spending would do. GDP would drop not just by $4 trillion. No, there is a multiplier effect, in which federal spending goes into the pockets of individuals and businesses, whose spending in turn, goes into other pockets. So a $4 trillion cut is guaranteed to sink the U.S. economy by far more than $ trillion.
In short, Mr. Bowles et al, have no concerns about unemployment or economic growth. Those problems are not even on their radar. All they know is: Federal debt is bad and federal spending is bad. They don’t know why. They just feel it in their guts. Now if only some of them would begin to use their brains . . .
Give Erskine Bowles his way, and he will do more damage to America than Osama bin Laden ever could have dreamed. Call him, “Osama bin Bowles.”
I award Mr. Bowles 5 dunce caps for true economic ignorance by a man who not only should know better, but has the influence to cause so much damage.
I now have awarded 65 dunce caps. Though I am dunce-cap sovereign, Mr. Bowles demands I cut my dunce cap awards to a more sustainable level. He wants me to “go big” and balance my dunce cap budget. He feels this in his gut.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings