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.
It had seemed mysterious to me, that otherwise well-informed, often intelligent people – people who have easy access to the facts – still seem not to understand the very basis of all economics: Monetary Sovereignty. Media writers and politicians are examples of groups who easily could discover the truth, yet they don’t.
For years I’ve ascribed this to laziness of mind or reluctance to admit error. I may have been wrong on both counts.
Let’s begin with a few, absolute, undeniable facts:
1. In 1971, the U.S. federal government became Monetarily Sovereign. It gave itself the unlimited ability to pay any bill of any size, any time.
2. Given this unlimited ability to create dollars, it needs neither taxes nor borrowing to support its spending.
3. U.S. states counties and cities, corporations and individuals are monetarily non-sovereign
4. The sole economic limitation on federal spending is inflation.
5. Since the U.S. became Monetarily Sovereign, and deficits increased greatly, the Fed largely has been able to control inflation at close to its target range of 2%-3%, and there never has been imminent danger of hyperinflation.
6. Federal deficit spending is economically stimulative and supports many economic benefits; reduced deficit spending, i.e. austerity, restricts benefits.
7. Dollars have no physical existence. Much like numbers, they exist only as accounting references. You nether can see nor touch a dollar.
8. The federal government pays its bills, not by sending dollars, which being non-physical, cannot be sent, but rather by sending instructions to banks to mark up accounts.
9. Austerity negatively impacts the poor more than the rich.
One may choose to argue these points, but the evidence suggests such arguments devolve to word play and sophistry. I never have known of an intelligent – emphasis on “intelligent” – debt hawk who seriously will deny any of the above. Yet, these same debt hawks continue to maintain that reductions in federal deficits are prudent and necessary, which strangely does not result in feelings of cognitive dissonance. They seem comfortable holding conflicting beliefs.
As said earlier, I first thought this indicated mental laziness, a cousin to low intelligence. And later I felt it might be closer to pride, hubris and the difficulty in admitting error. In my more recent posts I’ve suggested the real problem is class warfare. The wealthiest 1% are pressing down on the less wealthy 99%, not so much to increase absolute power, but to increase comparative power.
As a businessman, I often saw that absolute compensation was much less important to workers than comparative compensation. A worker making $25K per year was happy, if he were the highest paid among his peers, but a worker making $50K per year was angry if he were the lowest paid. One only need look at professional athletes to see this effect.
Though rationally, absolute income and benefits should be of paramount importance, the “wealth gap” has great psychological meaning. While austerity impacts the poor and the rich, the upper 1% are willing to accept some loss of wealth if the loss to the poor is greater, i.e. if the “gap” grows.
We see this everywhere. Deficit cutters want to reduce Social Security benefits. This negatively would impact the 1%, but not nearly so much as it would hurt the 99%. The same is true for Medicare reductions. Reducing military expenditures might make America less safe for all, but this has the “advantage” of unemploying thousands of soldiers and workers in militarily-related industries, thereby increasing the gap. Cutting postal services will be an inconvenience for the 1%, but a major trauma for those postal workers who lose their jobs.
Everywhere you look, reduced deficit spending hurts America overall, but the 1% are hurt less than the 99%. Reduced deficit spending growth leads to recessions, which grow the gap.
This effect may not always be intentional or even conscious by the 1%. It may simply be a matter of “comfort.” The 1% are uncomfortable when the gap narrows – when members of the 99% move into the neighborhood or into the exclusive building. Some clubs levy high fees to keep the “riff-raff” out. In organizations catering to the 1%, the staff goes beyond courtesy into obsequiousness, further to extend the gap.
Even racial and religious bigotry may be related to a psychological desire to press down some groups in order to extend the gap.
America’s and the world’s opinion leaders – the T.V. personalities, the print media editors, the politicians, the economists – they generally are part of the 1%, and if not the 1% at least the upper 5%. Emotionally, they all treasure the gap and feel uncomfortable when it closes.
Increased deficit spending would stimulate the economy, benefitting everyone, but it would benefit the 99% more, and that bothers the 1%. Even the upper 50% treasure the gap between them and the lower 50%. Everyone loves the gap if they are part of the “haves.”
Citizens, who don’t want immigrants to become citizens, use non-factual excuses like crime and job loss to explain their feelings. “Straights” deny marriage to gays, thereby maintaining the social gap. Everywhere we look, we find groups trying to press down other groups, not for any personal benefits, but to maintain a gap.
And that may be why facts and logic have had so little effect on economic beliefs. The greatly maligned (by me) Chicago Tribune editors, who stoutly refuse even to look at facts, much less acknowledge them, may not reflect mental laziness or reluctance to admit error. They may reflect their possibly subconscious, personal desire to maintain or build the gap.
So if facts and logic cannot overcome the myth that deficits should be reduced and austerity is beneficial, what can? In many nations, military power. In today’s America, political power.
Historically, efforts to reduce the gap have been met with resistance by the upper levels, this resistance being overcome only by political power. All the bloody revolutions fall into that category. Martin Luther King’s marches and especially voter registration, led to the gap-closing, Civil Rights act of 1964, perhaps America’s greatest revolution since the Civil War.
Political power means votes. While #Occupy Wall Street wishes to close the gap, it’s immediate goals are not clearly defined. They seem to want to bring down the upper 1%, a goal that will be met with the fiercest resistance, and which would not benefit the 99%.
#OWS first must learn Monetary Sovereignty, then put forth and support candidates (probably Democrats, not independents) who will show the 99% how MS can close the gap. The 1% will resist, but the 99% have the votes.
Warren Mosler ran for office. He was creamed. He had no backing, no name, no voice, no organization. He was alone with his facts and logic. #OWS should get behind people like Warren (and Warren himself, if he still has the stomach for politics), march for them, gather voters for them and give them big, loud, visible soapboxes, where they can shout the benefits of federal deficit spending – where they can show the 99% how their lives and their children’s lives need not be relegated to agonizing austerity.
That should be the focus of #OWS’s efforts: Learn MS, then elect candidates who understand MS. Given enough votes, the media, the politicians and even the old-school economists will fall in line, and America will emerge from the doldrums into the light.
Don’t damage the 1%. Damage the gap.
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
b>Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports