Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Prelude: What makes us human is our insatiable desire for answers. We biologically are attracted to puzzles. We need to see the future, for seeing the future has allowed us to prepare for the future, which has been a key to our survival.
Because the universe is complex beyond human comprehension, we created science and religion, the purposes of which are to find simple rules that will divide the complexity into manageable bits we can understand. If humans were smarter – much, much, much smarter – we wouldn’t need science or religion to help us know the answers.
What is the answer to, “Where did the universe come from?” Simple. God created it. Or the big bang created it.
How did we become what we are? Simple. God created us in his image. Or evolution did it. We can visualize those answers.
While many sciences are ruled by experimentation, economics is ruled by history. If in the past, events “1” and “2” often have occurred sequentially, the next time event “1” happens, economists look for event “2” to follow.
The problem economists encounter is the massive complexity of the world’s economies. Event “1” does not occur in a vacuum. Myriad other events occur simultaneously, and any of them, or some unknown combination of them, could affect event “2.”
Economics is like meteorology, where for instance, tornado predictions, even a mere hour in advance, are suspect. Can one person’s sneeze affect the timing and location of next month’s rainstorm? Such is complexity.
Economists, being human, need answers. So, they look for repetitions of the “1,” “2” sequence as evidence of cause/effect, with the belief that the more repetitions, the more likely is the relationship. But, event “1″ never repeats exactly. No two wars, no two recessions, no two oil price increases, no two federal actions are exactly the same. Economists try to cut through complexity with the phrase, “All other things being equal,” knowing that all other things never are equal.
(Example: Some stock traders – “chartists” – belief prices follow predictable patterns, virtually ignoring all other effects. I suspect chartists see religious icons in wall stains and potato chip shapes.)
If the “A,” “B” sequence does occur repeatedly, the effect can be one of the three “C’s”: Coincidence, Correlation or Causation. Coincidence is an accidental relationship. It does not lend itself to prediction.
Correlation is a statistical description of the relationship between “1″ and “2,” which may or may not imply cause/effect, and it may or may not lead to prediction.
Causation tells us that “1″ actually causes “2,” though even it may not lead to prediction, if other factors are overriding.
In the post titled, “To understand economics you must understand Monetary Sovereignty” I list all 6 depressions in U.S. history, every one of which began with years of federal surpluses. The implication is that federal surpluses cause depressions.
But there are caveats. “Depression” is a man-made definition. Use a different definition and there may have been more than 6 depressions, and some of them may not have followed federal surpluses. Further, some surpluses lasted many years before the depression arrived, while others lasted only a few years. Why?
In the same post, I present a graph showing recessions follow declines in federal deficit growth, while recessions end following increases in deficit growth. But we encounter the same caveats as above.
So is the surplus/depression relationship a coincidence, a correlation or cause/effect? Is the reduced deficit growth/recession relationship a coincidence, a correlation or cause/effect? Will today’s reduced deficit growth lead to another recession? Will federal surpluses lead to a depression?
President Clinton gave us a short series of surpluses, which were not followed by a depression, though they were followed by a recession. But, had the surpluses lasted longer, would we indeed have had the depression – depending on the definition of depression?
And all of this ignores the biggest economic change of all: On August 15, 1971, the U.S. and much of the world became Monetarily Sovereign. It was as though scientists had debated about the best historical sailing tactic to avoid falling off the edge of the earth, only to discover the earth had no edge. That realization changed sailing tactics.
Science is ruled by mathematics, which seem so precise, so indisputable. But, there are no ultimate truths. René Descartes searched for one, with his “I think, therefore I am.” He could not go beyond that. Kurt Godel showed that no mathematical system could demonstrate its own consistency, meaning something always had to be assumed and could not be proved.
Conclusion: All of science, all of what we know, is composed of best estimates. Ultimately, all science is subjective. Nothing is certain. Scientists continually weigh one conclusion against another, then lean toward the one they feel is supported by the best, most reliable, most valid evidence.
Yet, all “best estimates” are not equal. Those who say the federal deficit and debt are too large, unsustainable, cause inflation and must be paid for by our children provide no evidence whatsoever. Never have I seen a graph supporting the “best estimate” that federal deficits cause recessions or inflation, despite the near universality of these beliefs.
Never have I seen facts to support the “best estimate” that our children will pay for Social Security, or that Medicare is unsustainable. The media, politicians and old-line economists offer plenty of data. They can tell you the total U.S. debt, the debt/GDP, total U.S. interest, debt per family, etc., etc. But they don’t provide data to indicate relationships. They merely make intuitive declarations, which are repeated by the public as fact.
What data says federal debt is too high? Or that debt/GDP should be reduced to some ratio? Or that families owe the federal debt? Go to US Debt Clock.org and you’ll see the data most often referenced. But you will not see the connectors between these data and economic results.
Ask your neighbor whether federal money printing causes inflation, and his answer will be an unhesitating, “Yes.” Never mind that the federal government does not print money. Never mind that since we became Monetarily Sovereign there has been no relationship between federal deficits and inflation. Never mind that every inflation for the past 40 years, has been associated with oil prices.
Your neighbor will say, “What about Wiemar and what about Zimbabwe?” Never mind that neither even remotely resembles the U.S. situation. Your neighbor knows what he knows, and what he knows is what he has been told by the experts.
The fundamental difference between science and religion is this: While science attempts to find information, and to use that information to find correlations, and to use those correlations to find cause/effect, religion does not. For religion, all information, all correlations and all cause/effect are known and supported by faith.
In religion, there is no need to search for new answers. Those who do are scorned and mocked as infidels. We elect presidents based on their faith, not on their search for knowledge.
The debt-hawks, the media writers, the old-line economists too, have neither need nor desire to search for answers. For them, economics is a religion. Their answers do not, and will not, change, even despite the massive changes of Monetary Sovereignty.
These experts will continue to tell you the best sailing tactic is to keep near shore so to avoid falling off the edge of the world. All of this would be humorous if it weren’t so harmful. For by sailing close to shore, we make it more likely we will crash upon reefs and rocks – and be less able to find new worlds.
Religiously restricting federal deficits makes it more likely we will crash upon the reefs and rocks of recession, depression, sickness, poverty and ignorance, and we’ll be less able to improve our lives.
Sadly, thanks to our leaders, we remain in the Dark Ages of economic understanding. The search for answers has come to the edge of the world, and until someone has the courage to sail beyond, we never will be able to see the future.
And that blindness threatens our survival.
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
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports