–Giving life to a lie

An alternative to popular faith

The May 15, 2010 issue of NewScientist Magazine included an excellent piece by James Giles, titled “Giving life to a lie.” I strongly recommend you read it. (See: LIE for the full article.)

It tells how a statement by John Houghton, former chair of the Intergovernmental Panel On Climate Change – “Unless we announce disasters, no one will listen” – supposedly was repeated in three books, 100 blogs and 24,000 web pages.

Despite this widespread circulation and belief, the statement never was made. It was created by conservative columnist Piers Akerman. It was a lie.

The article, with its subtitle, “In the battle for hearts and minds, a plausible falsehood too often trumps the truth,” goes on to explain how a lie can acquire almost universal acceptance. Here are a few quotes: “. . . a falsehood has to have at least a shred of believability.” “Any falsehood can acquire currency … so long as there are enough people inclined to believe it . . . Falsehoods can come to be believed simply because others believe them. . . This is an information cascade, a process described by the economist DavidHirshleifer . . .” “The mainstream media often participates in the cascade … the more often you hear something, the more likely you are to believe it is true.”

Today, the big lie in economics is, “The federal debt is unsustainable” (See: UNSUSTAINABLE ).

The word ‘unsustainable,” means unable to endure. What is the evidence the federal debt cannot endure? That is, what evidence shows the debt cannot continue, cannot continue to grow, cannot continue to be serviced by the federal government, or will cause economic hardship? Amazingly, no such evidence exists. It all is myth.

That is why you never will see such evidence provided by any of the newspaper or magazine articles making the claim, nor will economists provide such evidence. They all merely will make the claim and support it with other claims, also unsupported by evidence (i.e., “The debt is unsustainable. It will cause inflation. It will reduce the availability of lending funds. Our children and grandchildren will pay for it through higher taxes. Nations will refuse to lend to us. Eventually, we’ll be like Zimbabwe.”) As each lie begets additional lies, the entire package becomes impervious to fact. More and more believe it, until it seems to become solid truth – all without supporting evidence.

The U.S. is 225 years old, yet the federal debt has grown about 1500% in just the past 30 years – a truly amazing increase. Despite this unprecedented debt growth, the federal government never has trouble servicing its debt, nor do we have inflation beyond what the government specifically wants (about 2%-3%), nor is there any mechanism by which the federal debt, which actually is the main source of dollars, can reduce the availability of lending funds. Nor do taxes pay for debts, which is how the debt managed to grow so much. In fact, tax rates are lower today than 30 years ago. And, nations do not refuse to lend to us. Nor do we even need nations to lend to us.

Why does this lie, which the most easily obtainable evidence shows to be wrong, have such widespread following and persistence? First, it has the requisite “shred of believability.” We think of the federal government as being like us – an anthropomorphic misunderstanding. If my debts grow too large, they are not sustainable. I might not be able to obtain the money to service them, and I even can go bankrupt. The same can be said of you, your business, your city, county and state. It even can be said of the European Union nations. But it cannot be said of the U.S. government.

I cannot create unlimited amounts of money to pay my bills. Nor can you, businesses nor local governments. Even Greece and Spain cannot, for they are constrained by EU rules. The U.S. government however, has no such constraints, as it proves every day. It can pay any bill of any size, immediately, simply by crediting the bank account of any creditor.

Then there is the collection of taxes. Local governments use taxes to pay their bills, which is why local governments can go bankrupt if taxes do not support spending. The federal government does not use taxes to pay its bills, because it alone has the unlimited power to create money. For that reason, our children and grandchildren will not pay for the debt. No one will. The government pays its debts by creating money, ad hoc.

The notion that federal borrowing replaces private borrowing has a quasi-arithmetic logic about it. “There is only so much money to lend, and if the government borrows it all, the funds will be used up and there will be none left for the private sector.” In reality, lending facilitates more lending. When you lend to the bank, by depositing in your bank account, this does not reduce the bank’s ability to lend. When the government borrows, it merely exchanges one form of money for another. It does not “use up” lending funds. And when the government spends, it creates lending funds.

Many nations often are used as an example of what excessive debts cause: Zimbabwe, WWII Germany, Brazil, Italy et al. But, each had special circumstances, that were unlike those in the U.S. and not directly related to excessive deficits. For instance, in the case of Zimbabwe, wars, corrupt leadership (Robert Mugabe), stealing farm land from owners, loss of exports and other problems caused its economic disaster.

As the media broadcast the lie, and more people came to believe it, the lie became a cascade. It became a truth unto itself, a self evident statement requiring no supporting evidence.

Are you old enough to remember when “Stomach ulcers are caused by emotional stress” was such a self-evident statement. No one doubted it, and no one asked for evidence, until one day it was discovered the vast majority of stomach ulcers are caused by a bacterium (Helicobacter pylori). Even today, some people cling to that original lie about ulcers.

In summary, when someone tells you the federal deficit and debt are too large, ask for factual evidence in the form of data. They will not provide factual evidence. They merely will give you more opinions (inflation, taxes, children, eventually, etc.) also unsupported by data. If you would rather depend on facts than on myth, read through the various posts on this blog, beginning with SUMMARY, and do read that article.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

2 thoughts on “–Giving life to a lie

  1. Roger,
    Once again you spew insignificant garbage that on the surface may actually have some validity, but not credibility. However, you continue to ignore the one true reason the fiat money printed by the government of the USofA (controlled by the independant privately owned FED), will continue to erode in value and will never be printed significantly enough (without tremendous global backlash) to do the things you propose in your print without recourse writings. That one thing being the global backlash. We the people depend on the money of our government being worth something to the many countries producing the goods and services which we disproportionately consume. If our government prints money ad infinitum (maybe exagerated) in order to pay for all the various and sundry benefits you believe should be paid for by our government without any proper bookkeeping or accountability, then we, without a doubt, would be at the mercy of every country providing those goods and services as to whether or not they would even consider allowing us to use dollars in payment. Are you perhaps advocating a third world war to force our will on the other countries of this earth? Because that is exactly what would be required in order to forcefeed dollars for goods and services. Compare the worth of your irresponsible dollar produced with no regard for basic accounting principles with the worth of the air we breath. We need both to survive. The air is provided without any effort on anyone’s part. Therefore, it is free and readily available. Your method of producing dollars without consideration for any meaningful productivity of goods or services basically puts unlimited dollars in the marketplace. Anything of greatly exagerated availability has significantly reduced worth. Maybe not in our own countries marketplace, because we are at the mercy of our government in all it’s lying statistics, but at least in the global marketplace where we continue to loose some semblance of credibility. Look to the Chinese yuan in the not too distant future to become the international monetary exchange currency. You need to take a real pull up your bootstraps look at your incredibly irresponsible preaching.
    Mike

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  2. You predict “global backlash.” The federal debt has grown 1500% in just 30 years, without “global backlash.” With this huge rate of deficit spending, we should, by now, have seem some signs of “global backlash.”

    No such signs exist.

    When you predict something that never has happened, you have a special obligation to provide evidence to show it will happen. What is your evidence?

    Also, please list the “basic accounting principles” that have been violated, or what was done “without any proper bookkeeping or accountability.”

    As I’ve said repeatedly, in the above post and throughout this blog, debt hawks offer claims of catastrophe, but never provide evidence. Nor do they recognize the evidence disproving their claims. That record remains intact, just as the NewScientist Magazine article describes.

    Rodger Malcolm Mitchell

    P.S. Read the post again, particularly the final paragraph. You have proved my point.

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