–Anthropomorphic economics disease

An alternative to popular faith

Fundamental to debt hawk beliefs is the idea that monetarily sovereign nations are like you and me. Thus, debt hawks practice “anthropomorphic economics.”

A monetarily sovereign nation is the monopoly supplier of its currency, which currency is not tied to any asset (like gold) or to a foreign currency. A monetarily sovereign nation has the unlimited ability, and the monopoly power, to create its currency.

The U.S., Canada, Australia, China and India are monetarily sovereign. The EU nations are not. That is why so many of the comparisons between Greece and the U.S. are false.

Specifically, here are a few of the assumptions debt hawks have about the U.S. — assumptions that might be correct for individuals, but not for the U.S.

1. The U.S. government must borrow or tax in order to spend.
You and I must obtain money, either by borrowing or by income, before we spend. The reverse is true for the U.S. government. U.S. spending creates money. So-called federal “borrowing” is not like personal borrowing. The U.S. creates T-securities from thin air, then exchanges them for dollars it previously created from thin air. Then it destroys the dollars. When the government repays its ‘debt,” the situation is reversed. It creates dollars, which are exchanged for T-securities, and the T-securities are destroyed. The whole process became obsolete in 1971.

2. Servicing the federal debt is a burden on the U.S.
Because the U.S. pays all its bills by creating money ad hoc, paying its debts never is a burden. Unlike you and me, the government simply credits the bank accounts of its creditors and debits its own balance sheet, which it can do endlessly. The “debt” carried on the government balance sheet is an accounting of the T-securities created by the government. Rather than “debt,” this balance sheet entry should be called “T-securities open.”

3. Federal debt is a burden on future taxpayers
Unlike you and me, the government does neither needs nor uses income in order to spend. There is no relationship between federal taxes and spending. Even were taxes dropped to zero or raised to $100 trillion, neither event would affect the federal government’s ability to spend by one penny. In fact, tax money is destroyed upon receipt, as a credit in a government balance sheet. The government does not spend tax money.

4. Federal surpluses are more prudent than deficits
For you and me, net income is more prudent than net outgo. Not so for the U.S. government. Federal taxes destroy money; federal spending creates money. To grow, an economy must have a growing supply of money. Federal spending is the most reliable, controllable source of money. Federal surpluses are imprudent, because by destroying money, they create recessions and depressions.

5. If U.S. debt is “too big,” nations will refuse to lend to us.
A credit rating is based on the past and future ability and willingness to service debt. You and I need a good credit rating in order to borrow. But, the federal debt has grown 1500% in only 30 years, and no nation has refused to buy our T-securities (not that it would matter, because we no longer need to sell T-securities).

Debt hawks have made the intuitive argument that federal debt is like personal debt – anthropomorphic economics – but are unable to supply data to substantiate their intuition. One person told me the proof is that costs have risen (inflation) and the federal debt also has risen, therefore federal debt must cause inflation. The problem with this cause-effect conclusion is that through time, many things in addition to debt have risen: population, real GDP, the miles of paved roads, satellites in orbit, M3, the number of schools in the Big Ten, the number of cell phones and the years since the Cubs won the World Series. For example:

rising thingsGRAPH

If federal debt caused inflation, we would expect to see greater inflation when deficits are greater and less inflation when deficits are smaller. But, as we have seen at INFLATION there is no historical relationship between deficits and inflation.

In short, debt hawks suffer from anthropomorphic economic disease, the unsubstantiated intuition that the federal government’s finances are like personal finances, where debt must be minimized and spending must follow the acquisition of money.

As I have so often in the past, I again suggest you write to one of the debt hawk web sites – Concord Coalition, the Committee For A Responsible Federal Budget et al – and ask for data to substantiate their claim that federal debt has an adverse effect on our economy. In the unlikely event they answer you, they will supply data showing the debt is large and growing, but no data showing it hurts then economy. The reason: No such data exists. Growing federal debt is economically necessary.

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

No nation can tax itself into prosperity

6 thoughts on “–Anthropomorphic economics disease

  1. The problem is that eventually the US’s creditors will realize that what they’re being paid in has no real value because the government can “create” money by printing it as much as it wants.

    When creditors demand payment in something that is not within the Government’s own power to manipulate, then Government becomes anthropomorphic. But even under the fiat system, government is limited in its manipulative power because if creditors believe that it will inflate its way out of debt then they will not lend.

    Government debt may be money in absolute terms. But increasing government debt therefore increases the money supply and erodes the value of money. That means that people who have been prudent and saved their whole lives see the value of their savings disappear, and hardship results.

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    1. If by “real value” you mean intrinsic value, no money has real value. That’s the whole idea of money. Otherwise, we would still be in a barter world.

      U.S. creditors are well aware the value of the dollar depends on the U.S. government’s full faith and credit. They accept it for the same reasons you do.

      One of the values of the dollar is the belief the U.S. government will fight inflation, as it has for the past 40 years, during which there has been no relationship between federal money creation and inflation.

      So what causes inflation? See: OIL

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  2. I don’t think it is deficits per se that cause inflation, but the quantity of money (among other factors). In prior centuries there was inflation after a huge gold or silver discovery. Oil did not cause those inflations.

    Another analogy that may be of use is weight gain. There is little dispute that food leads to weight gain. However, if you weigh someone every few days and track their weight along with the quantity of food they ate I doubt there would be an direct one-for one correlation. Weight gain would also depend on the amount of exercise, exposure to cold, hormone levels etc. However, to say that excess food does not cause weight gain would be silly. Same thing with money I suspect.

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    1. Deficits are the government’s method for creating money.

      The problem with analogies is they are analogies, not facts. That is exactly what this post is all about. The debt hawks use analogies to demonstrate why the federal government is like you and me. They are wrong.

      I have said many times that a massive increase in the money supply could cause inflation. However, we have been nowhere near that point for 40 years. Inflation has been caused by oil prices, not by money supply. Despite the large deficits of the past two years we are close to deflation, not inflation.

      Meanwhile, fear of deficits has caused a reduced quality of life, not only for us, but for our children and grandchildren. See: CHILDREN

      Rodger Malcolm Mitchell

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  3. Whoever wrote this is a fucking idiot. All of these points are based on the assumptions that A) the US fiat (not backed by anything of real value) currency is infinite and can never become worthless and B) that other nations of the world will always have faith in the dollar and therefore, the world’s reserve currency will always be the dollar. Both of these assumptions are absolutely wrong and, even more, dangerous. It’s nice that you can throw out technical terms (that you obviously don’t really understand) like “anthropomorphic economics” and “T securities,” but again, you clearly have no real understanding of this topic. Please stop poisoning the well with your bullshit. You…fucking…idiot. 😀

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