The debt hawks are to economics as the creationists are to biology.
You may have heard of John Mauldin, self described “investment writer/analyst.” He distributes an E-letter in which he discusses economics. I assume he has many readers who believe what he tells them. More’s the pity, because Mr. Mauldin seems to know little-to-nothing about economics.
Recently I received one of his E-letters, this one titled, “The Dark Side of Deficits.” Here are some direct quotes: “The research of Reinhardt and Rogoff demonstrates that when the government debt-to-GDP level gets to about 90%, trend growth seems to drop by about 1%. They do not offer an explanation, just an observation. My speculation is that it might be government spending and debt crowding out private savings, not leaving enough for productive private investment.”
Perhaps neither Reinhardt nor Rogoff offers an explanation simply because there is none. As readers of this blog know, the federal debt/GDP ratio is totally meaningless. “Federal debt” is the total accumulation of all federal debt for every year since the beginning of this nation; GDP is a one-year measure. Anyone quoting this ratio should stop, immediately. It is a nonsensical apples/oranges statistic.
At last count, Japan’s debt/GDP ratio was 210%, and according to a June, 2010 Associated Press article, “Earlier in the month, Japan upgraded its economic growth in the January-March quarter to an annualized pace of 5 percent from 4.9 percent in a preliminary report.” That’s with a 210% for the phony debt/GDP ratio!
Further, there is no economic mechanism for “government spending and debt to crowd out private savings.” The exact opposite is true. Federal deficit spending, which adds money to the economy, increases savings. The “crowding out” myth is so outrageously wrong, I never know whether to laugh at the ignorance or cry at the result of such beliefs.
Further quoting Mr. Mauldin, “. . . if we do not get control of our deficit spending, we (in the US) risk putting our growth in jeopardy.” Deficit spending adds money to the economy, and this economy is starved for money, but Mr. Mauldin suggests reducing the amount of money coming into the economy. Talk about putting our growth in jeopardy!
And here is a hint about the fundamental cause of Mr. Mauldin’s confusion. He says, “There are those among us who are like teenagers, wanting to make the easy choice and avoid the pain today, not worrying about the consequences down the road.” He seems to adopt the puritanical belief that anything easy or painless inevitably will have dire consequences. So he opts for the most painful solution to our recession — presumably some combination of painful tax increases and painful reduced federal support for things like Medicare, Social Security, infrastructure, environment, defense and education. I assume he has his teeth filled without novocaine.
Note to Mr. Mauldin: When someone is starving, the easiest, least painful choice is to feed them, not to remove food as you suggest. Money is the food of our economy, and adding money to a starving economy is the only sensible act.
But, of all the foolish comments in Mr. Mauldin’s E-letter, perhaps the most frightening was this one, describing his travels: “. . . back to Dallas for a speech to the local Tiger 21 group. Then, starting September 11, I fly to Amsterdam for the International Broadcasting Conference, then to Malta, Zurich, Mallorca, Denmark (speech open to public), and London, home for one day, and then off for a speech to Cambridge Brokers on the 24th. Then I’m in Houston on October 1 for another public speech.”
Good heavens, the man is going to innoculate and indoctrinate all those people with nonsense, and those people will tell others, who will tell others, and soon a huge number will believe they know something about economics, when in fact, they know less than nothing. They know wrong.
If you read Mr. Mauldin’s writings, just for laughs, then enjoy. But if you read for his economic analyses and his market predictions, be cautious.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity