The debt hawks are to economics as the creationists are to biology.
I saw these two graphs on a good blog by noted debt-hawk Barry Ritholtz, called The Big Picture. You can see the post at http://www.ritholtz.com/blog/2010/09/fdic-bank-failures-7/comment-page-1/#comment-412084
These graphs brought to mind a few of the questions I’d like to ask those who keep demonstrating for “less government”:
1. How many bank depositors have been saved by FDIC?
2. How much depositor money has been protected by FDIC?
3. Do you feel there is too much regulation of banks?
4. Would you like to deposit your money in a bank that is not insured by FDIC?
Every time you hear someone say there is too much government, ask specific questions about what he/she would like to give up. Less Social Security? Less Medicare? Less military? Fewer roads and bridges, or less maintenance thereof? Eliminate the Supreme Court? Fewer national parks? Less inspection of our food and drugs? Less research? Where exactly should the cuts be made? (And don’t let them get away with “Eliminate waste.” That’s a cop out).
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity
#Monetary Sovereignty - Mitchell 
Simplify the tax code and reduce the IRS by a huge %. Gotcha.
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The good thing about the IRS is it employs thousands of people. The bad thing is it forces people to waste millions of nonproductive hours and even puts people in jail for not destroying enough money (aka paying taxes).
Of course, federal taxes are a burden on the economy, but that’s not the fault of the IRS. Blame Congress and the President.
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This is easy to say, but hard to do. I don’t believe that the right has the will to do this any more than the left. Every loophole or exception is there to either make something “fair,” encourage a particular behavior, or to try to prevent people from taking advantage. Heck, right now the left and the right can’t agree on raising the RATE on income over $250,000 by less than 4%. For 99% of taxpayers it amounts to almost nothing, and they can’t agree.
There is a constituency for every law and every program.
Someone on Krugman’s blog was bitching that his family took home about $300,000 and he wasn’t rich and he shouldn’t pay more tax. The change would hit him for $1500. What whining. They probably spend more than that on dinners out in a month.
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Hmmm. How about Department of Education, Department of Agriculture, SBA, overlapping branches of the military, TSA, and the DEA.
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Be specific. It’s not enough to mention various departments as evidence government should be smaller. What do you suggest and why do you think they should be smaller.
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I’ll second the vote for the USDA less the parts that should really be part of human services. It provides little value to 98% of Americans and really doesn’t provide much value to farmers other than providing subsidies to many who don’t need them. It also consumes a surprisingly large portion of the federal budget. If farm-state senators didn’t have so much pull, it would already be history.
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PS- The above suggested cuts are not particularly meant to save money, but to cut bureaucracy, red tape and subsidies.
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Not particularly to save money?? According to whom? And, what is the problem with subsidies?
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Andrew said, “Someone on Krugman’s blog was bitching that his family took home about $300,000 and he wasn’t rich and he shouldn’t pay more tax. The change would hit him for $1500. What whining. They probably spend more than that on dinners out in a month.”
We all should whine on behalf of that person. The $1,500 additional tax is $1,500 removed from our economy, and therefore is an economic drag, hurting us all. Had that same $1,500 been spent on dinners, the money would remain in the economy, where it would help restaurant owners and employees, and ultimately all of us.
The absolute worst thing that can be done with money is pay taxes. That money disappears from the economy and is lost forever. In contrast, the money “wasted” on the USDA stimulates the economy by going into the hands of the public.
In short, taxes are bad; federal spending is good. Even wasted federal spending is better than no spending at all.
Rodger Malcolm Mitchell
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Perhaps that was a bad example, but it doesn’t really take any money out of the economy if the money isn’t being spent, does it? If the rich simply sit on the cash, it serves no purpose whatsoever. Might as well tax it and burn it into oblivion, unless I’m missing something – which is totally possible.
In the case when the money isn’t moving, taxing it makes real sense, as it gives the government MORAL LEVERAGE to spend. Whether it is necessary to tax or not under your view of economics, the general public perceives that taxation is necessary for government spending to occur. The politics IS vitally important if you want to get things done. Taxation is also important in that it can serve to eliminate inequities that occur in a free-market system, which serves a valuable economic and moral purpose.
Heck, the MMT crowd can’t really convince sympathetic, well-known economists to take up their position in a real way. Now, if you could convince Mankiw and get him to write a non-academic book, you might have something. (Hayek would be even better, but it’s a little late for that 🙂
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Andrew, money never stops. It is impossible to “sit on cash” unless you bury paper dollars in your backyard.
Think of what everyone does with money: They save, spend or invest it. “Saving” means putting it in the bank, which then saves, spends or invests it.
“Spending” means, in exchange for goods and services, giving the money to someone else, who saves, spends or invests it.
“Investing” also means giving the money to someone else, who also saves, spends or invests it. And on and on and on. As I said, money never stops.
I wrote a non-academic book, FREE MONEY. So did Warren Mosler: “7 Deadly Innocent Frauds” You can read his book free at http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
Rodger Malcolm Mitchell
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Wait a minute. People CAN and DO sit on money. If I put money in the bank, and the bank buys treasury bills with it, that money is dead, isn’t it? What about gambling? What about the “investment” that consists of nothing but trading money around with no exchange for real goods or services. That’s what the stock market is, isn’t it? After an IPO, a market is just an avenue for TRADING, not investing.
This is the problem with the current economy isn’t it? Businesses are sitting on cash that isn’t being spent. Even if there isn’t consumer demand, businesses could spend this money on products/services just for fun, couldn’t they? They could redecorate executive suites, buy art for their halls, sponsor events in their communities. But they aren’t doing anything. In 2008, we didn’t just bury a bunch of money, we just stopped spending it on real goods and services. The movement of the money slowed, no?
Thanks for your thoughts,
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Andrew,
You are correct, that if the bank buys T-bills, the money stops for the length of the T-bill. That is one exception to the rule. Note however, that the vast majority of that money was created by the bank as reserves, and was not money created by the federal government.
As for gambling, the money goes to the casino, which saves, spends or invests it, so the money does not stop. I don’t know what you mean by “trading money around,” but it doesn’t sound like money stopping. In an IPO, money goes to the sellers, who save, spend or invest it, so again, the money does not stop. Businesses cannot sit on cash. They either save it, spend it or invest it.
Your T-bill comment was a good one, and it demonstrated one of the only two ways money temporarily can stop, the other being when currency is held in a vault.
Rodger Malcolm Mitchell
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I’ll second the notion that money can just sit there. If you read Richard Koo’s work on “balance sheet depressions” he points out that after an asset bubble deflates companies and consumers pay down debt AND the banks are unable to loan the returning money out because there is no real demand for loans even at close to zero interest rates!
In addition there is parasitical government employment. The IRS as noted above. In NYC you have an agency that administers rent control and has landlords filling out reams of paperwork every year which is a huge waste of time and productivity. Yes, they employ some people (although the state pays for it and they are not monetarily sovereign) but the lost time and productivity probably exceeds the benefits of extra workers.
As for subsidies, are you saying that increased prices for consumers is a net positive for the economy?
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Jason,
Paying down loans and paying federal taxes destroys money. But how does money “just sit there”? You always save, spend or invest money, i.e., give money to someone else, who in turn, gives it to someone else, and on and on and on. Money never stands still — or do you just keep your dollars in a vault?
Give me an example of how you don’t spend, save or invest money, all of which involve transferring it to someone else.
I don’t see how “lost time” enters into the question.
I didn’t understand your comment about subsidies and prices. Subsidies do add money to the economy, but not enough to cause inflation.
Rodger Malcolm Mitchell
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Money is created through government spending AND bank loans. If a corporation or an individual pays down a loan, it destroys money if the bank cannot find a new borrower to take that returned money off their balance sheet. That is what happened in Japan and the U.S. in the Depression.
So am I to understand you support the billion dollar annual cane sugar subsidies to US based producers simply because it adds money to the economy? It certainly does increase the price of domestically consumed sugar which is why corn sugar has been substituted for it in many products despite possible health issues with fructose based sweeteners.
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“If a corporation or an individual pays down a loan, it destroys money if the bank cannot find a new borrower to take that returned money off their balance sheet.”
Jason,
When a bank lends money, the money stays on the bank’s balance sheet as an asset (A/R)and it goes to the borrower’s balance sheet as an asset (cash). That is how loans create money.
Then, when the borrower pays the loan, cash disappears from the borrower’s balance sheet, but remains in the bank’s assets, now as cash. Bank assets don’t change, but the borrower’s assets do. That is how paying off loans destroys money.
Farm subsidies do not increase the price of agriculture. In the case of sugar, it is import duties and restrictions that increase prices.
Rodger Malcolm Mitchell
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I still don’t understand. People have been paying back debt, in general, since 2008. This will destroy money, but the government has been creating it through deficit spending. That should mean more net money available than before.
If the AMOUNT of money is all that really matters, why is the economy crappy. Isn’t it velocity and amount that matters? And it’s more than that, isn’t it — the money has to be moving to people who need work.
If Bill Gates buys a car for $100, and sells it to Warren Buffet for $200, who sells it back to Bill for $300 who deals it back to Warren for $400 and this continues forever, the money is moving — they could even take out loans to finance this lunacy, creating more money. The GDP would look good, money velocity might look good, but the rest of us would still be screwed, right?
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They would just be trading money, not creating it.
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Andrew said, “If the AMOUNT of money is all that really matters, why is the economy crappy. Isn’t it velocity and amount that matters? And it’s more than that, isn’t it — the money has to be moving to people who need work.”
The economy is “crappy” because the amount of money is insufficient, which is the point I’ve been making. There are several definitions for velocity, but a common one is GDP/Money in circulation. In short, it boils down to money supply.
Rodger Malcolm Mitchell
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