The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.
For those of you who don’t remember the Great Depression (almost everyone, now), it began in 1929, after several years of federal surpluses ( Item 3.), but by the early-1930’s we already were on our way to recovery – something like today. Then, the government decided to reduce the federal deficit with increased taxes and reduced spending — something like today. So we had four more years of depression (something like tomorrow?)
According to Wikipedia: “The Recession of 1937–1938, sometimes called the Roosevelt Recession, was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States. Economists disagree about the causes of this downturn. Keynesian economists tend to assign blame to cuts in Federal spending and increases in taxes at the insistence of the US Treasury, while monetarists, most notably Milton Friedman tended to assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.”.
Hmmm. Let’s think about that. “Cuts in federal spending . . . and increases in taxes” = federal deficit reduction. “Tightening of the money supply . . .” also = federal deficit reduction. So here you had two different schools of thought, both saying essentially the same thing. The 1937 recession was caused by what we today refer to as “austerity.”
So what do our political leaders favor, now that we are creeping out of the latest recession. Yes, that same austerity. Republicans hate federal spending. They stand ready with dozens of proposals to slash the federal budget. Reportedly, they want to cut $260 billion (25%) from the federal budget. Now that should be stimulative.
Republicans also do not believe their proposed cuts in education, Medicare, unemployment compensation and many other worthy federal projects will hurt anything or anyone.
The Democrats are no smarter. They have to be dragged kicking and screaming, to retain (not even cut, just retain) the Bush era tax levels. They do not believe taxes, which remove money from the economy, slow the recovery. They want to tax the “wealthy,” because . . . well, because that is what Democrats, with their eternal class warfare strategy, do.
Then we have the media. My hometown newspaper, the Chicago Tribune repeatedly rails against the federal debt. They never explain why. They don’t provide data. They just don’t like it. The Tribune is typical of the media, which almost universally hate the debt, and almost universally don’t provide data supporting their position.
And then there is Fed Chairman Bernanke, who feels we must “act to bring down long-term fiscal deficits.” He too, has no clue about why and never gives a coherent reason.
Finally, we have the mainstream economists – all those Nobel winners – none of whom seem to understand monetary sovereignty, and all of whom call for less deficit spending.
Put them all together and things look very bad for this fragile economy. With leaders like these, who needs enemies?
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”
#Monetary Sovereignty - Mitchell 
Yeah, and after 1937, we had WWII. Hope we avoid that this time around. But when there is a depression there have to be scapegoats, and this time it will be China, Iran, etc.
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I’m not surprised with the politicians–they are playing to misguided public sentiment about govt. overspending. I suspect a few may get it–because they all love to spend–but use it as a weapon during election time. What surprises me most is Bernanke. I thought he had studied the Great Depression and supposedly is an ‘expert’ on it. Wouldnt’ he understand that there is no need to rein in spending–or is he playing politics as well? Makes me wonder.
Question too–no one wants a redux of the Great Depression, but do you think the politicians would start to get it if unemployment starts to rise and people get more and more angry? Wouldn’t they see they need to do a Stimulus II—or are they really that stupid to sit and kiss thier respective backsides goodbye and ride the wave of putting our economy in the toilet? Or is it simply too late, as some say, and we are well on our way towards GDII anyway and there is nothing we can do? What’s your thoughts on that?
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What I do is repeatedly write to the editors, columnists, economists and politicians. I suspect there still are too few voices.
But there will be a tipping point, at which suddenly enough voices will speak, and the solution will become “Obvious, and I’ve always known that.”
If you wish to help, just write, write, write.
Rodger Malcolm Mitchell
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We are on the way to GDII. The big banks are insolvent. Read Bill Black and Randy Wray or follow Yves Smith at Naked Capitalism.
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Tom, no one needs to be insolvent. That’s the pity of it all. The money is available, free.
The economy is starved for money, and we have a bunch of witch doctors, dancing around, rather than simply feeding the economy.
Rodger Malcolm Mitchell
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Of course, the big banks that are insolvent should be put into resolution as the law requires and recapitalized under new management, with equity holders paying the ultimate price and the bondholders forced into an equity position. Qualifying deposits are insured under the FDIC. The law is clear. The Obama administration has been skirting it and covering up.
Here is a summary of Bill Black on it.
http://www.gfsnews.com/article/351/2/Battered%20Obama%20took%20part%20in%20a%20'cover%20up‘,%20says%20ex-regulator#
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I think I’ve mentioned before that while taxes remove money from the economy, they can help to redistribute wealth. I can’t see how the economy can work well with extreme wealth disparities. The history isn’t good.
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Taxes do not redistribute wealth. This “redistribution” myth is based on the false belief that federal taxes pay for federal spending. There is no relationship between federal taxes and federal spending.
The federal government can lift the poor without bringing down the rich. Merely spend more on poverty-related issues.
All taxes — even taxes on the rich — remove money from the economy, and therefore hurt the economy. This hurts the poor more than the rich.
Rodger Malcolm Mitchell
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Of courses taxation redistributes wealth. It takes money away from the rich, making the DIFFERENCE in wealth between the rich and the poor smaller. I wasn’t suggesting that taxation amounts to direct redistribution. When the assets of the rich have been reduced, the poor have relatively more.
Or course the government can lift the poor without “bringing down” the rich, but that is one of two possibilities. Taking money away through taxation is the other. Taking money away from the rich has, potentially, other benefits, like preventing the wasteful building of mansions and 50 ft. yachts (wasteful in a real, not economic sense).
The idea that removing ANY money from the economy is bad seems silly to me. Money sitting in someone’s mattress has NO IMPACT on the economy. Money has to move in order for it to impact the economy. I know you would argue that money is always moving, but sometimes it moves much more slowly than others.
Taking money from places where it is moving slowly and putting it places where it will move more quickly will help the economy. The QE stuff is all about giving the banks money in hopes of inducing them to lend, but the velocity of that money is low, since the banks don’t seem to want to lend or don’t have enough qualified borrowers. If you give money to people (through payroll tax deduction, say), you won’t do any worse. Even if all people do is pay off debt with the extra cash, that’s no different than giving money to the banks. And perhaps people will spend some of the money on stuff that isn’t from China.
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50 foot yachts are not wasteful. I DESIGN THEM.
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Good point, Ed. Waste is in the eye of the beholder.
There is no federal wasteful spending. Building that famous “bridge to nowhere” with federal money, would have employed many people, stimulating the economy.
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And it would have cost taxpayers nothing.
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Rodger Malcolm Mitchell
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Andrew, apparently you believe “taking money away” from the rich does not “bring down” the rich, a position I find to be semantic equivocating.
You seem to believe that by taking money away from the rich and giving it to the government, you can close the gap between rich and poor, and this gives the poor not more money, but “relatively” more money. The poor do not spend “relative” money, they spend actual money, which is why taking money from the rich does nothing for the poor.
Your mattress example is far-fetched. What percentage of U.S. money do you estimate is “sitting in a mattress”? A growing economy requires a growing per-capita supply of money, which is why paying taxes –any taxes– has a negative effect on economic growth.
By reducing economic growth, taxing the rich hurts the poor. I discuss this further at Taxing the rich and at Closing the gap
Rodger Malcolm Mitchell
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[1] “Republicans hate federal spending.”
>>They only hate spending on domestic social programs. Republicans wants BIGGER government and MORE SPENDING on war and the security complex. They want less regulation for themselves, and more for you (i.e. a police state). They want free markets for themselves, and controlled markets for you. Socialism for themselves, and slavery for you.
[2] “Democrats are no smarter. They do not believe taxes, which remove money from the economy, slow the recovery. They want to tax the ‘wealthy,’ because . . . well, because that is what Democrats, with their eternal class warfare strategy, do.”
>>Exactly. The Occupy Wall Street kids want to “tax the wealthy.” I say let’s have PUBLIC monetary sovereignty, and get rid of taxes altogether.
[3] “Economists disagree about the causes of the 1930s Depression. Monetarists, most notably Milton Friedman, tended to assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.”
>>Yes, when private bankers want to create a Depression, they withdraw the money supply, causing a disastrous contraction. Milton Friedman called the 1930s depression, the “great contraction.” Today the financial “experts” say the West needs MORE contraction – i.e. we must have a WORSE Depression. We must let the private bankers destroy us. This is called “de-leveraging” (i.e. making the masses pay for the private speculators’ losses, so the speculators can bet even bigger, causing an even worse Depression.)
And everyone is okay with this.
THE PROBLEM is private monopolistic control of the money and the central bank. As long as this remains, we will be slaves of debt, and our government will be owned.
WHAT WE NEED is public (State) monetary sovereignty, instead of private creditor sovereignty.
[4] Don’t trust too much in people like Bill Black, or Yves Smith at “Naked Capitalism.” They refuse to face the simple truth above, so they can keep chattering. Bill Black, for example, fills endless pages saying we must stop the foreclosures, erase student loans, and put fraudsters in jail. Great, but this will never happen as long as private bankers have control.
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