Month: November 2010

–Ignorance at work: $14,300,000,000,000: Debt Limit Showdown Looming

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.

Once again, Congress and the President will go through the meaningless debt limit dance. It truly is frightening how ignorant of economics these people can be.

First, it is Congress and the President who decide how much to spend and how much to tax. So presumably, the purpose of a debt limit is Congress’s way of preventing itself from spending too much or taxing too little. In short, by enacting a debt limit, Congress tells voters:

“We are too stupid and reckless to know that when we increase spending or reduce taxes, this will add to the debt, so we need to set a limit to tie our hands. Then after we debate for months, deciding exactly what to spend and what to tax, we can go back later and in a few days revise all the well-considered decisions we made earlier. Or we can close down the government. Even after we pass spending or taxing bills, they never can be relied upon, so no one can plan for the future. That’s how we geniuses run the economy.”

Second, and even more important, a monetarily sovereign nation should not set a “debt limit,” because that nation has no limits on its ability to service any debt of any size. So, here Congress tells voters:

“We are too stupid to understand, and too lazy to learn, what monetary sovereignty means. We think we still are pre-1971, when we were under a gold standard, and a limit on debt was necessary. We do not know why we eliminated the gold standard, and we don’t care. We’ll continue to act as though it still were in effect. Don’t blame us; we’re just politicians.”

When you read and hear all the debate about the debt limit, you will experience the ultimate of Congressional and Presidential prevarication. If anyone simply tells the truth — “The debt limit not only is unnecessary, but harmful” — it indeed will be a miracle.

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.”

–Ultimate irony: The debt-hawks create “death panels”

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.

The debt-hawks are the right wing, “cut-federal-spending” folks, who also tended to be the people complaining about so-called “death panels” mentioned by Sarah Palin. Yet, these same people actually favor death panels:

By Rob Stein, Washington Post Staff Writer, Monday, November 8, 2010; 7:52 AM

“Federal officials are conducting an unusual review to determine whether the government should pay for an expensive new vaccine for treating prostate cancer, rekindling debate over whether some therapies are too costly.

“The Centers for Medicare & Medicaid Services, which dictate what treatments the massive federal health-insurance program for the elderly will cover, is running a ‘national coverage analysis’ of Provenge, the first vaccine approved for treating any cancer. The treatment costs $93,000 a patient and has been shown to extend patients’ lives by about four months.

“Although Medicare is not supposed to take cost into consideration when making such rulings,the decision to launch a formal examination has raised concerns among cancer experts, drug companies, lawmakers, prostate cancer patients and advocacy groups.

“Provenge, which was approved for advanced prostate cancer in April, is the latest in a series of new high-priced cancer treatments that appear to eke out only a few more months of life, prompting alarm about their cost.

“This absolutely is the opening salvo in the drive to save money in the health-care system,” said Skip Lockwood, who heads Zero – the Project to End Prostate Cancer, a Washington-based lobbying group. ‘If the cost wasn’t a consideration, this wouldn’t even be under discussion.’”

So there you have it. Sarah, speaking for the right-wing debt-hawks, complained mightily about “death panels.” Now we have a move toward death panels – by the Palinesque debt-hawks. The article goes on to say:

”Medicare officials, who are convening a panel of outside advisers to vet the issue at a public hearing Nov. 17, say Provenge’s price tag isn’t an issue. But Berwick and other officials declined to discuss the rationale for the review.
[. . . ]
“The review comes as the Food and Drug Administration considers withdrawing an approval for another expensive cancer treatment- Avastin for metastatic breast cancer – which triggered a similar debate even though the FDA too is not supposed to factor costs into its analyses.>/span>

[ . . . ]
“Some fear the move will discourage pharmaceutical companies from developing new cancer drugs.

“’It is extremely chilling if, after spending a huge sum of money, time and effort to get a drug through FDA approval, you’ll then have to go through it all again to see if CMS will pay for it,’ said Allen S. Lichter, head of the American Society of Clinical Oncology. “Firing a shot across the bow like this is not the way to have an intelligent and meaningful discussion about how we start to address the complex issue of drug costs.”

Then we have the non-economists telling us what America can and cannot afford:

“To charge $90,000 for four months, which comes out to $270,00 for a year of life, I think that’s too expensive,” said Tito Fojo of the National Cancer Institute. “A lot of people will say, ‘It’s my $100,000, and it’s my four months.’ Absolutely: A day is worth $1 million to some people. Unfortunately, we can’t afford it as a society.”

[ . . .]

“‘I’d like to think cost doesn’t need to come up when it’s a slam dunk,’ said H. Gilbert Welch of the Dartmouth Institute for Health Policy and Clinical Practice. ‘But when it’s a close call like this, it certainly has to be a factor. That’s $100,000 Medicare can’t spend elsewhere.'”

Clearly, Fojo and Welch have no idea how a monetarily sovereign nation works. They either believe FICA pays for Medicare or that the federal government’s ability to pay for Medicare is limited – both wrong. Sadly, even a man who claims to be an economist doesn’t get it:

“’At some point, if we keep paying these very high prices for treatments that provide very limited benefit, we’re going to reach the point where we can no longer afford health care,’ said Alan Garber, a professor of medicine and economist at Stanford University. ‘Some say we’re living through that right now.’”

So in addition to denying America a recovery from the recession and so many of the other benefits of federal spending, the debt-hawks create the Palin death panels, and deny us health care – and all from ignorance.

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.”

–1937 Redux: How our leaders have learned nothing from history

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.”

–What will the Fed’s $600 billion Treasury purchase accomplish?

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.
==============================================================================================================================

Here’s how it works; you be the judge.

The first question is, if the Fed is buying, who is selling? Answer: The banks and the public. If the banks exchange their T-bonds for cash, will that stimulate the economy? Will that make banks more likely to lend? Are banks short of lending cash? The answers are, “No, no and no.”

Banks are not lending primarily because they can lend to the government, risk free, and make an easy 2% on their money. They are not short of lending funds. They don’t want the hassle of credit checking, defaults, collections, etc. Just borrow from the government at 0% and lend back at 2%. What could be easier?

The other reason banks haven’t lent is because business isn’t borrowing. Congress has made sure business has no idea what will happen, tomorrow. Taxes? Who knows? Interest rates? Unsure. A recovery? When? Expand my operations? Are you kidding? So with lenders and borrowers both unmotivated, lending is unlikely.

Well, what about the public? Do Fed bond purchases from the public stimulate the economy? When the Fed trades cash for T-bonds, this is tantamount to advancing the maturity date on those T-bonds. So what will the holder of T-bonds do when the government gives him cash for his bonds? He likes T-bonds, so if he can get a good price, he probably will buy more bonds – right back where he started.

But let’s say some people decide to invest those dollars in something other than T-bonds. Is that stimulative? Yes, but there is another problem. When the Fed buys bonds, the future interest on those bonds is not paid into the economy. The Fed’s purchase reduces future government interest payments, and that is anti-stimulative.

So my take on the $600 billion purchase is that it might have a very small and very temporary stimulative effect. Far better, and far more stimulative would be if the federal government cut taxes by $600 billion. But since our politicians don’t understand monetary sovereignty, that is unlikely to happen.

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.”