The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
Read about Senator Durbin’s wanderings in Fantasyland. Today, 12/3/10, the Chicago Tribune published an article by Dick Durbin, the senior Senator (D) from Illinois. The title: “Why I’m voting ‘yes.” Here are some quotes from the article, and my comments.
“On Friday, when President Brach Obama’s National Commission on Fiscal Responsibility and Reform gathers to consider a plan to bring our national debt under control, I will be voting yes. . . . America needs to grow our economy and reduce our $13.trillion debt. “
Never mind that almost 30% of that debt is merely one government department owing another government department. (Think of your checking account owing your savings account.) We can forgive that “minor” arithmetic error, because the good Senator makes a much larger one.
It mathematically is impossible to cut the debt and grow the economy at the same time. Money not only is the engine, but also the measure, of economic growth. GDP is a money measure. Cutting the debt requires taking money out of the economy, either by raising taxes or with reduced spending, or both. When you take money out of the economy, there is no mechanism by which you can grow the economy. There are no caveats about efficiency or savings or reducing waste or any other supposedly mitigating concepts. It simply is 100% impossible to grow an economy while reducing the money supply.
It’s like telling someone to take a lower paying job so he can buy a bigger house. The arithmetic doesn’t work.
Apparently Senator Durbin realizes this, because later he says:
“I worked (to) make certain that the (recommended) spending cuts do not start until 2013. We cannot run the risk of hitting the brakes in the midst of this recession, driving more people into unemployment and shredding the safety net to protect our families.”
So let’s see if we understand his thinking. Spending cuts “hit the brakes and drive people into unemployment.” We don’t want to do that now, but we do want to do it in 2013. Huh?
Then he said:
“I also insisted on two things to spark the economy: a payroll tax holiday that can create up to 900,000 jobs and a longer-term investment of $100 billion in infrastructure, education and reserach and development – key investments for long-term economic growth.”
Hmmm. So he wants to cut the deficit, but realizing that deficits stimulate the economy, he wants to increase the deficit with a payroll tax holiday and $100 billion investment.
So tell us again, Senator Durbin why do you want to cut the deficit? Oh sorry, you never told us the first time. Could it be because you have no reason? None at all?
“Borrowing 40 cents out of every dollar we spend for missiles or food stamps is unsustainable.”
Ah yes, the old “unsustainable” line. Back in February 7, 1982, almost 30 years ago, when the Federal Debt Held by Private Investors was $733 billion, President Ronald Reagan referred to the, “rapid, unsustainable expansion of Federal spending and money growth.” (See: Unsustainable) Today, the FDHBPIN is $7.9 trillion, having increased an astounding 1,000% in only 29 years, and politicians continue to refer to it as “unsustainable” – while we keep sustaining it with no difficulty whatsoever. When you say that something we have done, actually since the 1930s, is impossible, at some point you must question yourself. If it’s unsustainable, how have we sustained it?
Senator Durbin is yet another politician who does not understand monetary sovereignty. He does not understand that the U.S. can “sustain” any spending of any amount. Its spending is not constrained by deficits, debt or taxes, but rather by inflation – the inflation the Fed easily controls, the inflation from which we are a long, long way.
And he does not understand the federal government does not need to borrow the dollars it previously created, and does not need to borrow what it can create in unlimited quantities.
How frightening it is that Senator Durbin expresses the false beliefs held by the majority, not only of Congress but of the American people. One only can imagine how Galileo felt.
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 
If the government cuts its deficit, then either of two things must happen, or a combination thereof, or GDP will shrink. Either the private domestic sector has to go deeper in hock or the trade balance has to improve, or some combination of these two, to make up the difference.
The Obama Administration has set a goal of doubling exports in two years, which seems quite unrealistic. And that the private domestic sector will go on a debt binge during a balance sheet recession seems unlikely. So do the math. The numbers are not there for expansion, and they point instead toward contraction in spite of the green shoots in the real economy according to recent reports.
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Agreed Tom, though “improve” relating to a positive number for the trade balance, is a debatable judgment. But I get what you mean. 🙂
As for the Obama goal, there is a difference between a goal and a plan. Do you know what their plan is?
Rodger Malcolm Mitchell
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Rodger as always I agree with you on all things MMT. However, I would like to point out that the GOP just voted unanimously in lockstep to deny Obama his tax hike. Awaiting your breathless post about the immorality and crassness. The death of the GOP. 100% all voting one way. Outrageous! 🙂
Of course, many of the GOP are sadly misguided on the unemployment benefit issue. Agree again on that.
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Thanks Matt,
I appreciate the vote of confidence, but I’m not really MMT. The traditional MMTers (Warren, Billy, Randy et al) would fight inflation by increasing tax collections to reduce the money supply.
I disagree with that. Changing tax codes is too slow, too political, too harmful and too difficult to do incrementally.
Rather than reducing money supply, I would increase money demand by raising interest rates. MMTers say that actually would exacerbate inflation by increasing business costs, but there is no evidence showing that high rates cause inflation. Quite the opposite.
As for the GOP, perhaps I gave the media and the American public too much credit. If the GOP wins the 2012 elections, I will have to agree with the saying attributed to Henry Mencken: “No one ever went broke underestimating the intelligence of the American public.”
Then again, the Democrats are no bargain, either. Neither party understands Monetary Sovereignty. So, perhaps the better quote would be Shakespeare’s, “a plague a’ both your houses.”
Rodger Malcolm Mitchell
P.S. Warren, Randy and Billy also thought federal taxes were necessary to provide demand for money. I pointed out that state and local taxes would be sufficient, and I believe they now agree.
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12/6/10: Ignorant statement of the day:
Washington Post: “Ohio Republican Sen. George Voinovich is planning to oppose legislation that extends any of the Bush-era tax cuts, becoming the first senator to state his opposition to any extension even as the White House and congressional leaders are expected to reach a deal on the issue this week. ‘The American people should know that a lot of the reduction of their taxes is borrowed money from China,’ he said.”
Voinovich has no idea where money comes from, but he votes on our economy. This is a good example of why we suffer a recession, on average, every five years, and why we still suffer the most recent recession.
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