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.
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Question: What can save the Democrats in the 2012 elections?
Answer: Economic growth.
Question: What will stimulate economic growth?
Answer: Tax benefits, better unemployment benefits, business benefits.
Question: What will provide tax benefits, more unemployment benefits, business benefits?
Answer: The deal President Obama worked out with GOP leaders. It has lots of tax benefits for everyone. The Bush tax reductions remain. Capital gains and dividend taxes remain at 15%. FICA is reduced. The “death tax” didn’t go as high as people feared. Unemployment benefits were lengthened.
Question: What has the Democrats angry?
Answer: The deal President Obama worked out with GOP leaders.
Question: Why are the Democrats angry at the one bill that can get them re-elected in 2012?
Answer: They campaigned on the pledge to stick it to the wealthy. This bill doesn’t stick it to the wealthy — at least not enough. This bill moderately benefits the entire country. The Democrats now are in the “Cut-my-nose-to-spite-my-face” mode, except they also are willing to spite all of America. There was a time when we all could laugh at ignorant politicians. Today, when they actively aim to harm America, they aren’t quite as funny.
By the way, did you notice how they slid in that reduction in FICA, which we recommended 15 months ago (Ten Reasons to Eliminate FICA ) and which my book, FREE MONEY, recommended 12 years ago. But hey, better late than never. As usual, they did only a partial job, but what can you expect?
Anyway, soon you’ll see all the misguided debt-hawk columnists prattle on about how this FICA reduction will make Social Security go bankrupt sooner. Tell me, who understands economics less, the columnists or the politicians?
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 
A real political problem is that the extension of unemployment insurance expires at the end of 2011. That will have a significant negative effect on the economy, unless we are lucky. A deteriorating economy will be bad for the Dems in 2012. The extension should stay in effect until unemployment has dropped to acceptable levels, and certainly until the next elections.
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Malcolm,
Apparently some of your fellow MMTers who are closet redistributionists disagree with you. http://neweconomicperspectives.blogspot.com/2010/12/no-mr-president-you-did-not-negotiate.html
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Jason,
#1, I am not MMT. Though I agree with many MMT positions, I strongly disagree with others.
#2, My problem with Billy is that he seems to use 10 words when 1 word will do. So I find his post dizzying, and I come away not understanding his main point. Probably my fault.
#3, How do you think he disagrees with me?
Rodger Malcolm Mitchell
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Rodger,
While you understand that the tax cuts (even for the wealthy) benefit all by leaving more money in the economy, he is upset that the wealthy will get to keep more of their money. Simple as that….
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Jason, you took a couple dozen words to say what he needed a couple thousand to obfuscate.
He has combined class-warfare goals with a John Wayne mentality, and come up with an us-against-them diatribe.
I’m going to write to Randy Wray, who runs things at the UMKC, and see what he thinks.
Rodger Malcolm Mitchell
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I very much look forward to his potential reply.
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Randy said, “bill writes for himself, not umkc.” I guess that answers it.
Rodger Malcolm Mitchell
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Class warfare, as you call it, seems inevitable to me unless more redistrubition takes place. I know that you aren’t in favor of such, but to me, the idea that one man’s work can be worth so much more than another’s is, quite simply, absurd.
The idea that anyone has “earned” the vast sums accumulated, or that it is appropriate that those sums be freely given to people who happen to be their children at death also seems wrong to me.
One can encourage innovation, hard work, resourcefulness and creativity without allowing the value of the hard work of others (as seem through their income) be degraded.
You ask the government to do what the rich could (to a great extent) do today at little cost to themselves in terms of really lowering their standard of living. They could provide those dollars that the government refuses to provide, but most remain wealthy beyond all need. I’m not sure why.
Best,
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Andrew,
I agree with Rodger that although wealth inequality may not be “fair” (whatever that means), what standard would you use to determine who gets what? Is the work of a concert violinist worth more than that of an accountant and if so, why and who decides?
As for leaving a fortune to your children, why is this wrong? Who should it be left to, you? You can make a case that leaving a fortune to one’s heirs is destructive to their well-being, but that’s a completely different argument than saying its unfair. Keep in mind that what people leave in their estate has mostly been taxed already through income taxes, sales tax and the hundreds of other taxes imposed by various levels of government.
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You don’t need to decide. All you need to do is to set a floor and a ceiling. Despite the fact that many MMT folks believe otherwise, this is part of the function of income taxes – they set a ceiling. As the top rate comes down, the ceiling goes up. As services go away, the floor goes down.
Why is leaving excessive wealth to your children wrong?
1) It maintains the high ceiling.
2) It devalues people who work to earn their necessities.
3) I creates a world in which resources are not made available to the most productive.
4) It destroys the idea of meritocracy and democracy.
Some transfer seems reasonable, this is why there is an exemption and the rate beyond the exemption isn’t 100%.
The double taxation argument is a non-starter. There are no rules about taxation other than ones that we create. Taxation is pretty-much continuous.
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This is the old class warfare argument that soaking the rich somehow helps the poor. It’s a false argument, that appeals to two mentalities: The poor and innocent college students.
Rodger Malcolm Mitchell
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I made an argument here. You have made none. You keep using the term “soaking the rich,” without saying what that is or why it is bad. I’m starting to think that you think it is bad simply because you think it will personally harm you. I hope that’s not the case.
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Andrew, I agree life is not fair.
The problem with “redistribution,” as usually suggested by the left, is that it usually involves bringing the rich down, not pulling the poor up.
The gap is not the problem; poverty is the problem. The rich can’t cure it. Completely strip every dollar from every billionaire in America, and you wouldn’t make a dent in poverty. In fact, Zimbabwe tried that approach recently. It made everyone poor.
The federal government easily could end poverty, at no cost to anyone. In fact we all would benefit. “Soak the rich” is nonsense.
Rodger Malcolm Mitchell
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Rodger, you know that Zimbabwe is a poor example for many reasons.
What I suggested wasn’t for anyone to “soak the rich.” What I suggested was that the rich might make the poor much less poor out of the goodness of their hearts, and not by throwing scraps.
How much tuition could be paid, how much health care provided, how many jobs created with the 2+ trillion in cash that companies are sitting on? What if rich benefactors started businesses and hired people to work in those businesses even if the return, would be, say, 0.
I assume you are rich – perhaps it is an incorrect assumption, but the argument is the same. What if you were half as rich? How would that change your life? How might you change the lives of those in whose hands your wealth eventually fell?
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I’m all for charity. It has nothing to do with the subject under discussion (raising taxes on the rich), but I’m for it.
Most charity comes from the rich. When you become rich, you’ll probably give a lot to charity, too. And you also may understand why taxing the rich does not help the poor.
Rodger Malcolm Mitchell
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re: payroll tax cut – while I understand and agree that SS can be funded indefinitely, the political reality is politicians do not understand we are no longer on a commodity standard. IMO if the funding to make up the payroll cut remains in the budget as a line item it will likely be cut in the future.
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Jason,
Redistribution is absolutely necessary. If it doesn’t happen, new entrants into the economy will have to pay whatever rent is asked by those who are well established. This is because all resources are already owned.
Someone has to decide or soon you are born living on one side of a gated community wall or the other. That’s the choice you’ve got.
MMT / Chartalism doesn’t have anything to say about this. Neither are inherently redistributive.
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“This is because all resources are already owned.
Not true.
It is incorrect to assume there is a fixed or limited amount of resources. Aiding the poor does not require that the rich be made poorer. That was the path taken by Zimbabwe, when the government took land from the white owners and gave it to black citizens, who did not know how to use it, thereby ruining the country.
The fact is, resources neither are fixed nor limited. Resources are created every day, as witness Google and Facebook. Even land, which some believe to be fixed in supply, is not fixed in value or productivity.
Rather than thinking “redistribution,” we should think “uplift” of the poor. A monetarily sovereign government can accomplish this, not by soaking the rich, but by aiding the poor. In fact, rich and poor all could be aided. Cutting taxes is but one of many ways to accomplish this.
Rodger Malcolm Mitchell
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Hi Roger,
When I said “resources” I was thinking of land, specifically. Without access to land, I must pay for food, no matter what it costs or starve. What stops land owners from demanding excessive rent for use of their land to grow food? In other words, what will stop prices on essentials from increasing by exactly the amount of the “uplift”, to use your words?
I completely agree that removing taxes from productive activity is a good thing. But we need to distinguish productive activity from non-productive activity. Most income for the already wealthy is unearned income from monopoly rents. This unearned income should be taxed away.
Ever read Henry George, Rodger?
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This unearned income should be taxed away.
Completing this: or the opportunity to collect monopoly rents should be removed.
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So the owner of land should not be able to lease it? Or should no one own land?
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The real (inflation adjusted) cost of food has come down dramatically in the past century. There’s plenty of harsh competition on food prices. When the government owns all the land you get famine, high prices, no variety etc.
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“When I said “resources” I was thinking of land, specifically.”
Not any other resources? Just land?
“Without access to land, I must pay for food, no matter what it costs or starve.”
Nice theory, but why has that not happened? Are you suggesting the Zimbabwe solution?
“This unearned income should be taxed away.”
You mean people should not profit from business ownership or from lending, the two primary sources of income for the wealthy? Or do you consider salary and bonuses to be “unearned”? Do you believe taking money from the rich benefits the poor?
And what happened to your “land specifically” example? Now it’s become “non-productive activity”? Quite confusing.
I’m beginning to smell a strong whiff of Marxism, which somehow has enduring appeal, especially among the young and idealistic.
Rodger Malcolm Mitchell
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Hi Rodger,
I was thinking of land, specifically, but the reasoning applies to any natural or government created monopoly like land, natural resources, airwaves, patents, etc. There is no confusion.
You misunderstand me. Land rent is separate from food production. I’m not suggesting Zimbabwe. I’m not suggesting the seizure of land.
I believe taxation of monopoly rent is necessary to prevent such rent from absorbing all attempts to “uplift” those who must pay those rents.
Example: the Australian Government here instituted a first home buyers grant. All this has done is increase home prices. It has done absolutely nothing for first home buyers. The beneficiaries of this policy did no productive work.
I’m no Marxist. Check out Geolibertarianism:
http://en.wikipedia.org/wiki/Geolibertarianism
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What Geolibertarianism amounts to is that if you buy a piece of land and do not improve it, you do not benefit upon selling it. This eliminates rent increases due to speculative capital gains.
Similarly, if I “buy” a communications frequency band, or carbon pollution credits, or oil reserves, or some other monopoly. I should not profit on their sale unless I have improved them, which in the case of the oil reserves might mean I’ve drilled and extracted and refined them.
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Sorry Jeff,
You have me confused. Maybe some of the other readers understand what you mean. I don’t.
I’m not sure why speculation should not be rewarded, especially since speculators absorb risk. Examples are insurance companies. Are you saying insurance companies should not be rewarded? Lenders should not be rewarded? Stock and bond purchasers should not be rewarded?
I’m not sure why wholesalers, who buy from manufacturers, but do not improve a product, should not be rewarded.
There seems to be a pattern of making a statement, and every time I ask you about it, you backtrack with, “That’s not what I meant.” The whole real estate discussion went that way. I suspect the “speculation” discussion will, too.
Suggestion: Explain a solid plan that you actually do mean, and I’ll try to understand it.
Rodger Malcolm Mitchell
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There should be a cost to monopoly Rodger.
If you own land, spectrum, patents, etc then you have been granted a state sponsored monopoly. That title should have a cost associated with it – since it infers the power to prevent somebody else doing something with the same property.
It helps nobody overall if there is profit in monopoly.
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We are still today born with or without assets – land was first granted by kings and has been handed down or traded since then. Is that a good (or efficient) way for resources to be distributed?
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“If you own land, spectrum, patents, etc then you have been granted a state sponsored monopoly. That title should have a cost associated with it . . . It helps nobody overall if there is profit in monopoly.”
So, you think there is no cost associated with owning land? What about the purchase price and the risk the value will go down? Risk is a huge cost. The purpose of speculators is to provide insurance. In essence, you are saying insurance companies should not profit. What about the taxes everyone pays on land?
As for a patent, you don’t think people should profit from owning a patent? You don’t think people should profit from owning a trademark?
Apparently, you feel comfortable with the government having monopolies but not with people having monopolies.
Fidel Castro might agree with you, but I don’t.
Rodger Malcolm Mitchell
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Fidel’s Cuba is hardly a democracy.
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That’s a bit vicious Rodger. I’m not sure the excluded middle logical fallacy was called for.
So I presume then that you are four square behind patent trolls, people who bank land for the purposes of maintaining high housing prices.
The cost of the title – whether that be in taxes or whatever – needs to be sufficient to ensure you earn nothing from simply sitting on a monopoly, and preferably you lose money by sitting on them.
You should have to use resource monopolies. Society gains nothing from those who play zero sum games.
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“You should have to use resource monopolies. Society gains nothing from those who play zero sum games.?
What are your data to support this hypothesis?
This has devolved to, “I’m not an economist and you are, but you are wrong because my intuition tells me so.” Would you similarly argue with a physicist about quantum chromodynamics?
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The data is needless law suits from patent trolls, and houses that go up in value more than the average person earns in a year.
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Andrew, perhaps the problem is I have no idea what your argument is. I can only guess you feel the very fact of taxing the rich somehow will improve the lives of the poor. Is that it?
If that is your argument, I see no evidence to support it and plenty that contradicts it. The government does not spend tax money, so taxing the rich does not increase government spending for the poor.
Rather than tax the rich, we should spend for the poor. Rather than trying to bring down the rich (which actually hurts the poor — See: Taxing the rich), we should bring up the poor.
Rodger Malcolm Mitchell
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Have you read Moshe Adler’s book? He explains why he believes that it is precisely the relative differences in income (or assets) that matter. He argues that prices are set based on what people are able to pay.
I’m not sure what you believe? Is it that people who are very rich have earned their money and therefore deserve what they have? Or is it that the world is unfair and there is nothing that people can do about it? Or is it something else?
You seem to want to make the poor un-poor by having the government give them the things that you think will make them un-poor. That may work out to be better than the current situation, but I’m not sure who gets to decide what things people ought to have. Keeping things less distorted in terms of income and assets make this decision less problematic.
Best,
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Rodger,
Spending for the poor is great, I agree. How do we ensure this spending actually benefits the poor? The example I gave regarding the first home buyer’s grant in Australia is factual. It did not help the first home buyers at all. It helped only existing home owners who sold at inflated prices.
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Andrew and Jeff,
Your questions indicate the 200+ posts on this blog have not made my position clear enough. So I’ll try to pack it all into one short statement.
I believe Monetary Sovereignty is the foundation of economics, neither taxes nor borrowing pay for federal spending, FICA should be eliminated, T-security sales should be eliminated, income tax collections should be reduced annually by increasing the standard deduction, Social Security benefits should be increased annually, Medicare should cover more people annually, students should be paid salaries for attending school and inflation can be cured/prevented by interest rate control.
What do you believe?
Rodger Malcolm Mitchell
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Here’s from a post you made on William Black’s article about the Bush tax cuts: There is not one good economic reason to increase taxes on the rich. I am amazed that a guy from UMKC, a center of MMT, would come up with a post like this.
Actually you are quite wrong on this as every strong econnomy the US has enjoyed was during times of steeply progressive taxation – particularly the greatest growth economy of our history after WW2 when top rates were 91%. In fact if you will go to Angry Bear blog you can read a true story of tax rate influence on economy with nothing but plain-jane facts and charts. I am amazed that you are so ignorant of our financial and economic history.
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Okie, my ignorance amazes me too, especially when I remember how the Reagan tax decreases led to the greatest bull market since we went off the gold standard.
Actually it’s not just taxes (outflow), but spending (inflow) that affect the key economic force, money creation, aka “deficits.” A growing economy requires a growing supply of money, and deficits are the way the federal government adds money to the economy.
Rodger Malcolm Mitchell
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I’ve found that doctors of economics are the hardest to persuade to change their mind.
Over at the Levy Economics Institute, a doctor said this to me: “… there does seem to be a profoundly unrealistic idea of what happens to tax revenues: that they somehow disappear. They do not. They are spent: on payroll for government employees; on office supplies; on roads, bridges, schools; on planes and bombs, unfortunately. But destroyed? No.”
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