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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It’s amazing to me that voters continue to elect phony-baloney, populist politicians. These are the guys who know little to nothing about the subject at hand, but do know how to read the polls. So if the people want “A,” by heaven, the populist politician will promise them “A+,” even if it hurts the people who elected him. And voters buy that snake oil, year after year.
I was reminded again, of this human foible, when I read an article written by populist Senator Jim DeMint, South Carolina. He knows the voting public does not understand the difference between personal financing and federal financing. So, rather than educate the people, he preys on them, like a street corner con man.
Populist Jim says:
A country that doesn’t ever balance its budget will go bankrupt. That’s not a threat. It’s math.
Populist Jim hasn’t the vaguest idea about economics, or more specifically, about Monetary Sovereignty, the foundation of economics, but that doesn’t stop him from pontificating about economics and voting on economics-related bills. Fact: The U.S. government has the unlimited ability to create dollars to pay its bills, and has had this ability since August, 1971. It’s impossible for the U.S. to be unable to pay its bills. Jim, that’s math.
Populist Jim continues:
Endlessly borrowing more money to spend more money is a ruinous economic strategy . . .
Fact: We have “borrowed” (i.e., created T-securities out of thin air, then exchanged them for dollars we previously created out of thin air) almost $14 trillion according to your own numbers, an increase of 3,000% since 1971, and we are no closer to being “ruined” than we were back then. With all that debt increase, have any federal checks bounced? Even during this recent recession, with massive federal stimulus spending, is the government ruined? No? So Jim, what are you talking about?
Oh, by the way Jim, federal debt no longer is necessary. It’s a relic of the gold standard days, when the government’s ability to create dollars was restricted by gold reserves. Today, we could stop creating T-securities, and this would not reduce by even one penny, the federal government’s ability to pay its bills. If we simply stopped creating T-securities, the so-called “debt” would disappear. You see, federal debt is not a result of federal spending; it’s a result of T-security creation. No T-securities = no debt, and the government could spend forever.
Ah, but here’s Populist Jim’s best part:
A balanced budget amendment is sorely needed now, because the debt is rising bigger and faster than it ever has, like a wave cresting with more force and power as it approaches land.
Wow, that Populist Jim sure is poetic. He’s a regular street corner preacher man. Facts: By definition, a large economy has more money than does a small economy. So to grow from smaller to larger, an economy must have a growing supply of money.
But a balanced budget precludes a growing money supply. Even worse, the effects of population growth, trade deficit and inflation mean that with a balanced budget, each year the per capita supply of real money declines. And this is why, not just reductions in debt, but even reductions in debt growth repeatedly have led to recessions and depressions.
Populist Jim ends with:
A vote to increase the debt ceiling without any plan to cut spending is a vote to bring the debt even closer to crushing the economy. Congress must balance the budget now. Or, it will bust.
Let’s see, now. Populist Jim says he wants to cut $2.5 trillion from the budget. So . . .adding money crushes the economy, but taking money out of the economy helps it? How does that work, Jim?
Ah, he doesn’t know. He just tells South Carolina voters what his polls tell him they want to hear. The facts and the people who will suffer be damned. It’s economics by polling. What’s frightening is you people in South Carolina don’t have a monopoly on Populist Jims. They are in every state, spewing the same misinformation, just to get elected. And the voters are suckered by them. That – not the federal debt, but rather, the legion of Populist Jims – is why this nation is in trouble.
But wait. Why am I surprised? Jim’s article appeared in the February 8th USA Today, in which the featured editorial said:
The fact is that governments – like businesses and families–have to weather good times and bad. In good times, they should be building up surpluses. When a recession strikes, they can then pump money into the economy . . .
Hello? Look around you, USA Today. What do you think the federal government has been doing, if not pumping money into the economy – and without building up surpluses. Monetarily Sovereign governments are not like businesses and families. If even the editors of the most widely read newspaper in America, don’t have a clue about Monetary Sovereignty, how can the voting public be expected to understand it?
Darn, this is frustrating.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity, nor grow without money growth.
#Monetary Sovereignty - Mitchell 
I wonder if it’s the fact that dollars are both commodities and money that confuses them. They think that because other commodities are finite resources, dollars must be finite. Also, because other commodities are assets, or wealth, they think dollars must essentially be the same as the assets they purchase. Yet, as the MMTers point out, money actually is just a way of keeping score, and it’s the real economy that consists of and produces wealth.
However, this is confused by the fact that dollars really are traded like commodities, so I’ve been trying to think this through. I like a definition I read in one of Randy Wray’s books: money is an intertemporal transfer of purchasing power from the future to the present (i.e. credit) which is created for the purpose of taking positions in assets. If that is true, then what really is being traded when dollars are traded are bets on the U.S.’s future ability to take positions in assets. The value of the dollar relative to a peer currency like the yen is the U.S’s future ability versus Japan’s future ability. Since all monetary sovereigns have an unlimited ability to print their own currencies, the amount of those currencies outstanding is not what is at issue. What really matters are the assets those countries choose to take positions in. A monetary sovereign that invests its currency in an educated, healthy, politically stable workforce; scientific research; and a robust infrastructure will be more attractive to investors in the long run than one that invests in endless war and corruption.
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Georgie,
Agreed, 100%. I’m not sure it’s easier to understand, however. You know, “intertemporal transfer” . . . That’s professor talk, as factual as it may be.
On the other hand, I’ve been spectacularly unsuccessful in changing minds with simple words, so maybe professor talk will be better.
Example: When I tell a debt hawk the federal government can produce an infinite number of dollars, limited not by taxes or borrowing, but only by inflation, the response is:
1. “So why don’t we just give everyone a trillion dollars?” and
2. “What makes you smarter than all the economists, politicians and media people?”
Then they go on to tell me how stupid the economists, politicians and media people are.
And that is what we are dealing with.
Rodger Malcolm Mitchell
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