Are there good deficits and bad deficits?

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.

While Congress struggles with plans to cut federal deficits (i.e. cut federal money creation), and simultaneously tries to encourage banks to lend (i.e increase private money creation), it might be instructive to see why this is exactly the wrong approach. Please go to a post I wrote last June (since updated), titled, Is federal money better than other money?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth.

3 thoughts on “Are there good deficits and bad deficits?

  1. Hello,

    I have read your book “Free Money.” I understand the concept that you are promoting. While this may not be a valid intellectual technique, it is easier for me to try to understand a concept by looking at extremes.
    Your current premis is that our deficit is not too large but that rather our productivity increase is too small. I can understand that possibility. I can imagine a government that provides no service other than it’s function to provide a stable currency. As the economy grows, it needs more money. This imaginary government would have no way to put the money into circulation except by some sort of reverse taxation. As the need for money was felt by the economy we would see deflation. Reverse taxation would be inflationary. If there was this sort of an imaginary government, how would the government deploy the reverse taxation? Would it really matter? If the government used a system of trying to social engineer by paying proportionally higher taxes to poorer citizens, I imagine that the effect would be to disincentivize the least productive members of the society. Regardless of that effect, they would spend their “bonus” and the money would be in the economy. Now that I reflect on it, it seems that it would be best to disincentivize the least productive in society rather that the most productive. If we want the most productive to become even more productive, we should cause them to be ever more hungry.

    Now, we don’t have an imaginary government that provides no service, we have a very real government that provides very real “service.”
    But favoring the model of the imaginary government is it best for our government to put money into circulation in such a way as to encourage increased productivity? How should that be done? Who in our society are most productive? Who are least productive? What do we value as product? Is plastic surgery productive? Is charity giving productive? Are legal fees to tort lawyers productive? I think that the answer to each of these questions is yes, depending….

    I think we are past the point of deciding whether or not the government should be involved in social engineering? But whatever, my question for you Mr. Mitchell is this; Would you please give your ideas on productive vs. nonproductive methods (spending) used by our very real government?


    Archie Dunbar


  2. Archie,

    I don’t think the government should decide who is productive and who is not. That is too Ayn Rand for me. She believes in reverse Robin Hood — take from the poor and give to the rich.

    How productive was Picasso? Michael Jordan? Warren Buffet? My dentist? Compare their productivity.

    When the recession began, the federal government sent a check to everyone. That was the perfect cure, with one exception: It was too little, too late.

    Anyway, rather than a reverse tax, I suggest increased federal deficit spending on things like health care, social security, roads, bridges, etc., etc. etc. That way everyone benefits.

    Rodger Malcolm Mitchell


  3. I think that I would scratch healthcare from the list. Scratch it that is as a good spot to increase spending. Here I would like to hold current spending but find ways to increase productivity. Main methods would be copays and rationing. People get so upset about this? We have rationing now. No insurance pays carte blanche. I agree that ifrastructure is a safe place to spend. I think that there are many unproductive places to spend. Military, I have been there, is bloated and entrenched. We need to find a way to get more firepower for our dolar. Same is true of NASA. I guess I wanted to see you take the discussion to productive ground. I understand the theory that we can benefit from the Federal government creating money but I think you can agree that they can find methods of social engineering that squander the benefit of the money creation process.



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