The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.

I saw two articles in the paper today, and my first reaction was different from my second reaction. See how you feel:

“Record tab in race to top job,” by Fredreka Schouten, USA Today.

“This could easily be a $2 billion presidential election, and that’s just for the nominees,” said Sheila Krumholz, executive director of the non-partisan Center for Responsive Politics.”
[ . . . ]
Liberal groups say they’ll capitalize on the Supreme Court’s decision in Citizens United v. Federal Election Commission to raise large amounts to aid Obama. The ruling, denounced by Obama during his 2010 State of the Union Address, allows groups that operate independently form candidates’ campaigns to spend unlimited amounts of corporate and union cash in ads.

My first thought was, “It’s outrageous to allow all that money to be spent. People will buy the election. The individual voter/contributor doesn’t stand a chance. There should be some limit on the money that goes into these campaigns.”

However, my second thought is, this is a perfect way to protect the individual voter/contributor. Let’s say the cost of a campaign were “only” $1 million. Then a wealthy candidate could dominate. He/she could put in $500K of his own money, and virtually own the public’s attention. But how many people could dominate a $2 billion campaign?

Even adding another billion wouldn’t make much difference. The law of marginal returns says that a certain point, each additional dollar of advertising makes less and less impact. And there is a point where additional dollars actually can have a negative effect. If GM doubled its advertising budget, it wouldn’t sell double the cars. It may not even sell many more cars at all.

Perhaps, massive budgets actually protect the individual voter/contributor in our free speech society. No individual could dominate. Because political contribution rules are so byzantine, we might achieve more fairness by simply letting everyone contribute as much as they wish. What’s wrong with a $10 billion presidential campaign? Letting everyone spend what they wish sure would eliminate cheating, wouldn’t it?
Then I saw an editorial about “swipe fees,” the charge each retailer pays the credit card clearing companies. It said:

<Every time you use a debit or credit card, you shell out an invisible sales tax in the range of 1% to 3%. That’s how much retailer have to pay the banks taht issue the plastic.

These anti-competitive charges–known as interchange, or swipe , fees – add up. In 2008 retailers paid $48 billion, which they passed on in the form of higher prices. That’s an average of $427 per household.

[ . . . ] the 2008 financial crisis soured Washington on banks, giving retailers an opening to win a provision in the financial reform law that limits fees on debit cards and allows stores to rebate the saving to their customers. The Federal Reserve has tentatively set the fees at 7 cents to 12 cents per transaction, down from the current average of 44 cents.

My first thought was, “Bravo. Cut those fees. Save consumers money.”

My second thought was: Every time Congress gets into the price-setting business, they cause more trouble than they solve. How is this different from Congress setting the price of milk, bread, cars and TV sets?

Most people receive a benefit from their credit cards. They get convenience. They get the ability to cancel purchases. They get a 30-day delay in payment. They receive points or miles or dollars for each dollar spent. Someone has to pay for those services, and ultimately that someone is the consumer. If the banks can’t charge sufficient swipe fees, they will find some other way to make a profit. Perhaps raise annual fees? Charge for mailing invoices? Charge for customer phone service?

And who says the government knows best, when deciding prices? There are many cards available, and there is strong competition among card issuers. Sure, it makes populist sense to rule against banks, these days, but does it make business sense? Does Congress really do consumers any favors when it determines the price an industry may charge? Is Congress really that skilled at business?

Government price controls always seem to have a dark side, related to higher costs and/or poorer service. I say, hands off, government.

What do you think?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”