–Will the “Super Committee” actually consider what deficit reduction will do to unemployment?

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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A most remarkable, though belated, awakening may be under way. Read about the letter from several Senators to the deficit reduction super-committee. The letter urged the Co-Chairs of the Joint Select Committee on Deficit Reduction to take steps to ensure that Congress and the public get an independent estimate of their proposal’s impact on jobs – and do no harm to employment in America.

In part, the letter said,

We must do more to focus our national agenda on job creation and restoring our middle class. With that goal in mind, we ask you to take steps to ensure that your deliberations about deficit reduction do not worsen, and hopefully improve the jobs picture.

The letter specifically asks the Select Committee to adopt two principles:

That the proposals be analyzed by CBO for impact on employment; and
That the overall package not result in any net decrease in employment.

The letter is remarkable, not only for it’s recognition of economic reality, but for its bow to political reality. The economic reality is it is 100% impossible to stimulate employment while reducing the federal government’s money creation (aka deficit spending). The political reality is the voting public cares more about jobs than deficits.

The letter also is remarkable for the low bar it sets. It doesn’t ask this committee of luminaries to do anything positive; just don’t do anything negative. This is the measure of success. It’s like saying to the doctor, “Your goal is not to cure the patient; just don’t kill him.”

It will be interesting to see the independent estimates of the Committee’s proposals. It also will be interesting to see how the Tea/Republicans bob and weave to show that somehow, by a miracle of fudged mathematics, reducing the money supply will increase employment. I have a feeling we soon will see a spate of double-talk and fake data analysis beyond anything even this moribund Congress has produced.

Contrast the above message with the “don’t play small ball” message delivered by “60 leading economists, budget experts, former Treasury secretaries and former law makers. They essentially told the Committee not to consider what will happen to the economy, the poor, the sick, the unemployed, those losing their homes, the elderly and the children, but rather to focus on cutting federal deficits.

I’ll continue to keep you informed about the request to consider the effect of deficit cuts on unemployment. Meanwhile, keep a sharp ear for chest-thumping, flag-waving gobbledegook from the debt-hawks, as they realize how untenable their position has become.

By the way, here is another reminder about what happens when deficit growth declines: Recessions. (And recessions are cured with increased deficit growth.)

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

8 thoughts on “–Will the “Super Committee” actually consider what deficit reduction will do to unemployment?

  1. Text of the letter:

    Dear Representative Hensarling and Senator Murray,

    In the past several weeks, we have received sobering reports on the dismal state of our economy. Nearly one in ten Americans is out of work. One in six Americans lives in poverty. And worst of all, more than one in five of our children live in poverty. These numbers are unacceptable and illustrate an American Dream that is increasingly out of reach for millions of families. We must do more to focus our national agenda on job creation and restoring our middle class. With that goal in mind, we ask you to take steps to ensure that your deliberations about deficit reduction do not worsen, and hopefully improve the jobs picture.

    As many of us wrote last month, job creation should be a central priority of the Joint Select Committee on Deficit Reduction. The loss of jobs drives up our deficit through loss of tax revenue and an increased burden on government-funded safety-net services. Of course, high rates of sustained unemployment and increased poverty have many other serious negative effects on the economy and on individual families, both short-term and long-term. Therefore, whether one’s goal is reducing unemployment or reducing the budget deficit, there should be no higher economic priority for Congress than job creation.

    Simply put, putting people back to work will help get our debt under control and, therefore, the Select Committee must make job creation a top priority as it weighs changes to federal spending and revenues.

    To accomplish this objective, we request that the Select Committee adopt two principles: first, that each proposed recommendation be analyzed by the Congressional Budget Office to estimate the impact on employment. Most Americans believe that our top economic priority is job creation, and this information would provide the American public with a clear understanding of how the Select Committee’s recommendations will affect their communities and their livelihoods.

    Second, the Committee should adopt a “First Do No Harm” standard – at a minimum, its recommendations should not result in any net job loss and, ideally, that they maximize new job creation while meeting the deficit reduction goals.

    In the coming months, your Select Committee will be considering a wide range of proposals with far-reaching consequences on our nation’s economy. We understand that Democrats and Republicans have very different views of what the best strategies are for promoting economic growth and are deliberately refraining in this letter from urging the Select Committee to consider those policies we think would be most effective. Instead, we are simply asking that the Select Committee take steps to ensure that it, and the public, have an independent estimate of the impact of its proposals on job creation, so that the economic effects of its deliberations are fully understood.

    Over the August work period, we heard again and again how Americans want to get back to work, families want to regain lost ground, and folks just want the opportunity to succeed as their parents did and their parents before them. It is our duty to work to expand, rather than diminish, that opportunity. It should be the priority of the Select Committee. We appreciate the complexity of the task you face and hope that you can develop recommendations that strengthen our economy and create jobs.

    Sincerely,

    cc: Members, Joint Select Committee on Deficit Reduction

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  2. CBS evening news, 9/25/11:

    Senate Majority Leader Harry Reid wonder openly recently if Republicans want the government to shut down.

    “Do they want FEMA to close?” Reid asked.

    Democrats insist disaster relief should come without strings, while Republicans say you can’t ignore the deficit.

    “What’s at issue is whether we are going to add to the debt or not,” said Senate Minority Leader Mitch McConnell.

    Yep, that’s the issue. Not the fate of the victims of floods, hurricanes, tornados, fires, etc. No, who cares about them. The Tea/Republican issue is the debt. Remember that if ever you are hit by a natural disaster and are praying for the government to help you.

    You come last.

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  3. I think you would agree with Warren Mosely that deficit spending to build the Panama Canal raises output and employment, and deficit spending to blow it up lowers output and employment.

    What if we lowered spending by eliminating the blowing up part, for instance the burning of our food in our gas tanks (corn-based ethanol subsidies)? Would that not help us, and increase employment (lower food costs would act just like a tax cut) while lowering the deficit?

    Ok, that’s one, you say. Perhaps there are other things that are just as destructive that we can eliminate. Maybe we can allow imported ethanol from South American sugar cane? Maybe the committee can come up with a regulation or two that are stifling innovation and productivity?

    I think the committee should postulate that anything good they do will cause economic growth, and raise tax revenues, thus reducing the deficit. Whether that good comes from more helpful spending or from less destructive spending. The government itself calculates that we spend billions of hours each year trying to comply with the income tax code. There’s some low-hanging fruit, I think.

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  4. Warren said that?? Wow!

    Spending dollars to build the Panama Canal increases employment to the degree U.S. workers are used, and increases GDP to the degree U.S. facilities are used. The same would be true of blowing up the Panama Canal.

    In short, the deficit spending that adds dollars to the U.S. economy benefits the U.S. economy, and the dollars that go overseas do not.

    Rodger Malcolm Mitchell

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    1. OK, then let it be the Empire State Building instead of the Panama Canal. (I think when the quote was first uttered, we had a 99-year lease on the property, so it was not really “overseas”.) Should we be blowing up our buildings, so that we can “add dollars to the economy” by rebuilding them? Maybe we should blow up some empty suburbs, so as to raise the price of housing back to 2007 levels?

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      1. John, you mean does rebuilding a road, by first digging it up, stimulate the economy?

        O.K., I suspect you are trying to prove me wrong, so I’ll help you. Let’s say we blow up a perfectly good, brand new, federal government building, which the federal government rebuilds at a cost of $1 billion, i.e. it pays workers and materials suppliers $1 billion. Would this stimulate the economy? The answer is, “Yes.”

        After the rebuilding is completed, we would have a perfectly good, brand new, federal government building and the economy would have an additional $1 billion.

        This would not be true of state and local government buildings, as the states and local governments are monetarily non-sovereign.

        Rodger Malcolm Mitchell

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    2. The broken window fallacy was first expressed by the great French economist, Frederic Bastiat. Bastiat used the parable of a broken window to point out why destruction doesn’t benefit the economy.

      In Bastiat’s tale, a man’s son breaks a pane of glass, meaning the man will have to pay to replace it. The onlookers consider the situation and decide that the boy has actually done the community a service because his father will have to pay the glazier (window repair man) to replace the broken pane. The glazier will then presumably spend the extra money on something else, jump-starting the local economy.

      Read more: http://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp#ixzz1ZqWUTrf1

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  5. John, the great French economist Frederic Bastiat was talking about a monetarily non-sovereign entity, the father, whose spending merely transfers money. This is completely different from our Monetarily Sovereign government, whose spending creates money.

    The writer of the article also did not understand that difference.

    Rodger Malcolm Mitchell

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