Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
What are the parallels among rivers, roads and the economy?
The fastest river water is at the middle. Water nearer the shores is impeded by friction, and ironically, if the center water moves fast enough, eddies will form at the edges, where the water actually moves backward.
If you add the forward motion of every water molecule, you get the total output of the river. Because eddies have a lower forward speed (or even a backward speed), they reduce total river output. These eddies are “turbulence,” in which the water mixes as it flows, rather than flowing in straight lines.
Increasing the speed of the center water causes more eddies, wherever faster water touches slower water – so that increased pressure on the river to move faster is met by more and more turbulence, more resistance, and a less-than-proportional increase in river speed.
Given any level of pressure, a river will flow fastest if turbulence is reduced and every molecule of water moves in the same direction at the same speed. When there are speed gaps among water molecules, the slower water will drag down the speed of the faster water. All else being equal, the smaller the speed gap, the faster the river will move.
I began thinking about this recently on a long driving trip from Boca Raton, FL to Chicago. I spent several hours on four-lane roads (two in each direction), and frequently I saw this sign – I’m sure you’ve seen it too: “Speed limit: Autos 65, Trucks 60.”
On crowded highways, traffic moves faster and safer if everyone stays in their lanes rather than repeatedly changing lanes to get into or out of the faster lane (aka “turbulence”). Lane changes force drivers in the ‘changed-to” lane to slow, while changing drivers lane may first slow, then speed up, then drop into average speed, and this continual changing of speed causes bunches and gaps which overall, reduce the average forward speed.
(Visualize, for instance, a 60-yard dash, where runners edge in and out of lanes. Their average speed will be lower than if they had stayed in their lanes.)
But by law, truck drivers are required to go 5mph slower than cars. They are required to cause turbulence. The average-speed car will try to pass the average-speed truck, by moving from the right lane into the left lane, then moving back to the right when an even faster car comes up behind. (That’s the other law, which explicitly says, “Slower traffic to the right.”)
Then, some trucks try to pass other trucks (this takes forever), cars going slowly in the fast lane and cars continually weaving to find the open lane. By forcing trucks to go slower than cars, the law encourages traffic jams – bunching, weaving, speeding and slowing – where no one averages the speed limits, either for cars or for trucks.
So, the worst possible scenario is for some vehicles to be mandated to go slower than other vehicles, while sharing lanes. The slower vehicles drag down the speed of the faster vehicles, which in turn, even drags down the speed of the slower vehicles.
All vehicles – cars, trucks, busses –should be encouraged to run at the same speed. The smaller the gap in speed, the faster will be the average speed.
For the economy to grow most quickly (assuming that is a goal), all economic “drivers” should move in the same direction and at similar speeds, without the eddies and vortexes that work counter to economic growth.
We all share the same “road.” When faster drivers interact with slower drivers, friction and turbulence reduce average economic growth speed. And the greater the speed differences among “drivers,” the less growth will result. In economics, this is the income “gap.”
All those who benefit from economic growth (and who does not), will benefit more from a more laminar economic growth and a lower income gap.
Gross Domestic Product, the usual measure of economic growth, requires spending. Increase spending within an economy and GDP increases. On average, a rich person spends more than does a poor person. Per capita, rich people contribute more to economic growth. The center of the river moves more water than do the shores.
While rich people grow the economy by spending more, poor people slow economic growth by spending less, like eddies in a river or trucks causing traffic jams.
To increase the average flow of a river, we should not reduce the flow of the fastest water, but rather should increase the flow of the slowest, reducing the speed gap between fastest and slowest. This will reduce turbulence and eddies.
To increase the average speed of a road, we should not reduce the top speed, but rather should increase the speed of the slowest moving vehicles, reducing the speed gap between fastest and slowest. This will reduce turbulence, lane changing and traffic jams.
To increase GDP growth, we should not tax or otherwise impede the rich, but rather should increase the growth of the poor, reducing the wealth gap between the richest and the poorest. This will reduce turbulence and non-productivity.
In all cases, the average speed can be increased by two, concurrent strategies:
1. Maintain or even moderately increase the top speed while
2. Dramatically increasing the slower speed.
The “speed” gap must be reduced, not by slowing the fastest, but by speeding the slowest.
In a river this might mean removing turbulence-causing boulders from the bed and weeds from the shore. In a road this might mean increasing the speed of trucks to reduce the turbulence of lane changing.
In an economy, the turbulence of the wealth gap can be decreased by lifting the poor, but not through private charity, which like changing lanes, diverts private investment from growth to rescue. Instead, the federal government should rescue the poor, i.e. remove boulders and weeds from the riverbank and allow trucks the same speed limit as cars.
At “Closing the gap between rich an poor” I discussed tax approaches for reducing turbulence in economic growth, with this example:
What if the federal government offered to support every state, county and city on a per-capita basis, if these governments voluntarily would forego collection of all local sales and income taxes?
Consider Chicagoans. They pay taxes to Chicago, to Cook County and to Illinois. Here are the taxes residents pay just to the state of Illinois:
Aircraft Use Tax, Automobile Renting Occupation & Use Taxes, Bingo Tax & License Fees, Business Income Tax, Charitable Games Tax & License Fees, Chicago Home Rule Municipal Soft Drink Retailers’ Occupation Tax, Cigarette & Cigarette Use Taxes, Coin-Operated Amusement Device Tax, County Motor Fuel Tax, Dry Cleaning License Tax & Fee, Electricity Distribution & Invested Capital Taxes, Electricity Excise Tax, Energy Assistance & Renewable Energy Charges, Environmental Impact Fee & Underground Storage, Gas Tax, Gas Use Tax, Hotel Operators’ Occupation Taxes, Individual Income Tax, Liquor Gallonage Tax, Manufacturer’s Purchase Credit (MPC), Metropolitan Pier and Exposition Authority (MPEA) Food & Beverage Tax, Motor Fuel Taxes, Oil & Gas Production Assessment, Personal Property Replacement Tax, Property Tax Information, Pull Tabs & Jar Games Tax & License Fees, Qualified Solid Waste Energy Facility Payments, Real Estate Transfer Tax, Sales & Use Taxes, Sales of Aircraft & Watercraft by Lessors, Tax Increment Financing (TIF), Telecommunications Tax, Telecommunications Infrastructure Maintenance Fees, Tire User Fee, Tobacco Products Tax, Use Tax for Individual Taxpayers, Vehicle Use Tax, Watercraft Use Tax, Withholding (Payroll) Tax
At #OWS is an angry baby, I put forth nine steps for growing the economy:
1. Eliminate FICA (Click here)
2. Provide free Medicare — parts A, B & D — for everyone, from cradle to grave.
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Provide long-term nursing care insurance for everyone
5. Provide free education (including post-grad) for everyone
6. Provide a salary for everyone attending school (Click here)
7. Eliminate corporate income taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America
Rather than the left’s counter-productive desire to increase taxes on the rich, and the rights counter-productive desire to reduce the deficit and federal spending, our leaders should discuss ways to lift the economy by lifting the poor to reduce the wealth gap and its associated friction and turbulence.
Rodger Malcolm Mitchell
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports