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.

On August 15, 1971, the U.S. government became Monetarily Sovereign. The entire world of economics changed on that day. Sadly, the University of Chicago (the school whose economics professors lead in Nobel Memorial Prizes in Economic Sciences), seems never to have learned the difference between Monetary Sovereignty and monetary non-sovereignty.

Professor Gary Becker (one of those Nobel winners), wrote an excellent article that ended on a sour note. The excellent part outlined why the Presidential candidates’ pandering to the manufacturing sector is as economically misguided as was the earlier (and still) pandering to the agricultural sector.

Here are a few excerpts:

Yahoo Finance
A farewell to U.S. factories
By Gary Becker | MarketWatch | 4/25/12

BEIJING (Caixin Online) — Manufacturing employment as a fraction of total employment has been declining for the past half century in the United States and the great majority of other developed countries.
Concern about manufacturing jobs has become magnified as a result of the sharp drop in the absolute number of jobs since 2002. . . .if past trends continue, the share of American jobs in manufacturing will probably be lower in the future than it was even as late as 2007.

Past trends have continued. [See the comment section of the previous post, for a graph of this trend.]

Commentators have always lamented a sizable fall in jobs in any large sector of an economy. A prominent example is the huge decline in farm employment during the 20th century in all developed countries.

In 1900, about 40% of American jobs were in agriculture. This fraction continued to drop during that century, despite a host of special subsidies and tax breaks to the farm sector. Only 2.5% of the American labor force has worked on farms during the past couple of decades.

U.S. President Barack Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment.

So far, so good. I agree wholeheartedly. In fact, there are far better reasons to support a more educated workforce via paying salaries to students.

Instead of singling out manufacturing for special privileges, the U.S. government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy.

More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal government, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions.

Looking good. The three posts titled “Salary for attending school” (I, II and III) are most appropriate to the goal of minimizing dropouts.

But, after this great start, Professor Becker ends badly:

Many other steps can be taken to help the American economy, especially by limiting the growth of entitlements and the federal budget.

Yikes! “Help the economy by limiting the growth of entitlements and the federal budget”???!! Is this the kind of nonsense the highly respected, often rewarded U. of C. still teaches?

Does their astronomy department teach astrology? Does their psychology department teach phrenology? Why does their economics department believe the federal government is monetarily non-sovereign?

There is no known mechanism by which a reduction in entitlements and the federal budget can “help the economy.” None. Zero. Zip.

I agree with his conclusion, “The call by many for special treatment of manufacturing jobs is basically misguided,” but why did he have to ruin it by displaying total ignorance of Monetary Sovereignty?

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