–Why are Libertarians incapable of learning economics?

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening
the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Everything in economics devolves to motive,
and the motive is the Gap.

According to the Reason.com website:

Matt Welch is editor in chief of Reason, the libertarian magazine of “Free Minds and Free Markets.” He is co-author, along with Nick Gillespie, of the 2011 book The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong With America, which Tyler Cowen called “the up-to-date statement of libertarianism.” Welch also wrote the 2007 book McCain: The Myth of a Maverick.

Recently he wrote and published: If We Only Spent All the Money, Then Everyone Would Be Prosperous!.

In attempting to prove that federal government spending is counter productive (the usual libertarian dogma), he asked four questions (probably assuming they could not be answered).

But we answered:

1) Why were states not measurably more prosperous after increasing government spending by more than 80 percent in real terms between 2003 and 2007?

Our Answer: The states, unlike the federal government, are monetarily non-sovereign. Their spending is funded by taxes and borrowing. To increase spending, they must increase taxes or borrowing — both of which ultimately punish local taxpayers.

By contrast, the federal government is Monetarily Sovereign. Federal spending is not funded by taxes or by borrowing. The federal government creates dollars ad hoc, by paying bills, which is why federal spending is stimulative while state spending is not.

2) Between the time of Bill Clinton’s last submitted budget of $1.8 trillion, and Barack Obama’s first submitted budget of $3.6 trillion, did the average American become more or less prosperous?

Our Answer: While the rich get richer, the “average” American has not benefited sufficiently from GDP growth. Said another way, the Gap between the rich and the rest has widened.

There are many reasons for this, having to do with tax laws, labor supply and mostly the political power of the rich. Just one example: Consider FICA’s huge negative effect on “average” people, and the minuscule effect on the rich.

3) The United States after World War II, Canada in the 1990s, and Australia in the 1980s all became significantly more prosperous—despite ample warnings to the contrary—after cutting, not increasing, government spending. Wha’ happen?

Our Answer: Depends on what you mean by “significantly more prosperous.” GDP has risen in a relatively smooth line since 1945, with the exception of recessions.

Every depression in U.S. history, and almost every recession, has immediately been preceded by reductions in deficit growth and cured by increases in deficit growth. [See Items #3 and #4 at: Summary ]

4) Is there a ceiling on what percentage of GDP the government should account for, and if so why should there be one, and where should it be?

Our Answer: No, there is no ceiling and no reason for a ceiling.

If ever you’d like to discuss these facts, please feel free to contact me.

Rodger Malcolm Mitchell

Sadly, the libertarians never have acknowledged the basic facts of Monetary Sovereignty. To show how this ignorance continues through the years, here is a Reason.com article from May 2009

“Gov. Sanford says that he does not want to take the money, the federal stimulus package money,” (Gov.) Schwarzenegger told ABC’s This Week on February 21, 2009. “And I want to say to him: I’ll take it. I take it because we in California…need it.”

But does California, or any other state, really “need” federal money during this economic downturn? Only if you accept the premise that state budgets should roughly double every decade.

No, Mr. Welch, the states need federal money because they are monetarily non-sovereign. They do not have the federal government’s unlimited ability to create their sovereign currency, because they don’t have a sovereign currency.

Unlike a Monetarily Sovereign government, which is sovereign over its currency, a monetarily non-sovereign entity needs income to support spending. That is why long term survival requires a positive balance of payments for states, counties and cities, but not for the federal government.

It remains a mystery why educated people continually state their belief that federal finances are like state and local (and personal) finances. The evidence is right in front of their noses.

You and I, like state and local governments and businesses, are monetarily non-sovereign. All of us, in order to pay our bills long-term, require our total income to equal or exceed our total outgo. The federal government neither needs nor uses income to pay its bills.

In 40 of the past 45 years, the federal government has run deficits. And the five non-deficit years saw only modest surpluses. Today, federal spending has exceeded taxes by about $18 trillion (depending on what’s counted). Yet, the federal government has no difficulty whatsoever paying its bills — nor ever will.

In short, to buttress their false logic, libertarians and others ignorant of economic reality, repeatedly equate monetarily non-sovereign governments with Monetarily Sovereign governments.

We very seriously wonder: What is there about Libertarians that makes them incapable of learning economics?

Rodger Malcolm Mitchell
Monetary Sovereignty

Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually. (Refer to this.)
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

Monetary Sovereignty

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.


13 thoughts on “–Why are Libertarians incapable of learning economics?

  1. Happy new year Rodger. I hope you keep up your important work despite the frustrations.

    I have largely accepted the basic ideas of MS and MMT, but the question of government borrowing still bothers me. If you have written on this, or have a simple explanation, please let me know. Now that there is no gold standard, the federal government does not have to borrow, but it still goes through the motions of doing it, so it acts as if it does. I can follow Warren’s explanation that bond buyers don’t lose purchasing power as taxpayers do, they just shift to a different liquidation date. As you say, the record shows that reducing federal surpluses has always led to economic down turns But that was as true before 1971 as after, so the Monetary Sovereignty explanation doesn’t seem to explain the full sweep history for the past two centuries. This leads to a few important questions:

    Why did federal surpluses, which turned bonds into cash for the bondholders before 1971, take money out of the economy?

    Did the sale of War Bonds during World War II really take cash out of people’s hands and reduce inflation as they were understood to do at the time, and did those bonds provide purchasing power when goods like cars became available after 1945? Did this work because the bonds were not negotiable? And perhaps most important, if federal deficits, which involved the sale of bonds before 1971, put more dollars into the economy, as the record appears to show, why would the sale of bonds by states today not have the same effect, particularly if they were negotiable?

    I can’t argue the MS case with others convincingly because I can’t answer these questions for myself. I would appreciate any help you can give.

    Best, Tip Parker


    1. Investing in a T-security is nothing more than making a deposit in a T-security account at the Federal Reserve Bank. So, to answer your questions:

      1. Making a deposit in a bank account does not “take money out of the economy.” It merely changes the investment.

      Similarly buying a stock does not “take money out of the economy.” It merely transfers the dollars to other hands. Investments and deposits do not take money out of the economy. They transfer money.

      2. Federal surpluses do not turn bonds into cash. Federal surpluses turn cash into taxes, which disappear from the money supply. Federal surpluses destroy money.

      (By contrast, state government surpluses do not destroy money; they transfer money to the bank accounts the states use).

      3. T-bonds “provide purchasing power” to the same degree as your bank account “provides purchasing power.” Both are bank accounts, neither adding nor subtracting dollars from the economy — with one exception: T-bonds pay interest, which is additional money created by the federal government.

      4. Like T-bonds, state bonds neither add nor subtract dollars from the economy. But, unlike T-bonds, the interest on state bonds does not add dollars to the economy.

      States, being monetarily non-sovereign, do not create dollars. They spend tax dollars. The Monetarily Sovereign federal government does not spend tax dollars. It creates dollars.


    2. @Thornton,

      You are somewhat correct about the gold standard and borrowing. The thing is…. and this is just a very short point there is more to it….that since WW1 we were not on a true/classic gold standard. After WW2 we were on a gold exchange standard between governments. When you include fractional reserve banking the government was still able to borrow similar to today, that is they were not restricted by the amount of gold they had per se…..that is they were restricted by the ability of other governments to exchange their dollars for gold if they felt the US government was borrowing too much (ie..which would reduce the dollars purchasing power). So it was the exchange part that made the US non-momentary sovereign not that we were limited in the amount of gold we held per se…

      Another point. One thing that is missing from MS (among a couple of things) is the role of the federal reserves in all this. MS see the Federal Reserves as part of the US government, it is a debate that just about everyone has a different view on and which both sides can make valid point on but it does change the discussion a bit depending on where you stand.

      As far as I am aware the Federal Reserves has a separate balance sheet than the US government, their operations are not consolidated.

      So when Rodger says that investing in T-securities is the same as simply transferring money from one account to another their is a little more to it than that. From your/individual’s perspective ie..buying treasuries you can think about it in in terms of buying a CD. Also think about if you are going to lose purchasing power if interest rates are less than 1% and inflation is 1-2 % (by the way I am not sure what the actual interest rates are from T-securites as of this moment)

      However from the governments perspective it is a little more involved that that. The main issue is who is doing the buying and selling of the T-securites, if the Federal Reserves is buying or selling from their balance sheet then it would create/remove money. (by increasing/decreasing the supply which affects demand for T-secuities) If they are not buying/selling from their balance sheet then it would be similar to what Roger suggest. MS fails to make this distinction again because they view the federal reserves as part of the US government and therefore do not see the distinction.

      Also another thing to consider is that the US government via surpluses/deficits only accounts for @20% or so of the money being created, the rest is created within the banking system.

      These are just a couple of short points, obviously there is a bit more to it but it is something for you to think about.


  2. Your answers were apparently vaporized.

    Main thing about this type of “libertarian.” They would easily prefer the tyranny of the corporation (big business) over the tyranny of big government any day. Even if their goal of no govt (interference) is accomplished, they are still going think of themselves as victims. There will never be a system to appease them from their self-absorption and victimization. (I don’t think they understand this externality. It is like a dog chasing an automobile. If indeed the dog “catches” the auto, what then? Same predicament. What then libertarians?)

    These kind of authoritarian/laissez faire types are best described as selfish, solipsistic and narcissistic,

    True libertarians understand the delicate balance between interdependence and independence and strive for equity/fairness for all.

    True libertarians understand the need for a potentially even-keeled balance (right balance) between govt/business/society. This should include a rudimentary understanding of govt monetary operations and the contingent currency issuance capabilities of the US federal govt, at minimum.


    1. I mentioned this before before, but I would hope people would be careful in criticizing other schools especially when they do not know what the actual position of those other schools are that they are criticizing but instead rely only on their own preconceived notions or what they “heard” especially where there own views leave them open for the same type of criticisms.

      One of the problems with MS is that it mainly focuses on the Government Accounting or Functional Finance..is it called and then turns this into economics. The problem is Economics is such a larger field and Libertarians have a much better understanding of the larger fields of economics, history, politics and human behavior and how it all intertwines within the “real” economy (if you will), than MS does. Although they may not be familiar with the terminology of MS, they are aware of a lot of the concepts of MS and they would probably agree much like Robert Murphy did in his debate with Warren Mosler on a lot of the points that MS makes.

      The problem is and I will use the analogy of a house to make it…where MS would like to fix up the inside of the house and maybe add a new floor ie..fix the current system, Libertarians on the other hand range from wanting to scrap the whole thing and build a brand new house through wanting to gut the house and rebuild the inside from scratch. Not understanding this from the MS folks then in turn leaves a gap in understanding between the schools. Libertarians are familiar with some of the concepts of MS (ie..the US cannot run out of dollars) but may not care to learn the finer points of MS because they are not interested in fixing up the house, they want to scrap it.

      To then say they cannot learn economics because they are not interested in fixing up the house and basically just disagree with you is nonsense. In addition to then add to this by either misrepresenting what they say or making comments like one of the commenters above without again as I said above not knowing what you are talking about (or rather know what their positions actually are) is again just nonsense especially when they have a much broader understanding of economics than you do!!

      Again my point is just be careful and know what you are talking about!


      1. Talk about having it completely backwards…

        The “system” was built on the basic principles that libertarians believe in. That system has been getting gutted year after year.

        So your house analogs should be, we already had a pretty solid house and year after year it keeps getting decimated. Libertarians want the good old house back, liberals want to do more of what has been proven to destroy the house for decades.


        1. Yes, those nasty liberals. with their Social Security, Medicare, Medicaid, public broadcasting, aids to education, the Civil Rights Act, the Voting Rights Act, the Immigration and Nationality Act and poverty aids — they sure have decimated that good old solid house that didn’t have such programs.

          Don’t you long for those good old days, where we had no Social Security, no Medicare, no Medicaid, etc., etc., etc?


          1. Have things changed so much for the common man since the good old days? Yet, technology has increased productivity many times over.

            What used to take time away from a doctor, is now being done by machines. Cars, food, homes, etc are built with the stroke of a button.

            Yes, we have social security, medicare, medicaid – but the don’t have the real benefits of activities that should have resulted in a better quality of life for the middle income folks.

            We are basically moving to the things that led our founders to leave Europe. If socialism worked, than Europe would be the bastion of prosperity – yet, today they find themselves pointing fingers. I just keep counting down the days until the whole thing disintegrates and proves that the socialists states (just about all of them) will be the worst off.


          2. It is a demonstration of Libertarian economic ignorance that any social benefit is termed “socialism.”

            Apparently, to a Libertarian, only a government that provides no social benefits, is worthwhile.

            In that case, I expect you, as a Libertarian, to refuse all benefits from the federal government. If you accept these benefits, you would be fostering socialism, right?

            The thing killing Europe is not “socialism” but monetary non-sovereignty.


  3. LOL….

    Libertarians are the only ones left with a brain. The rest of the population are acting like sheep, quietly following their leader. I am willing to say that a chunk knows they are being lied to.

    You are wrong on the corporate / government argument. The issue with the corporate tyranny is that it’s a man made boogie man. Corporations would never be tyrants if it were not for the government allowing them to be tyrants and defending their monopoly.

    Libertarians simply believe that all legislation should be thrown in the garbage, except those needed to protect private property, prevent fraud, protect human rights, and give everyone equal chance under the law. Is this what you call “selfish”? Please show me which part?


  4. As part of an article criticizing federal government spending, Libertarian Matt Welch asked: “Why were states not measurably more prosperous after increasing government spending by more than 80 percent in real terms between 2003 and 2007?”

    He is not the first Libertarian to demonstrate ignorance about the differences between Monetary Sovereignty and monetary non-sovereignty. In fact, this ignorance seems to be a part of Libertarianism.

    That doesn’t mean all Libertarian ideas are wrong. But if one’s philosophy asks that government be made smaller, and government spending reduced, at the very least one should understand there are different kinds of governments, financed in different ways.

    There are many worthwhile economic theories, but Monetary Sovereignty is a fundamental description of government financial reality.

    Not understanding Monetary Sovereignty, but discussing economics is like not understanding arithmetic, but discussing mathematics. It’s not a theory, but rather a description.

    One simply cannot be a knowledgeable economist while ignoring Monetary Sovereignty.


  5. Way off topic, but I simply had to tell you the best joke I’ve heard in a long time:

    Russian President Russian President Vladimir Putin decides to visit Ukraine. At the border crossing, he is met by Ukraine customs, who ask him some questions:

    Customs: What is your name?
    Putin: Russian President Vladimir Putin

    Customs: Where do you live?
    Putin: Moscow, Russia

    Customs: Occupation?
    Putin: No, just visiting.


    And then there’s no joke:
    Russia confronts uncertain path

    But back to the jokes:

    With the 114th Congress scheduled to convene on Tuesday, Louie Gohmert, a Texas representative aligned with the conservative Tea Party movement, said on Sunday he would run against Boehner for the leadership job.

    Sadly, it’s no joke.


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