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•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•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.
•The single most important problem in economics is the Gap between rich and poor.
•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.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..
Readers of this blog know that federal deficit spending adds dollars to the economy.
–And they know that economic growth relies on increased spending by the federal sector and by the non-federal sector (GDP = Federal Spending + Non-federal Spending + Net Exports)
–And they know that federal deficit spending adds to Non-federal Spending by putting more dollars into the pockets of individuals, corporations and local governments.
–And they know that reduced federal deficit spending leads to recessions (See the Recession Clock at the bottom of this page).
So for all those reasons, the myth that federal deficits, federal debt and the federal debt ceiling should be reduced are wrong-headed and damaging — perhaps the most damaging economic myth in all of economics.
But there is yet another reason why that myth should be consigned to the flat-earth, anti-vaccination, pro-gold dustbin of history, and that reason is: RISK.
What the Steve Jobs Movie Won’t Tell You About Apple’s Success
By Yves Smith, October 27th, 2015
Mariana Mazzucato’s recent book, The Entrepreneurial State, makes a bold and well-documented case that government has been the key factor in promoting innovation, largely because private interests lack the risk tolerance and long time horizon needed to create foundational technologies.
I often use the iPhone as an example of how governments shape markets, because what makes the iPhone ‘smart’ and not stupid is what you can do with it.
Everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touch screen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA!
These agencies are all “mission-driven.”
By contrast, private industry is profit-driven, sales-driven, growth-driven, and the like.
Do you know how much it cost to send men to the moon, or to develop atomic energy or to create GPS? Do you even care?
Without NASA, no private company, would have risked starting from scratch to develop the rocketry, the astronaut training, the launch sites, the computerization and to pay all the thousands of personnel involved in an event that itself produced zero income (though it led to thousands of valuable inventions).
Our government, being Monetarily Sovereign, so is able to create dollars ad hoc, can afford any financial risk.
MM: We pretend that government at best was important for some infrastructure and basic science behind their empires.
We see the new Steve Jobs film, which is based on a 600-page book where not one word mentions any of the public funding behind Apple’s empire. But the real iPhone story — or the story behind biotechnology — reveals a very different narrative in which government-funded research made the most exciting innovations possible.
The same could be said of Elon Musk today —Tesla and Space X not only benefit from government-funded basic research through agencies like the DoE and NASA, but they have also, as companies, received high-risk investments by the public sector.
Just one example is the $465 million guaranteed loan received by Tesla by the DoE. As recently shown by an LA Times article, the entire Musk empire has received close to $5 billion in direct and indirect support.
Why did the DoE guarantee Tesla’s loan? Because they believed electric cars were destined to be energy savers, safer and less pollution creating.
The only question I have is: Why guarantee a loan? Why not simply give the money (with caveats about how the money and resultant profits are used)?
If energy saving, safety and reduced pollution are worthwhile goals for America, why make Tesla think twice about whether developmental costs are worth the risk to the whole corporation?
Sadly, after making the excellent point that the federal government can afford R&D risks that private industry cannot, and were it not for federal spending, much of what we take for granted in modern America would not exist, Ms. Mazzucato falls off the rails.
LP: You make the case that if taxpayers fund research responsible for the success of many private sector enterprises, then we deserve something back. What might a fairer system of the distribution of rewards look like?
MM: When government provided Tesla with that guaranteed loan, it was a success. On the other hand, Solyndra got roughly the same amount ($500 million to Tesla’s $465 million), but it was a failure.
Any venture capitalist will tell you that this is normal: for each success there are many failures. But what the venture capitalist has that the government does not have is the ability to use some of the upside to cover the downside and the next round of investments.
Economists argue that the government gets that upside through taxes paid by the companies benefitting from the investments; and by economic growth, which should generate higher tax receipts more broadly; and also through the spillovers from the investment into other areas, which helps the economy.
Yes, that is what many economists say, but they are dead wrong. The federal government does not benefit from taxes. It neither needs nor uses tax dollars. It creates dollars ad hoc, by spending.
Bottom line: One of the many reasons why federal deficit reduction is so harmful is: It reduces federal financing of the R&D that has brought us modern America. The federal government can afford what private investment cannot. The federal government can afford any financial risk.
If the smartphone and GPS had not been invented, we would feel no sense of loss. We would be perfectly satisfied with dial phones and paper maps. We would live in ignorance of what might have been.
And today, you have no idea what austerity has cost you — the inventions that never were invented, the mortal diseases that have not been cured, your loved ones’ lives that unnecessarily have been lost, the progress that didn’t happen.
We allude to this in the five posts titled, “You never will know what you have lost.”
Rodger Malcolm Mitchell
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 Click here
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.
THE RECESSION CLOCK
Vertical gray bars mark recessions. Recessions come after the blue line drops below zero and when deficit growth declines.
As the federal deficit growth lines drop, we approach recessions, each of which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.