It takes only two things to keep people in chains:
The ignorance of the oppressed
and the treachery of their leaders.
Henny Penny ran madly about screaming, “The sky is falling; the sky is falling.” For those of you whose early literacy was limited to “Goodnight Moon,” we provide this excerpt from Wikipedia:
Henny Penny is a folk tale about a chicken who, upon being hit on the head by an acorn, believes the world is coming to an end.
The phrase “The sky is falling!” features prominently in the story, and has passed into the English language as a common idiom indicating a hysterical or mistaken belief that disaster is imminent.
Today’s Henny Pennys are everywhere — in Congress, in the media, on blogs, among economists — most of whom have been bribed by our richest 1% (or even .1%) to tell you that the U.S. federal debt is “unsustainable,” and will cause a Weimar-style hyperinflation.
One Henny Penny is the Committee for a Responsible Federal Budget (CRFB), whose leaders’ heads must have been hit by tons of acorns, because these esteemed dignitaries have preached the same “world-is-coming-to-an-end” garbage for more than 35 years.
But the CRFB is not the worst. We have documented Henny Pennys since 1940, all running in circles, screaming the same dire warning.
Yet, here we are.
The world has not ended. The debt has grown massively without hyperinflation. And the Henny Pennys seemingly have learned nothing.
Facts do not deter them, because they simply know, deep within their souls, that debt and deficit must be bad. After all, if you run a debt, that is a bad thing, so the same must be true for the U.S. government. Right?
Of course, wrong. The Federal government — unlike you, your state, your county, your city, and your business — is Monetarily Sovereign. It uniquely never can run short of its sovereign currency, the dollar.
The federal government can pay any bills of any size, without collecting even 1 cent in taxes, because it can create endless dollars. Send the government an invoice for $1 Million, or $1 Billion, or $1 Trillion, and the government could create the dollars to pay you tomorrow, with no difficulty and no tax collections.
Paying creditors is the federal government’s method for creating dollars.
“Aha,” scream the Henny Pennys, “but that will cause inflation, and not just inflation, but hyperinflation, like Weimar Germany and Zimbabwe, because as everyone knows, printing money causes inflation.”
That is the Henny Penny, “yes, but” end-of-world scenario (“Yes, the government can pay for anything — Medicare for All, Free Education for All, anti-poverty programs, etc., but that will cause hyperinflation.” )
Weimar Germany usually is given as the prime example of money “printing” causing hyperinflation. Except it is a false example.
Though money “printing” always is present during hyperinflations, the beginnings of a hyperinflation are some form of shortage.
Germany’s was a shortage of gold. Zimbabwe’s was a shortage of food. Shortages lead to higher prices, which governments are tempted to match with increased money supply.
The process is: Shortage of goods and services —> Inflation —> Government currency printing —> More Inflation —> More shortages —> More currency printing . . . and on and on to hyperinflation.
In summary, hyperinflations cause money “printing” rather than the other way around.
Here is a graph showing Debt growth (red line) and inflation growth. Despite the massive increase in Debt, average inflation has been modest because the U.S. did not experience serious shortages of goods and services.
Wired Magazine, 09.30.17
NO INFLATION? TECHNOLOGY MAY HAVE LEFT IT BACK IN THE 20TH CENTURY
By Zachary Karabell
During her speech to the National Association of Business Economics on Tuesday, Federal Reserve Chair Janet Yellen said inflation and wages are not rising as expected.
Nonetheless, she believes the Fed should continue on its path of raising interest rates, because diverging would risk inflation getting out of control once it starts to rise, as she believes it inevitably must.
To which the question should be: Really, must it?
What if the combined and continuing effects of technology and a globalized market of goods and labor are so altering commerce and prices that the 20th century script is as outmoded as an IBM Selectric typewriter?
Here, Mr. Karabell clarifies what should be basic and obvious, but amazingly seems to be opaque to mainstream economists: Excessive inflation begins with shortages. PRICE = DEMAND/SUPPLY
Yellen is speaking to the fact that over the past eight years, economic output has picked up and employment has grown, but neither wages nor prices have risen much. Inflation has barely nudged 2% in the past decade.
The question is why. Yellen admirably admits that structural changes are invalidating past assumptions and patterns.
How long before we consider the possibility that (we’re in) a new normal? Unemployment has plunged from a high of 10% to the mid-4% range that is about as low as ever. But many of the newly created jobs pay less than their pre-2008 predecessors. Crucially, there’s still little growth in wages.
The absence of inflation doesn’t mean that everyone can afford basic necessities such as health care. But that reflects massive inefficiencies in how we deliver care as much as underlying cost trends.
Instead, the cost of most of life’s necessities, from food to clothing to shelter, has stabilized or dropped over the past two decades due to the deflationary effects of technology.
It isn’t just that you can get a large flat-screen TV for next to nada. You can get a car that uses less fuel and is far safer for less money (inflation adjusted) than a gas guzzler of yesteryear.
Thank, in part, composite materials, which also require less energy to produce than 20th century steel. You can get a smorgasbord of caloric abundance for a fraction of the cost of a much less varied diet in 1950; you can access new medicines to extend lives by years; and you can access for free on the Internet incalculable reams of data, costing you nothing but your time.
For some aspects of our lives, there is no apples-to-apples comparison with the past.
With Moore’s Law and the compression of data and power, today’s smartphones are the equivalent of yesterday’s supercomputer that cost 1,000 times as much, guzzled electricity and demanded expensive cooling systems.
Electrifying a grid that needed to fuel that and billions of incandescent bulbs was costly compared with the dollop of energy needed to power LEDs. That washing machine, with its smart chips monitoring the size of your load? That smart thermostat in your home dynamically adjusting heat and air-conditioning? They also reduce costs, and overall electric demand, even in their limited numbers so far.
And this doesn’t even begin to adjust for the possible efficiencies and benefits of the app economy that can connect buyers of goods and services with sellers with fewer frictional costs of middlemen scheduling and booking and coordinating.
Karabell continues with his examples, all of which demonstrate one basic truth: If the supply of goods and services grows as fast or faster than the supply of money (i.e Supply grows faster than Demand) prices will not rise.
Given that our computerized economy continues to produce more/better goods and services, and further reduces the need for labor, there is no scarcity factor to raise prices (or wages).
Similar changes are under way in the developing world, as labor gives way to robotics and basic goods become affordable and accessible to the planet’s billions.
Given those changes, why would 20th century models of prices and rates and money supply work as they used to work?
Kudos to Yellen and the Fed for at least having the humility to consider that the economic truths of the past may not be so true anymore.
They now need to make the next step, and consider what policy might look like if past patterns are indeed of the past. Otherwise we risk making policy geared toward a world that no longer exists, and it is hard to see that ending well.
Science has changed the world. We can grow more, create more, and ship more, all at less cost than ever. In our global economy, a shortage in country “A” quickly and cheaply can be filled by producers in country “B.”
In the past, businesses paid people, who labored for money to buy goods and services. Today, businesses pay fewer people less, and these people can acquire better goods and services for less money.
Contrary to the belief of Modern Monetary Theory (MMT), that full employment is a prime goal, we are headed toward a world where full employment is an abomination — a world in which humans labor less and enjoy life more.
There is no magic to the 40-hour week. Why not a 20-hour week? Or less? Federal deficit spending can accomplish this.
And that is the irony promised to you in the title:
Federal deficit spending actually may help prevent excessive inflations, particularly if the deficit spending supports efficiency and productivity.
Consider the efficiency and productivity effect of federal deficit spending to fund scientific advances in cheaper, renewable energy — solar, wind, geothermal and others we’ve not yet thought of.
Consider the efficiency and productivity of federal deficit spending to support education, particularly STEM (Science, Technology, Engineering, Mathematics).
Consider the deficit spending that would result from reduced business taxes, thereby cutting the cost of producing virtually everything.
Federal support for the development of better seeds and better farming methods could eliminate food shortages, a key cause of inflation.
Sickness is inefficient; health is efficient. Deficit spending that supports health care would increase efficiency and productivity.
A wide Gap between the rich and the rest encourages poverty and discourages productivity. Deficit spending to reduce poverty and increase productivity would help reduce shortages.
Implementation of deficit spending for the Ten Steps to Prosperity (below) would help prevent excessive inflation.
That is something the debt Henny Pennys don’t want you to know.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.