It takes only two things to keep people in chains:
The ignorance of the oppressed
and the treachery of their leaders.
Credentials are the “perfect” excuse for a bad hiring decision.
In my long life, I have been an owner of several companies, and personally have hired thousands of people — and I have made mistakes.
Some of those hires turned out badly. The fault may have been with the person; the fault may have been with my company. In any event, the fit was wrong, and ultimately the fault was with me who did the hiring.
Early on, I was too ready to give myself a ready, though poor, excuse: “Their credentials were good.”
Yet credentials are only as good as the person who weighs them. When you believe what a writer tells you, in effect, you have “hired” that writer to be one of your advisors on the specific subject.
You essentially have said to yourself, “I believe what he/she writes, not only because it sounds correct, but because I respect this writer’s credentials.”
Credentials have value, but I suspect they too often are overvalued. Here is a set of credentials that illustrate the point.
Kimberly Amadeo is president of WorldMoneyWatch.com. She has 20 years senior-level experience in economic analysis and business strategy working for major international corporations. Kimberly is the U.S. economy expert for About.com, the 15th most visited site on the web.
She speaks on the global economy, how it affects you and what you can do about it. Kimberly consults on how to use global economic trends to find profitable market niches.
With those credentials, I understand why people believe what she has to say, particularly about economics. And yet . . .
Here are excerpts from an article she wrote for a site called “thebalance.com,” with each excerpt followed by my own comments:
“An expansionary fiscal policy is usually impossible for state and local government. That’s because they are mandated to keep a balanced budget.”
It’s not exactly a mandate. The federal government is Monetarily Sovereign. It cannot run short of its own sovereign currency, because it creates its currency at will. That ability is what makes it Monetarily Sovereign.
State and local governments are monetarily non-sovereign. They do not have a sovereign currency — they use the federal government’s sovereign currency — and they, therefore, can run short of dollars after they reach their borrowing limit.
“As a result, the critical debt-to-GDP ratio has exceeded 100 percent.”
There is nothing critical about a debt/GDP ratio of 100 percent or any other ratio. In fact, the debt/GDP ratio essentially is meaningless.
A Monetarily Sovereign government does not pay its debts with GDP. The so-called federal “debt” is merely the total of deposits in T-security accounts.
Those deposits never are touched. They remain in the accounts until maturity, at which time the “debt” is paid off simply transferring those same dollars back into the checking accounts of T-security holders.
Further, the federal government creates dollars, ad hoc, every time it pays a creditor. So what erroneously is termed “borrowing,” is logically unnecessary. (If you owned a legal, dollar-creating machine, would you ever have the need or desire to borrow?)
The U.S. easily could support a debt/GDP ratio of 150%, 200% or 1,000%. Japan’s ratio is about 250%, and they could support a far higher percentage.
The debt/GDP ratio says absolutely nothing about the health of the economy, or the federal government’s ability to pay its bills, or future taxpayers’ liabilities. Nothing.
” . . . the contractionary monetary policy (Cutting federal spending and/or increasing taxes) is effective in preventing inflation.”
The opposite of inflation is deflation. Cutting federal spending and increasing taxes (aka “austerity”) would be effective in causing stagnation or a recession, which is quite different from deflation.
Reducing the money supply is a poor way to fight inflation. Spending cuts and tax increases are too slow, too political, and too uncertain in effect, because of three questions:
- Which taxes should be increased?
- Which spending should be cut?
- By how much?
Inflation generally is not caused by insufficient taxation or by excessive federal spending, but rather by shortages of key goods (food, oil, etc.)
Because inflation is the loss in value of the dollar, the Fed fights inflation by increasing the value of the dollar. It does this by raising interest rates. Higher rates increase the demand for dollars (aka “strengthen”) the dollar, and importantly they can be administered apolitically, quickly and in small increments.
“Taxes provide the income that funds the government.”
Though this is widely believed by the lay public, is an extremely shocking comment coming from an economist. The federal government is Monetarily Sovereign; it never can run short of dollars.
Taxes do provide income and funding for monetarily non-sovereign state and local governments, but federal taxes do not fund the federal government’s spending.
Being Monetarily Sovereign, the federal government has no need for income — no need to levy taxes (though it unnecessarily does) and no need to borrow (which it does not).
Most federal taxation is a remnant from gold standard days (which ended in 1971), when the federal government’s money creation was limited by its gold supply. Today, nothing limits federal money creation other than the will of Congress and the President.
To pay its bills for goods and services, the federal government sends instructions (not dollars) to its creditors’ banks, telling the banks to increase the numbers in each creditor’s checking account. At the moment the bank does as instructed, brand new dollars are created and added to the money supply (termed “M1”).
Even if all federal tax collections and all federal (misnamed) “borrowing” were $0, the federal government could continue spending forever.
“The federal government is losing its ability to use discretionary fiscal policy.”
The federal government, being Monetarily Sovereign, has the unlimited ability to spend any amount it wishes on anything it wishes. It cannot “lose its ability to use discretionary fiscal policy.”
“When interest rates are high, the money supply contracts.”
This is not correct. Higher interest rates increase the amount of interest the government must pay on its T-securities, thus increasing the nation’s money supply.
There also is a common myth that high interest rates reduce borrowing, but again, there is no historical evidence for this.
“The current fiscal policy has created the massive U.S. debt level.”
The federal (misnamed) “debt” is the result of all past policies, not just the current policy, and the word “massive” is a misleading pejorative. “Massive” compared to what?
So-called federal “debt” or “borrowing” is merely the total of deposits into T-security accounts. These accounts are not a burden on the federal government or on taxpayers.
They are paid off at maturity simply by transferring the dollars that currently exist in these accounts back to the checking accounts of T-security holders. No tax dollars are used.
At this point, despite Ms. Amadeo’s impressive credentials, I am not quite ready to accept her economics expertise.
It happens that in economics, and perhaps many other sciences, credentials should be looked upon with a wary eye. They may tell you what the person has done, but not whether their opinions have proved to be correct, or are likely to be correct in the future.
And if ever you are in the position of hiring people, remember that resumes may be a beginning point, but they cannot be relied upon. I have come to believe that a simple face-to-face will provide far better information.
If the person is to work for you, do your own interviewing. Don’t rely on subordinates or Human Services.
To my mind, Ms. Amadeo’s credentials said one thing, but her own words said something far different.
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.