It takes only two things to keep people in chains:
The ignorance of the oppressed
And the treachery of their leaders
I do not understand quantum chromodynamics. Therefore, I do not pretend to understand quantum chromodynamics, and I do not write about the subject.
Would that all the people, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, abstained from writing about the subject. Unfortunately, many (most?) articles about federal finance reveal the authors’ abysmal understanding.
The U.S. government and others (Canada, Japan, the UK, Australia, et al) are Monetarily Sovereign. They create their own sovereign currency and pay their debts using that sovereign currency.
By contrast, cities, counties, states, euro nations, businesses, you, and I are monetarily non-sovereign. We do not have a sovereign currency with which to pay our debts. Unlike the U.S. government, you and I and the other non-sovereign entities can run short of whatever currency we use for bill-paying.
Writers, who do not account for the difference, wrongly seem to believe U.S. government finances are similar to monetarily non-sovereign entities.
Consider President Barack Obama:
“Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.” —President Barack Obama, weekly radio address, July 2, 2011
He was wrong. The U.S. government is not “just like families.” Federal finances are nothing like family finances. The President spoke out of ignorance or deceit, I don’t know which. Many speakers and writers do the same.
John Steele Gordon is one such writer.
Here are excerpts from his article that appeared in Commentary.
John Steele Gordon is an economic historian and the author of, among other works, An Empire of Wealth:The Epic History of American Economic Power. He was educated at Millbrook School and Vanderbilt University, graduating with a B.A. in history in 1966.
Someone in the 19th century said that there are three forms of lying: lies, damned lies, and statistics.
If you would like a beautiful example of the last category of mendacity, check out David Leonhardt’s April 15th column in the New York Times, entitled (try not to laugh) “The Democrats Are the Party of Fiscal Responsibility.”
As you will see, Mr. Gordon will provide excellent examples either of his own mendacity or his pure ignorance of the subject.
In our previous post, “The CRFB myth machine keeps on rolling,“ I assumed the Committee for a Responsible Federal Budget (CRFB) was deliberately deceptive. In today’s post, I wonder whether Mr. Gordon, a Bachelor of Arts in history, simply never learned about federal finance.
Including that notorious and misleading debt clock as a lead to his article, is only the beginning of his article’s wrongheadedness.
In it, he compared the deficits run up by each Democratic and Republican administration from Jimmy Carter on to the present with the GDP of that time.
We have written at length about why high Debt/GDP and the Deficit/GDP ratios constitute no threat to a Monetarily Sovereign entity, the U .S. government.
These ratios are presented with the implications that a) the federal government can’t afford to service some level of deficit or debt, and b) that taxpayers will have to bear the burden.
In fact, the U.S. federal government can afford anything, and taxpayers do not pay for federal obligations. To quote some real experts:
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.
As Greenspan, Bernanke, and the StL Fed say, the federal government can pay any bills by “printing” dollars, not by collecting taxes. Clearly, you taxpayers and your grandchildren will not be burdened (as some pundits claim).
The article continues:
Whatever his methodology, Leonhardt was comparing apples and oranges.
Ah, the irony of the apples/oranges analogy, since there can be a no better example of that fruit salad than Debt and GDP, two unrelated, completely non-comparable figures.
“Debt” equals the deficit total over many years. GDP is a one-year measure of spending in America — federal, non-federal and foreign. A high Debt (or Deficit) / GDP ratio merely implies the financial contribution the federal government makes to our economy. The ratio says nothing about affordability, the need for taxes, economic growth or any other important measure.
It was not Bill Clinton who slew the deficit dragon in the 1990’s but the Congress, which the public transferred to Republican control in 1994 for the first time in 40 years following an outcry over Democratic profligacy.
Gordon refers to the deficit as a “dragon,” not realizing that federal deficits add dollars to the economy, and that without federal deficits it mathematically is impossible for the economy to grow:
GDP = Federal Spending + Non-federal Spending + Net Exports
Federal Spending and Non-federal Spending both rely on the dollars created via federal deficit spending.
Gordon also demonstrates he does not understand the difference between “Total Federal Debt” and “Federal Debt Held By The Public,” when he writes:
The Republican Congress increased spending by a mere 18 percent between 1995 and 2000, while the roaring economy increased tax revenues by 51 percent.
Nor did Leonhardt take into account the phony accounting the federal government uses to obscure reality. Officially, we ran surpluses (meaning, by definition, that income exceeded outgo) in 1998, 1999, 2000, and 2001.
But the national debt went up, not down, in each of those four years.
This graph demonstrates the difference:
The national “debt” went up only if one includes the internal debt that federal agencies owe each other — i.e. what the right pocket owes the left pocket.
Surpluses however, refer only to external debt — dollars flowing from the federal government into the economy. The real federal debt went down from 1997 through 2000.
Predictably, the surpluses beginning in 1997 led to the recession of 2001, which was cured by deficit spending.
(As an aside, every depression in U.S. history, including the “Great Depression,” was introduced by years of federal surpluses, which sucked dollars out of the economy,)
Then comes perhaps the funniest or saddest paragraph in Gordon’s entire article:
Nor did Leonhardt take into account the fact that recessions cause government spending to go up and government revenues to go down—something quite beyond the control of Congress or the President.
Recessions don’t “cause” government spending to go up. Deficit spending, which pumps dollars into the economy, is the primary method governments use to cure recessions.
And to say that government deficit spending is “quite beyond the control of Congress or the President,” goes well beyond ordinary ignorance, into the land of the blind.
Gordon ends his screed, with this misleading, self-defeating conclusion:
But in the last forty years, the only time the federal government made a serious, sustained effort to rein in the deficit was when a Republican Congress was writing the checks.
In fact, Democrat Bill Clinton was President, and though Clinton often boasts about his surpluses, “reining in the deficit” caused a recession, which was cured by deficit spending.
In summary, I don’t know John Steele Gordon. I don’t know whether his wholly wrong article was designed to mislead or merely was written out of ignorance.
Either way, the effect is the same: Deception. A public that already does not understand Monetary Sovereignty and federal finances, is further vaccinated by complete misunderstanding.
And that always has negative consequences.
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-lesses.
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.