Forbes is a highly respected financial magazine. Like too many other highly respected financial magazines, it often publishes articles espousing utter nonsense.

Here are excerpts from one such article.

Trump’s Big “Win”: The Largest Budget Deficit With A Strong Economy
Chuck Jones, Senior Contributor

Federal deficits are one way to measure how well a President manages the economy.

However, for a number of reasons a President can’t control the deficit; Congress is the governing body that decides the budgets (but the President does have to approve them), entitlement programs will grow unless they are changed and the economy goes through expansions and contractions (sometimes violently).

A President can propose and get policies implemented that impact the budget and therefore deficits, but to a large degree, economic forces can overwhelm the best policies and intentions.

It is true that “federal deficits are one way to measure how well a President manages the economy” but, as you will see, not in the one way author Chuck Jones claims.

While most people tend to look at the amount of the deficit in billions (or even $1 trillion plus) of dollars, a better way to gauge it is to look at the deficit as a percentage of the nation’s GDP.

This removes the impact of inflation on the government’s revenue and spending and makes for a better comparison.

Here is an example of Jones’s graph showing the deficit as a percentage of the nation’s GDP:

Deficit/GDP. Vertical lines are recessions

Please note that recessions almost always begin when the Deficit/GDP ratio goes down, and recessions almost always are cured when the Deficit/GDP ratio goes up.

The above graph diametrically contradicts the point Jones tries to make: The deficits are negative for the economy.

As seen in President Trump’s tax bill, there has been a fairly sizable reduction in corporate tax receipts, which negatively impacted the deficit in fiscal 2018 and the first three months of fiscal 2019.

Correct Translation: ” . . .there has been a fairly sizable {reduction in the amount of money corporations are forced to send to the federal government], which [increased the amount of money left in the economy] in fiscal 2018 and the first three months of fiscal 2019.”

Image result for giving dollars A simple picture of what happens to the economy (left) when the federal government (right) runs a deficit.

I never have spoken to anyone — professional economist or layperson — who doesn’t understand that putting dollars into the economy helps the economy grow, and taking dollars out shrinks the economy.

Yet that is exactly what Jones implies.

Federal deficits add dollars to the economy, helping the economy grow, yet Jones wants smaller deficits. It makes no sense at all.

President Trump’s budget deficits as a percentage of GDP will exceed any other President’s during a time of economic expansion.

From the Committee for a Responsible Federal Budget or CFRB, at the projected 4.6% for fiscal 2019 it will the be largest in a non-recession year and is expected to stay above this level in the future.

It will only be worse if the 2017 tax cuts that are scheduled to expire for individuals and the increased 2018 discretionary spending caps are extended.

This is a good thing for the economy. Unfortunately, Trump doesn’t know it’s a good thing, otherwise he would boast about it.

We have written about the CFRB many times. It is a group supported by the very rich, whose sole mission seems to be to make you believe that the more federal taxes you pay, and the fewer federal benefits you receive, the better off you will be. 

Multiple organizations ranging from the Congressional Budget Office to the Committee for a Responsible Federal Budget are projecting that the Federal deficit will increase even as the economy grows.

Their projections are for it to increase less in 2019 than 2018, but still have many years of growth even though the current economic expansion is about to hit a decade.

Correct Translation: ” . . . the Federal deficit will increase [which will help the economy grow].” Their projections are for it to increase less in 2019 than 2018, but still [cause] many years of growth even though the current economic expansion is about to hit a decade.

The scary thing is if the economy stumbles and growth slows more than expected or enters a recession, the deficit will increase even more than what the chart shows.

Yes, if the economy stumbles, the deficit must increase to add dollars to the economy and to resume economic growth. Otherwise we will have a recession or a depression.

Tariffs will have a positive impact on the government’s receipts but these are really a hidden tax on consumers and corporations.

Here Jones seemed to tangle in his own beliefs. He says tariffs have a “positive impact.”

Then he says, they really are taxes, which have a negative impact on the economy (unless Jones thinks taxes have a positive impact on the economy.)

So, why does he describe tariffs as “positive”? They are not “positive” in any way.

Trump seems to believe (or at least that is what he says and his advisors have told him) that reducing taxes and cutting regulations will grow the economy enough to solve the debt problem.

The above paragraph is so mixed up, it almost is impossible to disentangle.

“Reducing taxes” does grow the economy by leaving more dollars in the private sector (the “economy.”)

“Cutting regulations,” especially regulations that protect the middle-classes and the poor, most likely will hurt the economy over the long haul, but greatly widen the Gap between the rich and the rest.

And then, Jones switches from “deficits” (which are the annual difference between federal income and federal spending), to “debt,” which is the historical total of deposits into T-security accounts at the Federal Reserve Bank).

The two are unrelated except for regulations requiring them to be equal. Other than that, we could have federal deficits without federal debt, and we could have federal debt without federal deficits.

Federal debt, being nothing more than interest-paying savings accounts, easily are paid off by returning the dollars in these accounts.

Unfortunately, in the first year of the tax cuts, the deficit increased from $666 billion in fiscal 2017 to $779 billion in fiscal 2018, an increase of $113 billion or 17%.

It looks like they are on a path to $1 trillion or more as far as the eye can see.

Translation to the facts: [Fortunately,] in the first year of the tax cuts, the deficit increased from $666 billion in fiscal 2017 to $779 billion in fiscal 2018, an increase of $113 billion or 17%.

It looks like they are on a path to $1 trillion or more as far as the eye can see.

While it will take a few years to play out it appears that the tax cuts gave the economy an initial boost in the June quarter but that it may have fallen off in the September and December quarters.

In the end, Jones admits that “the tax cuts gave the economy an initial boost.”  Why did that happen?

Because tax cuts allow more growth dollars to remain in the private sector (aka “the economy”).

Similarly, spending increase put more dollars into the private sector.

Since federal deficits result from federal tax cuts and spending increases, federal deficits grow the U.S. economy.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

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

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY