There is a cost of ignorance, a cost we pay every day as our politicians fumble and jumble their half-baked solutions to our recession.
They seem neither to understand nor care about reality, and the result is more recession, less growth, more pain, and less pleasure, and all politics. They unnecessarily fear federal deficits and debt, wrongly believing that federal finances are like perosonal finances.
And, though economics is complex and difficult to predict, the basics are as simple as a game of Monopoly — in reality, very much like a game of Monopoly.
Remember these facts:
- The “economy” is the private sector, which includes you and me, businesses, and state/local governments.
- The federal government is the public sector.
- The phrase, “the economy is growing,” simply means, “The private sector’s supply of money is growing.” The only way for the economy to grow is for the private sector to increase its money supply. The faster the private sector accumulates money, the faster the economy grows.
- The public sector, i.e. the federal government, is Monetarily Sovereign. It has infinite money. The federal government never can run short of dollars because, being Monetarily Sovereign, the federal government creates dollars, ad hoc, by paying creditors. The more the federal government spends, the more dollars it creates.
- To grow the private sector (i.e. grow the economy), the federal government needs merely to create and pump dollars into the economy. The more dollars the federal government creates and pumps in, the more the economy grows.
- While state/local governments spend tax dollars, the federal government does not spend tax dollars. It destroys all the tax dollars it receives. And, even if the federal government received $0 taxes, it could continue spending and creating dollars, forever.
- The federal “debt” is the total of deposits into T-security (T-bill, T-note, T-bond) accounts. The dollars in these accounts is not used by the federal government. The government pays the “debt” by returning the dollars in the T-security accounts. Thus, the federal “debt” is not a burden on anyone — not on the federal government and not on the economy. It simply is a savings device.
- Federal spending does not cause inflation. Shortages, mostly of food and energy, cause inflation. Federal spending can cure inflation if the government spends to create and distribute scarce goods.
You now know more about the fundamentals of economics than do most politicians, most media writers, and even most economists.
Keep the above 8 facts in mind as you read the following article:
President-elect Joe Biden Unveils $1.9 Trillion Plan To Stem Coronavirus, Steady Economy
Proposal includes $1,400 checks for most Americans
By Ricardo Alonso-Zaldivar and Bill Barrow Associated Press
WILMINGTON, Del. — Saying the nation faces “a crisis of deep human suffering,” President-elect Joe Biden unveiled a $1.9 trillion coronavirus plan Thursday night to turn the tide on the pandemic, speeding up vaccines and pumping out financial help to those struggling with the prolonged economic fallout.
Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring.
On a parallel track, he believes it will deliver another round of aid to stabilize the economy while the public health effort seeks the upper hand on the pandemic.
“I know what I just described does not come cheaply, but we simply can’t afford not to do what I’m proposing,” Biden said in a nationwide address. “If we invest now boldly, smartly and with unwavering focus on American workers and families, we will strengthen our economy, reduce inequity and put our nation’s long-term finances on the most sustainable course.”
In a real sense, his plan does come cheaply; it costs nothing. That is, it costs the federal government nothing and it costs taxpayers nothing. The federal government simply will press a few computer keys, and the necessary dollars will be created from thin air.
His plan includes $1,400 checks for most Americans, which on top of $600 provided in the most recent COVID-19 bill would bring the total to the $2,000 that Biden has called for.
It would also extend a temporary boost in unemployment benefits and a moratorium on evictions and foreclosures through September.
That $2,000 is not nearly enough to salvage the economy — $2,000 a month would be better.
And a moratorium on evictions and forecolosures simply punishes landlords, while adding no dollars to the economy. Adding no dollars = adding no growth.
And it shoehorns in long-term Democratic policy aims such as increasing the minimum wage to $15 an hour, expanding paid leave for workers, and increasing tax credits for families with children.
The last item would make it easier for women to go back to work, which in turn would help the economy recover.
Increasing the minimum wage does help narrow the income/wealth/power Gap, so it’s a good idea. But keep in mind that it adds no dollars to the private sector, so it doesn’t grow the economy. It merely moves temporary dollars from employers to employees.
Making “it easier for women to go back to work” does not help the economy recover; it doesn’t add dollars to the economy.
Work doesn’t grow the economy; money grows the economy.
“Remember that a bipartisan $900 billion #COVID19 relief bill became law just 18 days ago,” tweeted Sen. John Cornyn, R-Texas.
Cornyn is a conservative, meaning he wants to “conserve” the status quo. By way of reminder, the status quo is recession.
But Biden said that was only a down payment, and he promised another major bill next month, focused on rebuilding the economy.
His relief bill would be paid for with borrowed money, adding to trillions in debt the government has already incurred to confront the pandemic.
Interest rates are low, making debt more manageable.
The above paragraphs demonstrate massive ignorance of economics.
The relief bill will not be paid for “with borrowed money.” The federal government does not borrow money. Why would it borrow while having the unlimited ability to create dollars at no cost?
What erroneously is termed “borrowing” is nothing more than accepting deposits into T-security accounts. “Borrowing” occurs when a borrower has a need to acquire money. The federal government not only has no need to acquire money, but it doesn’t touch the money that is deposited into T-security accounts.
So-called federal “debt” is infinitely “manageable,” no matter whether interest rates are high or low. To pay interest, the federal government simply creates the dollars.
Despite common myth, higher interest rates help the economy grow by allowing the federal government to pump more interest dollars into the economy.
Under Biden’s strategy, about $400 billion would go to combating the pandemic, while the rest is focused on economic relief and aid to states and localities.
About $20 billion would be allocated for a more disciplined focus on vaccination, on top of some $8 billion already approved by Congress. Biden has called for setting up mass vaccination centers and sending mobile units to hard-to-reach areas.
The plan provides $50 billion to expand testing, which is seen as key to reopening most schools by the end of the new administration’s first 100 days. About $130 billion would be allocated to help schools reopen without risking further contagion.
The plan would fund the hiring of 100,000 public health workers, to focus on encouraging people to get vaccinated and on tracing the contacts of those infected with the coronavirus.
These are good directions, though I believe that if Biden acknowledged the realities of Monetary Sovereignty, he would have allocated much more money to saving the economy.
It is politics, not economics, that is slowing the recovery.
(We have) two effective vaccines and more are on the way. Yet a month after the first shots were given, the nation’s vaccination campaign is off to a slow start with about 10.3 million people getting the first of two shots, although more than 29 million doses have been delivered.
Biden believes the key to speeding that up lies not only in delivering more vaccine but also in working closely with states and local communities to get shots into the arms of more people.
The Trump administration set guidelines for who should get priority for shots, but largely left it up to state and local officials to organize their campaigns.
State and local officials lack the money to move faster. The federal government chooses to act as though state/local governments are at financial parity with the federal government. This, of course, is absurd.
While the federal government has infinite dollars, state/local governments have limited dollars. Burdening the state and local governments with the need to create and fund vaccinations, is a recipe for incompetence.
Now go back and refresh your memory about the 8 points listed above.
Rodger Malcolm Mitchell
Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all or a reverse income tax
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- 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 the rest.