Economists, perhaps hoping to justify economics as a real science, love to complexify to the point of quantum entanglement absurdity.
My message to economists: KISS (Keep It Simple, Stupid).
Start here: Fundamentally, all recessions are alike; they all involve a shortage of money.
Today’s recession began with a virus that scared away customers, which led to businesses laying off employees Millions of people who couldn’t afford to spend led to businesses closing for lack of income, which required laying off even more employees. We descended from MONEY to Money to money.
What is the solution for a private sector’s lack of money? How about: Add money to the private sector.
There is no question about whether to add money. The only questions are where are the best, most effective places to add the money, and how much?
Fortunately, the federal government has the unlimited ability to add money to the private sector.
So we answer the “How much?” question simply this way: “Add more than you think is necessary to end the recession and to grow the economy. Way more.”
Sadly, we are bound at the ankles by articles like the following:
President Biden’s Unity Has a High Price Tag
Biden’s proposed $1.9 trillion pandemic “relief” package would unite Americans in forcibly shared economic pain.
J.D. TUCCILLE, former managing editor of Reason.com and current contributing editor. | 1.22.2021 11:00 AM
President Joe Biden’s inauguration speech was full of calls for “unity” to a bitterly divided nation. But mixed in with a positive acknowledgment that “politics need not be a raging fire destroying everything in its path” were a politician’s traditional calls to unify around favored policy proposals.
And among those proposals is a $1.9 trillion pandemic “relief” package that might unite Americans the way a sinking ship brings passengers and crew together as they await their fate.
“We must set aside the politics and finally face this pandemic as one nation,” Biden urged in his speech. But there’s no way to set aside politics when government acts, since political concerns inevitably determine how governments use their power, including in terms of gathering and spending other people’s money.
To label these preceding paragraphs as “bullshit,” would be to underestimate the value of fertilizer.
How can adding dollars to an economy that desperately needs dollars, be equated to gathering the passengers on a sinking ship to await their fate?
A more apt analogy would be to gather those passengers into helicopters for instant rescue.
And the phrase, “spending other people’s money,” demonstrates abject ignorance about federal finances.
Apparently, the author, Mr. Tuccille, does not understand that:
- The federal government cannot run short of its own sovereign currency, the U.S. dollar because . . .
- Being Monetarily Sovereign, the federal government (unlike state & local governments) creates dollars ad hoc, by paying creditors, so . . .
- Federal taxes (i.e. “other people’s money”) never fund federal spending, and in fact . . .
- Even if the federal government collected $0 taxes, it could continue spending forever. The federal government, unlike state/local governments, does not spend tax dollars.
And what “other people’s money” does Tuccille have in mind?
On top of the trillions already spent under the Trump administration to offset the pain of lockdowns or just to buy votes, the new Biden administration wants to distribute $1,400 per person “recovery rebates,” give hundreds of billions to state and local governments, underwrite a national vaccination program, subsidize government schools reopening, and offer more billions to small landlords and childcare providers.
Not counting the burden of hiking the national minimum wage to $15 an hour, which will fall on workers priced out of jobs and on frustrated employers, the total cost is an estimated $1.9 trillion.
Mr. Tuccille acknowledges that the spending would “offset the pain of lockdowns, give each person a minuscule $1,400, give much-need billions to state and local governments, underwrite a national vaccine program, subsidize schools reopening, and offer billion to small landlords and childcare providers” — but he’s against it, even though the federal government has unlimited money!
How can he be against those things? Here’s how? He erroneously believes (claims?) taxpayers will be forced to pay for them.
So, in his ignorance of federal financing, he is willing to forgo the end of the recession, in order to save taxpayers’ money.
And then, he complains that giving low wage workers $15 per hour will cost these people their current starvation jobs — some loss that is — and somehow cost the infinitely rich federal government $1.9 trillion.
Apparently, Mr. Tuccille doesn’t realize that exactly the same arguments could be used to justify slavery.
The proposed spending is supposed to help people.
The money is sold as s lifeline to a population hammered by social distancing and by government-mandated lockdowns as it weathers waves of COVID-19.
But the money, whether spent wisely or poorly, has to come from somewhere. For a government that was spending well beyond its means long before anybody heard of COVID-19, that means the money has to be borrowed.
No, Mr. Tuccille, that is not what it means.
Tuccille says, “The money has to come from somewhere. “ He is correct. It comes from where it always has come: From federal money creation.
The phrase, “spending beyond its means” indicates that the federal government will not be able to afford such spending. But for a Monetarily Sovereign government, no amount of spending is unaffordable.
Nothing is beyond the federal government’s means, the proof of which is the fact that the federal government already has spent more than $28 trillion “beyond its means” with zero adverse effect.
And finally, the federal government does not borrow money. Why would it, given its unlimited ability to create dollars?
What erroneously is termed “borrowing” is not borrowing at all. “Borrowing” involves the temporary acquisition of spending money. But that is not what the federal government does.
Issuing T-securities, wrongly called “borrowing,” actually is the acceptance of deposits into T-security accounts. When you invest in a T-bond, you open your T-bond account, and you deposit your dollars therein. There your dollars remain, in your account, until maturity. They are not touched by the federal government.
Upon maturity, your dollars plus interest are returned to you. At no time are they ever spent by the federal government.
“In light of the enactment of the year-end spending and COVID relief deal, we estimate the deficit will total $2.3 trillion for Fiscal Year (FY) 2021,” the Committee for a Responsible Federal Budget noted earlier this month.
“This would be lower than the $3.1 trillion deficit in FY 2020 but at an estimated 10.4 percent of Gross Domestic Product (GDP), it would be higher than any other time in recorded history outside of World War II.”
Someone, please remind Mr. Tuccille that there were no recessions during World War II, while the federal government lived “beyond its means.”
It’s been years since the federal government balanced its books, so deficits add to debt accumulated long before the pandemic.
As of January 18, total debt held by the U.S. government is about $27.8 trillion, according to the U.S. Treasury Department, up from an already astonishing $23 trillion at the end of 2019.
By contrast, U.S. Gross Domestic Product at the end of 2020 was $21.17 trillion, according to the government’s Bureau of Economic Analysis.
Yes, “debt” accumulated long before the pandemic. And what has been the result? Economic growth. We only had recessions when debt growth was too low.
Deficits and debt of that size affect the economy.
Back in September, when federal pandemic-related spending was already mind-boggling but had yet to reach its full extent for the year, the Congressional Budget Office (CBO) projected the estimated impact.
“From fiscal year 2020 through 2023, for every dollar that it adds to the deficit, the legislation is projected to increase GDP by about 58 cents,” the CBO pointed out, indicating that, at best, taxpayers would lose 42 cents on every dollar spent.
“In the longer term, the legislation will reduce the level of real GDP, CBO estimates.”
Yes, deficits do affect the economy; they grow the economy.
And even if one were to agree with the dubious projection of 58 cent GDP increase for every dollar spent, what is wrong with that? Because Federal spending costs nobody anything, that 58 cents is free — additional GDP growth that would not have happened without the additional federal money.
Taxpayers would not lose a penny; they don’t pay anything for federal deficit spending.
“The legislation will increase federal debt as a percentage of GDP, and in the longer term, CBO expects that increase to raise borrowing costs, lower economic output, and reduce the income of U.S. households and businesses,” the CBO added.
“In addition, the higher debt—coming at a time when the longer-term path for debt was already high—could eventually increase the risk of a fiscal crisis or of less abrupt economic changes, such as higher inflation or the undermining of the U.S. dollar’s predominant role in global financial markets.”
More nonsense. How can increased federal borrowing costs (which are paid to the private sector) “lower economic activity” and “reduce the income of U.S. households and businesses”? The money goes to households and businesses.
Although Tuccille is not clear about this, perhaps by “increased borrowing costs” he refers to increases interest rates.
Sadly, he is wrong about that, too, for the Fed has absolute control over interest rates. It sets the short term rate arbitrarily, and the long-term rate generally follows. Further, adding dollars to the economy does not increase lending rates.
Quite the opposite. Lending rates go up when money is scarcer, not when it is more plentiful.
To be fair, the U.S. isn’t the only country to have been spending beyond its means and to have piled massive debt on top of a large pre-existing bill.
“The pandemic has exacerbated the risks associated with a decade-long wave of global debt accumulation,” the World Bank observes in its latest Global Economic Prospects report, published this month. “Debt levels have reached historic highs, making the global economy particularly vulnerable to financial market stress.”
Here, Tuccille, as usual, fails to differentiate between the major, Monetarily Sovereign nations (U.S., UK, China, Japan, Canada, Australia, et al) vs the monetarily non-sovereign nations (euro nations).
For the former, so-called “debt” is no burden at all. In fact, Japan’s “debt” is more than double the size of its GDP, and the nation has no special vulnerability to financial market stress. In fact, the federal debt/GDP ratio is meaningless as a measure of a Monetarily Sovereign nation’s ability to finance anything. Completely meaningess.
“The pandemic-induced global recession has already reversed a decade or more of per capita income gains in roughly 30 percent of emerging market and developing economies (EMDEs),” the report adds. “By 2025, global output is still expected to be 5 percent below the pre-pandemic trend—a cumulative output loss that is equivalent to 36 percent of the world’s 2019 output.”
That’s a huge hit not just for Americans, but for a world in which governments were already borrowing against people’s economic futures in order to finance current expenditures. Pandemic-related spending—such as last year’s trillions in “stimulus,” and Joe Biden’s $1.9 trillion relief package—are proposed as means for alleviating suffering now. But, since the money they spend doesn’t exist, they can only do so by making us poorer in the future.
OMG! Tuccille says the recession has cost the world’s private sectors massive amounts of money, but he doesn’t want the federal government to create the money that would reverse that trend. Incredible?
At the end of 2020, the CBO returned to the problem of federal spending beyond the government’s means with a report exploring options for reducing the deficit from 2021 through 2030.
The report covered numerous ideas for reining-in spending and for hiking taxes, all with the goal of closing the gap between revenues and expenditures.
- Nowhere in the report was there a suggestion for another $1.9 trillion in borrowing and spending to offset pandemic restrictions; its numbers depended, instead, on the assumption that the economy will produce and employ to generate wealth.
It just gets dumber and dumber. With the economy short of money, the CBO wants to reduce federal additions to the private sector while increasing federal deductions from the private sector.
It’s like treating anemia by applying leeches.
U.S. depressions tend to come on the heels of federal surpluses.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.
And how the heck is the economy supposed to “produce and employ to generate wealth” with the federal government taking billions out of the economy. It simply makes no sense at all.
Even so, the cost of just paying interest on the national debt is separately projected by the CBO to rise from 1.6 percent of GDP in 2020 to 8 percent in 2050.
That’s without accounting for massive additional “relief” spending, such as advocated by President Biden, to offset the cost of forcing businesses to close and people to restrict their movements.
Not only do economic forecasts predict that the economy of the future will be smaller than it would have been, much of it is already allocated to pay for past spending.
Unity can be a good thing. But Biden’s $1.9 trillion dollar vision of unity builds on an unfortunate history of forcibly shared economic pain. Instead of making everybody go down with the ship, he might try bringing people together for a voluntarily shared vision.
If federal interest payments increase, that means additional federal dollars will go into the private sector. That is known as “growth.”
And yes, additional relief spending is necessary to “offset the cost of forcing businesses to close.” And this is supposed to be a bad thing??
And will someone explain how adding federal dollars to the economy will “make the economy smaller than it would have been”.
Mr. Tuccille closes with one last bit of abject ignorance. The “forcibly shared economic pain” comes not from federal spending but from the lack of federal spending which leads to recessions.
Finally, though Tuccille doesn’t mention this, many people claim federal deficit spending is “socialism.” It isn’t. Socialism is government ownership and control, not spending. “Socialism” is just a word often used to scare the innocent.
All of the above nonsense is what you will hear for the next four years, not only from Mr. Tuccille and the GOP, but even from the Dems, who lack either the courage or the knowledge to explain the facts to the American public.
Recessions don’t just happen. They always, always, always are caused by a Congress that wants you to believe federal money is scarce while you of the private sector have all the money you need.
I remind you of these arguments because you repeatedly are being told the federal government cannot or should not spend so much. The purpose of the falsehoods is to keep you from asking for the benefits the rich receive.
It’s a function of Gap Psychology, the desire of the rich to distance themselves from you.
What a pity that we allow ourselves to starve, while we own an infinite supply of food seed to plant.
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.