Category: Uncategorized

-New thinking from the New America Foundation


An alternative to popular faith

        Here is the text of an Email I sent to Steve Coll, President and CEO of the New America Foundation (http://newamerica.net/) (Offices in Washington, DC and San Francisco, CA). According to their web site, “The New America Foundation is a nonprofit, nonpartisan public policy institute that invests in new thinkers and new ideas to address the next generation of challenges facing the United States.” They publish 12 “Principles” by which they live.
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Dear Steve;
        Your principle #10, “Do not perpetuate budget myths” is excellent. In that regard you might wish to reconsider certain statements on your web site:

“In reality, the availability of debt financing is far from unlimited; in fact Japan and China have already begun to slow their purchasing of U.S. debt.”
        A myth. The federal government does not need to sell U.S. debt to Japan, China or to any other country or person. The government creates debt (T-securities) out of thin air, collateralized only by full faith and credit. It just as easily could create money out of thin air, also collateralized by full faith and credit, and eliminate the debt creation and sales step. Debt creation and sales is a relic of the gold-standard days.
See: How to eliminate federal debt, deficits and interest payments

        “While deficits can spur consumption and thus improve the immediate economic situation when there is slack in the economy, they lead to slower growth in living standards over the long run.”        
A myth. Federal deficits are necessary both for short term and long term growth. A growing economy requires a growing supply of money. Where else will the money come from to grow our economy?
See: I believe

        “Moreover, high deficits increase interest payments, which crowd out important tax and spending priorities and leave the budget with far less flexibility than it would otherwise.”        
Partly true, partly a myth. High deficits can increase interest payments. However the conclusion is circular reasoning. Interest payments can “crowd out” spending priorities only if the government is precluded from running deficits. To date, despite massive deficits for the past 30 years, interest payments never have crowded out anything.

        “Lastly, deficits shift the burden of paying for today’s spending to future generations, which may cause over-consumption by present generations at the expense of consumption by future generations.”
A myth: Today’s deficits are paid by future generations only if the future generations decide to run surpluses. When any generation runs a deficit, it’s tax payments do not even cover its current expenses, let alone past expenses. Deficits do not cost taxpayers money. Only surpluses cost taxpayers money.
See: It isn’t taxpayers’ money

        I have suggestions for a 13th and 14th principle:
13. Base all suggestions on supporting data, not on popular faith.
14. To accept new thinkers and new ideas, be prepared to let go of old thinkers with old ideas.”

Rodger Malcolm Mitchell

-Open Letter to Maya MacGuineas, President of CRFB

An alternative to popular faith

        On September 23, 2009, Ms. Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote an article titled, “Can Deficits Fix the Economy” (http://crfb.org/blogs/can-deficits-fix-economy). In the article, she agrees on the need for deficit “ . . . spending on public investments . . .” but she expresses concern about the government’s ability to borrow more money. I wrote her the following note:

Ms. MacGuineas,
         In your article, “Can Deficits Fix the Economy,” I’m pleased to see you understand the necessity of federal deficit spending for economic growth. This puts you well ahead of debt hawks like the Concord Coalition, who actually have called for surpluses large enough to eliminate federal debt, demonstrating their misunderstanding of money and its sources.
        Nevertheless, you said, “. . . given how much we have borrowed in the past, there is little room for deficit financing new investments, and I would instead shift our budget by cutting spending on consumption and directing it toward higher levels of public investment. If we had listened to budget scolds in the past, we would have more room on our balance sheet now for government borrowing – unfortunately, we did not.”
         Exactly the same concerns were expressed by many back in 1979, when the debt was less than $800 billion. In the past 30 years, the debt has grown 1,400% and not only does there remain plenty of room on our balance sheets, but the federal government does not need to borrow at all. See the post:
“How to Eliminate All Federal Debt, Deficits and Interest Payments”

        The government borrows by creating T-securities out of thin air, then selling them. The government far more easily could create money out of thin air, and eliminate the borrowing stage. This also would eliminate misguided concerns about our debt and our ability to borrow.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

-Another reason deficits are necessary

An alternative to popular faith

Here is one of the many reasons federal deficit spending is absolutely necessary — even more so, now — and why trying to reduce the deficit is dangerous and imprudent.

Note how debt growth declines before recessions and increases to cure recessions

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock – Business Insider, September 9, 2009

Economic growth requires spending by consumers, businesses, local governments and the federal government. When consumers aren’t spending, businesses also spend less. The federal government must spend even more to take up the slack.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

-An idea for health care insurance

An alternative to popular faith
        A goal is to eliminate the preexisting-medical-conditions penalty from health insurance. But if people wait until they are sick, before buying health insurance, the premiums for everyone will go up markedly. Congress’s solution is to tax anyone who doesn’t buy health insurance, a silly and probably unconstitutional action. If people cannot afford health insurance, it’s hard to see how threatening them with a tax will improve their ability to buy it, and the Supreme Court probably would reject any tax having the sole purpose of advancing a federal law.
        Here’s a thought for discussion: Rather than taxing people who don’t buy health insurance, why not reward people who do? What if the federal government gave every 18 year-old, who buys health insurance, an award of say $5,000. Nineteen year olds would receive say, $4,900. Each year the number would go down by some amount until a person turned 65, in which case he would receive Medicare.
        Anyone who waited until he/she was sick, before buying health insurance, would forgo the years of federal payments, a strong incentive to buy insurance early.
        Health insurance companies would consider only age, when selling policies. Since policies for young people are less costly than those for older people, young people would wind up paying very little, or even making a profit on their policy premiums.
        Yes, this wouldn’t be revenue-neutral, but who else will pay to insure the estimated 40 million uninsured and those with pre-conditions?
        O.K. those are the broad brush strokes. Can you see any way to build on this? What are your thoughts?

Rodger Malcolm Mitchell
http:/www.rodgermitchell.com