If someone sets a world record, perhaps they could expect applause. In that vein, let’s give a massive round of applause to Veronique de Rugy, who has set a world record for economic myth dissemination.
Her bio reads:
Veronique de Rugy is the George Gibbs Chair in Political Economy and Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist.
Her primary research interests include the US economy, the federal budget, taxation, tax competition, and cronyism.
Her popular weekly columns address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies.
She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.
Presumably, she believes in using research results to come to her conclusions. Or at least, that is her claim. But what research supports the following nonsense?
The Fed applies leeches to cure anemia. Ms. de Rugy agrees.
In the final week of 2022, we Americans can foresee two significant economic risks in 2023. The first one is a probability that the Federal Reserve will get weak-kneed and stop raising interest rates before inflation is truly under control.
The second risk is that Congress will continue to spend and borrow money irresponsibly.
The likely mix of these two hazards would all but ensure that our economic misery lasts much longer than necessary.
At this point in the article, we don’t yet know which “misery” she means, especially since she considers not raising interest rates or increased spending “hazards.”
And by the way, the federal government never borrows dollars. It has the infinite ability to create its own sovereign currency, the U.S. dollar. So why would it ever borrow what it has the endless ability to create?
If ever it did borrow, it quickly could pay the dollars back simply by creating dollars.
Let’s start with the first risk.
In theory, to tame inflation, the Fed will need to push real interest rates not only high—as it has already done—but higher than the highest rate that the Fed is now targeting, and in fact much higher than most investors can remember.
Substitute the word “myth” for the word “theory,” and you have a correct statement. In the history of the universe, inflation has never been caused by interest rates that were too low. Anyone so devoted to research as Ms. de Rugy claims to be, should know this.
I challenge her, or anyone else, to provide an example of inflation caused by low-interest rates or cured by high interest rates.
There have been thousands of inflations worldwide, regular inflations and hyperinflations, and eventually, almost all have been cured — but never by raising interest rates.
All inflations in history have been caused by shortages of critical goods and services, and those cured were cured only when the shortages were cured.
It even is possible for high rates to cause shortages, i.e., cause inflations, by interfering with production.
The primary effect of raising interest rates is to reduce demand and supply. These reductions make the de Rugys of the world think that is the way to cure inflation. The reasoning is if demand drops, then people won’t pay higher prices. (If supply decreases, prices will rise, but de Rugy doesn’t consider that.)
What de Rugy et al. don’t understand is that recession is another word for reduced supply and demand. GDP = Federal Spending + Non-federal Spending – Net Imports. Thus, reduced spending = recession.
In short, de Rugy wants to cure inflation by causing a recession. Not only is that nuts, but it can also lead to stagflation, the worst of all worlds.
Such high rates will have two main effects: popping the stock market and real estate market, along with any other asset bubbles that we’ve witnessed in recent years.
The economic downturn that would follow would increase unemployment rates significantly.
Here she admits she wants to “pop the stock market and real estate market,” aka cause a recession (“economic downturn”, maybe a depression.
She also admits she wants to “increase unemployment rates significantly.” Presumably, her employment is secure, so she feels comfortable increasing other people’s unemployment.
On the other hand, if the Fed stops tightening too early, we will continue to suffer high inflation and slower growth.
When is “too early” to begin curing inflation? She never says.
And why does tightening (raising interest rates) “too early” lead to more inflation? And why does “too early” cause slower growth when “the right time” doesn’t slow growth? She never explains.
Her whole concept is a confusing mess.
The rise in unemployment might be pushed back for a while, but because no inflationary policy can continue forever, it will inevitably arrive.
And the longer we delay its arrival, the worse it will be. Unfortunately, facing such challenges, I worry that Fed Chair Jerome Powell will not make the better (and more complex) choice and hold the line on inflation.
Does anyone understand what the hell she is saying? “Too soon,” “too late,” “hold the line.” What exactly is she suggesting Powell do?
It doesn’t matter because her suggestions are so deviant from reality that trying to understand them would be useless.
First, the pressure that he already faces from, for example, Sens. Bernie Sanders (I–Vt.) and Elizabeth Warren (D–Mass.) to stop raising rates will only intensify as the economy slows down and the unemployment rate increases.
Yes, Sanders and Warren are likely to say, “Stop raising rates” when we start sliding into recession, and people lose jobs. To de Rugy, Sanders and Warren are wrong. She apparently wants full foot on the brakes so we can go into complete depression.
Second, as interest rates increase, the amount of interest payments on the government’s debt will grow.
With no money to pay those interest obligations, the Treasury will increase borrowing—a move that will further raise the budget deficit.
This is beyond ignorant. She believes there will come a time when the government runs out of money. This person supposedly specializes in “the US economy, the federal budget, taxation, tax competition, and cronyism.” Incredible.
She also believes that the Monetarily Sovereign U.S. government, which has the infinite ability to create U.S. dollars, resorts to borrowing U.S. dollars.
What do real experts think?
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.”Statement from the St. Louis Fed:“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. In this sense, the government is not dependent on credit markets to remain operational.”
Get it, Ms. de Rugy? The government cannot become insolvent. It does not borrow dollars (i.e. it does not depend on credit markets). It ca,n produce as many dollars as it wishes.
So there never can be a time when, as you said, the government “will have no money to pay those interest obligations.” It always has money, and you should know that.
When complaints about rising deficits become loud, it won’t be long before President Joe Biden’s administration, and others in Congress demand an end to the interest rate hikes.
This practice is called fiscal dominance and it creates a real risk of further fueling inflation.
Never in history has an end to interest rate hikes caused inflation.
Finally, there is the risk that market actors will also pressure the Fed to protect them against losing the inflated wealth they’ve reaped as a result of two decades’ worth of irresponsible monetary policy.
“Irresponsible monetary policy is Ms. de Rugy’s term for a growing economy. By formula, adding dollars to the economy causes an increase in Gross Domestic Product, not inflation.
In fact, as of now Wall Street investors are showing signs that they believe the Fed may soon abandon its policy of high-interest rates to avoid a recession.
It’s hard to blame them because that’s precisely what the Fed has done in the past.
That’s right. In the past, high-interest rates have led to recessions, which is precisely what Ms. de Rugy recommends.
So, will the Fed blink? Politicians aren’t known for doing the right thing when times get hard, and it would be naïve to assume that Fed chairs are immune from this.
Powell, too, is a politician, as he demonstrated with his unwillingness to acknowledge the surging inflation problem—created by the government’s own spending and stimulus—until it was too late. He could surprise us, of course, by courageously enforcing much-needed monetary discipline.
No, no, no. The inflation was NOT created by the government’s spending. The inflation was created by COVID-related shortages of oil, food, transportation, computer chips, lumber, housing, etc.
The spending and stimulus prevented a depression.
The second threat comes from politicians in Washington, right and left, doing their best to make the mess caused by the Fed just that much worse.
Indeed, just as the Fed is pushing interest rates sharply higher, irresponsible “leaders” are launching a new “spend and borrow” spree to the tune of $1.7 trillion all wrapped in a reckless end-of-the-year omnibus bill.
The Fed is pushing interest rates higher, which will do nothing to cure the shortages that cause inflation.
However, the $1.7 trillion spending bill may defeat inflation if it is directed toward obtaining and distributing the scarce goods and services.
This 4,155-page bill is guaranteed to be inflationary.
No such thing. The bill will not cause inflation. It will grow GDP by $1.7 trillion.
It will make Powell’s job harder and the rate hikes needed to control inflation larger. That will only increase the chance that the Fed will cave to pressure to extend the crisis further into the year 2023.
The Fed may cave to pressure — by raising interest rates and thereby creating more inflation together with a recession.
But that’s assuming the Fed won’t cave to the administration and monetize all that new borrowing, adding more fuel to the inflation fire.
There is no “borrowing” to monetize. The U.S. government does not borrow U.S. dollars. PERIOD.
Contrary to popular misunderstanding, T-bills, T-notes, and T-bonds do not represent federal borrowing. They represent deposits into privately owned accounts.
The deposited dollars never are touched by the federal government. They are owned by depositors.
The government creates its own dollars each time it pays a bill.
The bottom line is this, people: Grab your antacids because if our leaders don’t start thinking differently, 2023 is likely to be painful.
The above statement is the only correct line in Ms. de Rugy’s entire article.
SUMMARY
Federal spending increases GDP. The U.S. federal government cannot run short of dollars, so it never borrows dollars. Inflations always are caused by shortages of goods and services and never by federal spending.
Government spending does not lead to shortages. Government spending can cure shortages by aiding the production and obtaining of scarce goods and services.
Ms. de Rugy simply does not understand economics. She advocates causing a recession to cure inflation, like applying leeches to cure anemia.
You are correct if you believe I am angry at Ms. de Rugy. If she does research, she should know that raising interest rates does not cure the shortages that cause inflation.
Ms. de Rugy is in a position to promulgate the truth, yet she spreads a lie that harms America. And yes, that makes me angry. It should make you angry, too.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the People’s Lives.
I hated flossing. So, about 40 years ago, I stopped. Yet I have perfect gums and white teeth. Here’s my secret.
The purpose of flossing is to remove food particles from between your teeth. The purpose of removing food particles is to eliminate bacteria food.
When bacteria eat, they poop acid and feed other bacteria. The acid corrodes the calcium in your teeth, and the poop encourages infection in your gums.
So, the key to healthy gums is not merely to remove food particles but to remove bacteria.
This is what I do every day.
Morning
I take a small swig of hydrogen peroxide. I swish it energetically for 30 seconds to remove any traces of food and to kill all the bacteria and viruses that may have accumulated in my mouth.
I don’t spit it out.
With the peroxide still in my mouth, I put a tiny amount of toothpaste on my bush. I pretend I want the toothpaste tube to last a year. The peroxide + toothpaste will foam heavily, so I don’t want to feel like a rabid dog. I use the smallest amount of paste.
I brush my teeth. I make sure to get the inside front of my lower jaw. That’s the area where plaque really accumulates.
When I have brushed well, I spit but I don’t rinse. I leave the small remainder of the peroxide/paste to continue doing its work.
Evening
Before bed, I swish and gargle alcohol-based mouthwash for about 30 seconds. Gargling is important for killing germs at the back of my tongue. It also seems to help me avoid colds, flu and COVID.
And that’s it. My teeth gleam. My gums are firm. And I seldom get respiratory diseases.
And I never floss.
Warning
A small percentage of people have a bad reaction from peroxide. If you’re one of those people, stop or use less for a shorter time. Sometimes, the initial irritation disappears as the mouth becomes accustomed to the treatment.
Your dentist may not agree with the above. It’s not what dentists learn in school. But the proof will be in the pudding. If it doesn’t work for you, you always can go back to whatever you’ve been doing.
Many years ago, my dentist argued against it, but it’s what I’ve done for at least 40 years, and it works for me far better than flossing ever did. My gums are perfect and so are my teeth.
I hope it works for you.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
With public debt at an all-time high, the government should do the same.
Immediately, Veronique de Rugy reveals her abject ignorance of economics. She equates federal financing with personalfinancing.
The two are diametrically different. The federal government is Monetarily Sovereign. It has the unlimited ability to create new dollars. It never can run short of dollars and never can be unable to pay any debts denominated in dollars.
The public is none of those things. It is monetarily non-sovereign. It has a limited ability to create new dollars. It can, and often does, run short of dollars. It can, and often is, unable to pay its debt denominated in dollars.
Recessions (gray bars) are caused by reduced debt growth and are cured by increased debt growth. By mathematical formula, Gross Domestic Product growth requires federal spending growth and federal debt growth.
GDP = Federal Spending + Non-federal spending + Net Exports.
This feat isn’t that hard now that the Congressional Budget Office (CBO) has released a series of budget options showing Congress how to do it.
In Libertarian terms, “how to do it” invariably requires reducing benefits to the public — specifically, the part of the public that is not rich.
It’s worth repeating that maintaining spending at the current level is not a viable option.
Given the dramatic increase in annual federal government spending over the next 30 years—from 22.3 percent of GDP to 30.2 percent—combined with federal tax revenues that have remained fairly constant at around 19 percent, CBO projects that future deficits will explode.
It’s forecasted to triple from 3.7 percent of GDP today to 11.1 percent in 2052. Over the next 10 years, primary deficits (deficits excluding interest payment on the debt) amount to $7.7 trillion. Meanwhile, deficits with interest payments total $15.8 trillion—roughly $1.6 trillion a year.
You’ll notice that Veronique never says why maintaining spending is “not a viable option.” All she does is quote large numbers to shock you.
In effect, she claims that Monetary Sovereignty is not a viable option, because it allows the government to create dollars.
The “not a viable option” claim resembles the “ticking time bomb” claim about the federal debt, that has been wrong for more than 80 years. In that time, the federal debt has grown more than 55,000%, yet the nation survives quite well, thank you.
Sadly, Libertarians refuse to learn from actual experience. They cling to the myth that a Monetarily Sovereign government should impose austerity, despite the repeated and inevitable failures of such a system.
Note, by the way, that half of our future total deficits will be driven by interest payments on the debt. This fact isn’t surprising considering the size of our deficits and the rise in interest rates.
Federal interest payments, which the government has the infinite ability to make, add growth dollars to the economy.
The U.S. federal government daily demonstrates that interest payments pose no burden on a government having the infinite ability to create the dollars with which it makes the payments. And for the same reason, interest payments pose no burden on federal taxpayers.
Given these realities, no one will be surprised that the ratio of debt to GDP, now roughly 100 percent, will, under the most conservative estimations, jump to 110 percent in 10 years.
In the next 30 years it will likely double. More realistically, in 2052 debt as a share of GDP will be 260 percent. And that’s assuming no major recessions or emergencies.
As we have seen here, and other places on this blog, the debt / GDP ratio is meaningless. Neither a low nor a high ratio indicates the health of an economy. The ratio predicts or demonstrates nothing.
Any time you read or hear about the “dangers” of a high debt / GDP ratio, you will know you are reading ignorance and lies.
GDP does not fund debt. Further, GDP is one-year figure while debt is a cumulative-over-many-years figure. No comparability at all.
Low ratios and high ratios can be seen equally among the world’s most and least healthy economies.
Despite these awful numbers, legislators in both parties are currently debating how best to add trillions more to the country’s credit card balance.
The federal government does not have anything comparable to a “credit card balance.” Libertarians use that term to trick you into believing that the federal government is about to go bankrupt. It isn’t and it can’t.
Many, for instance, want to add a new entitlement program in the form of the extended child tax credit.
The rich hate entitlement programs like Medicare, Medicaid, and Social Security because such programs benefit the poor and the middle, thereby closing the Gap between the rich and the rest.
Libertarians argue for the rich by feigning a brand of frugality that widens the Gap.
It is in this setting that the CBO published its report on budget options. The two-volume document highlights options for deficit reduction.
One volume details large possible spending reductions while the other lays out small ones—so the options are plenty. They include important reforms of some of the major drivers of future debt: Medicare, Medicaid, and Social Security.
The misnamed “reforms” actually are reductions in benefits to the poor and middle classes. The rich love cutting Medicare, Medicaid, and Social Security, while boosting dollars for the military and cutting taxes on the rich.
And heaven forbid there be a new benefit for the not-rich, extended child tax credit.
Ms. de Rugy, as a tool of the rich, dishonestly calls these cuts “reforms,” to dissuade you from objecting.
All told, it’s possible to achieve deficit reduction of $7.7 trillion over 10 years.
The mathematics are clear: A deficit reduction of $7.7 trillion will reduce GDP by about $7.7 trillion and lead to a recessionif we a lucky, and a depression if we are not.
That’s enough to accomplish what some people mistakenly believe to be out of reach: balancing the budget without raising taxes.
While “balancing the budget” is prudent for people, businesses and local governments, it is a disaster for the federal government. Sadly, Ms. de Rugy, being ignorant of economics, doesn’t understand this.
There are also a few options to simplify the tax code by removing or reducing unfair individual tax deductions and by cutting corporate welfare.
Lest you believe the previous sentence indicates the Libertarians are willing to crack down on the rich, read the next sentence.
For instance, it’s high time for Congress to end tax deductions for employer-paid health insurance. This tax deduction is one of the biggest of what we wrongly call “tax expenditures.”
Get it? First Ms. de Rugy wishes to cut Medicare and Medicaid. Then, to further “balance the budget,” she wishes to cut employer paid health insurance.
See the pattern? Starve the poor and middle classes to achieve a recession or depression. The very rich couldn’t be happier. They love widening the Gap between the rich and the rest. The wider the Gap, the richer they are.
It’s responsible for many of the gargantuan distortions in the health care market and the resulting enormous rise in health care costs.
The CBO report doesn’t eliminate this deduction; instead, it limits the income and payroll tax exclusion to the 50th percentile of premiums (i.e. annual contributions exceeding $8,900 for individual coverage and $21,600 a year for family coverage).
The savings from this reform alone would reduce the deficit by roughly $900 billion.
Why the limit? Why 50th percentile? No reason other than perhaps it seems more “generous” than eliminating the entire deduction.
A second good option is to cap the federal contribution to state-administered Medicaid programs.
Ah, more cuts to programs that help the poor. Ask Ms. de Rugy why not simply eliminate Social Security, Medicare, Medicaid, and all poverty aids. That would really “balance the budget.”
That federal block grant encourages states to expand the program’s benefits and eligibility standards—unreasonably in some cases—since they don’t have to shoulder the full bill.
CBO estimates that this reform would save $871 billion.
There is no reason for a Monetarily Sovereign nation to save $871 billion of the same dollars it has the infinite ability to create.
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.”
The states are monetarily non-sovereign and are supported by taxpayers. The federal government is Monetarily Sovereign and is not supported by taxpayers.
Ms. de Rugy wishes unnecessarily to balance the budget by punishing the poorest Americans. One wonders about the kind of person who would recommend such cruelty.
CBO also projects that Uncle Sam could reduce the budget deficit by $121 billion by raising the federal retirement age.
CBO’s option would up this age “from 67 by two months per birth year for workers born between 1962 and 1978.
As a result, for all workers born in 1978 or later, the FRA would be 70.” Considering that seniors today live much longer than in the past and can work for many more years, this reform is a low-hanging fruit.
In yet another disgrace, Ms. de Rugy wishes to cut Social Security by raising the retirement age. This has scant effect on the rich, but would be a hardship for the poor.
Her “solution” involves moving retirement three years away for working people, in short to keep them working ’til they drop.
The rich, of course, can retire at will.
Congress could save another $184 billion by reducing Social Security benefits for high-income earners. I support a move away from an age-based program altogether since seniors are overrepresented in the top income quintile.
Social Security should be transformed into a need-based program (akin to welfare).
Nevertheless, the CBO’s option would be a step in the right direction.
A not-so-clever suggestion by Ms. de Rugy to make Social Security “akin to welfare.” The political right hesitates to cut Social Security directly, but would do it by making it “welfare,” and then cutting welfare.
As right wingers “know,” people accepting welfare are lazy takers, not worthy of help.
Further, with inflation, the need-based option falls ever more heavily on the poor, exactly what REASON wants.
There are so many more options for long-term deficit reduction. All Congress needs is a backbone. Considering the end-of-year spending bill going through Congress right now, I am not holding my breath.
SUMMARY
The article, which appeared in Reason.com, is a breathtaking litany of anti-poor, anti-middle, pro-rich recommendations to widen the Gap between the rich and the rest.
It is disgusting in its ignorance and cruelty, it’s lack of facts and its dissemination of false beliefs.
The sole purpose is to make the rich richer by widening the Gap between them and the rest of us.
Lacking any recognition of Monetary Sovereignty, the author promulgates the usual right-wing austerity that punishes all but the rich. It is an inexcusable exercise in dishonor and immorality by Ms. de Rugy and her Libertarian accomplices.
I have told you why federal deficits are necessary to grow the economy and why they don’t cause inflation. I have told you why interest rate increases are counterproductive in fighting against the shortages that do cause inflation.
And all of the information is completely useless to you because you have no control.
So here is something you can control: Getting the smoothest shave you ever had.
Being closer to 88 than 87 years old, I probably have shaved longer than you have. I began using a shaving brush and soap cup, which generated a nice thick lather but was somewhat of a waste of time.
I graduated to spray cans of Gillette shaving cream, which also generated a thick lather and came in a variety of “flavors” like mint and regular. And there I stayed for decades, until . . . .
. . . . until I thought about it.
The fundamental purpose of shave cream is to lubricate your skin. Sure, it does other things like cooling and “softening” (doubtful), but the primary effect is to make your skin slippery, so the razor will not drag.
Shave cream is the WD-40 of shaving. But WD-40 is not foamy. In fact, I know of no lubricating oil that is foamy.
When I want to lubricate gears, a saw blade, or a screw, I don’t use foam. The only lubrication I’m interested in touches the item itself. But foam is 3-dimensional.
The vast majority of a foam is above the surface. Only a tiny amount actually touches a surface.
So, when you use foam to lubricate your skin, very little of the foam actually touches your skin.
So, it’s lubricating nothing.
As you shave, nearly all of the foam is pushed away and washed away, while clogging the spaces between your razor’s blades.
All of this brings me to a product called, “CREMO SHAVE CREAM.”
Full disclosure. I have no relationship, financial or otherwise to this product.
Let me read from sections of the label:
Many save “creams” and gels are foamy formulas full of air — not the best lubricant. Cremo requires one unusually thin foam-free layer. It’s concentrated against your skin, not in a cloud that gets scraped down the drain.
Cremo Shave Cream is water-activated. Massge an almond-sized dollop onto your wet skin. Less often is the best shave. Add water as needed to keep it slippery.
It works.
It’s fast, smooth, slippery and it leaves my skin as soft as an elderly man’s could be. One hundred percent of that almond-sized dollop lays on your skin, rather than puffing up uselessly.
CREMO itself is inexpensive and because you will use so little, the cost will be negligible.
That is the useful information. Now you can return to the useless economics info, that you probably will doubt anyway. Enjoy.
