Do numbers make seat-of-pants guesses better?

The science of economics is loaded with numbers. Charts, graphs, and formulae abound.

$Young Boy Writes Math Equations On Chalkboard High-Res Stock Photo - Getty Images$

Yet, despite this pretense at exactitude, economics is unable to tell you what will happen tomorrow let alone a year or a decade from now.

Which brings us to the “fiscal multiplier.”

This bit of mathematical chicanery supposedly indicates how individual types of federal spending will affect the economy.

You can go to the following web page to see a good description of the process. Here are some excerpts.

Fiscal Multiplier
A measure of the short-term impact of a fiscal stimulus on the Gross Domestic Product (GDP) of an economy

The fiscal multiplier is extremely difficult to estimate. It is because the economy is complex, with multiple forces affecting its output.

In such a situation, it becomes too hard to pinpoint the change in output that is directly attributable to fiscal policy.

Hmmm . . . “extremely difficult to estimate” and “too hard to pinpoint change.” But does that scare us economists? No. Bravely we dive into the cesspool, hoping to catch a nice fresh fish.

There are two main approaches to estimating the fiscal multiplier. First is the econometric or statistical approach, and the second in the simulation or model-based approach.

1. Econometric Estimation
The econometric estimation of the fiscal multiplier is performed using a statistical model called a Structural Vector Autoregressive model or an SVAR model. The model is a multivariate time series model that measures the relationship between multiple variables through time. The SVAR approach requires a lot of data, which is not always available. Hence, even though the method is based on data, the results may not be stable.

2. Model-Based Estimation
The model-based estimation approach creates a model of the economy and then uses simulation to estimate the required variable. The models that are often used to model the economy are known as Dynamic Stochastic General Equilibrium (DSGE) models.

They model different sectors of the economy and the interaction among them. The simulations from the models are aggregated to measure the required variable, in our case, the fiscal multiplier. Such an approach does not require a lot of data, but it suffers from model risk.

3. Bucket Approach
The bucket approach is a very simple method that estimates the fiscal multiplier depending on how an economy ranks on various factors. It is more of a back of the envelope calculation, which can provide a ballpark figure for the multiplier based on the experience of other economies with similar features.

I suspect the more correct name for all of the above would be Dynamic Stochastic General Hocus Pocus (DSGHP).

Then, the economists stroke their chins and take these “extremely difficult to estimate” and “too hard to pinpoint the change” numbers and use them when . . .

Comparing Fiscal Multipliers

The output gap – the difference between expected economic output under current law and possible economic output if the economy were operating at full potential – is projected to total $1.85 trillion over the next two years according to the Congressional Budget Office (CBO).

Fiscal policy can reduce this output gap over time. How effective a policy will be depends on its “multiplier” – the output produced for each dollar spent. While COVID relief should be designed to achieve a number of different goals – and there is no “right” share or length of the output gap that must necessarily be closed – policymakers should focus on high-multiplier spending and tax cuts where possible.

Here we see how the false certitude of WAG (Wild Ass Guesses) is displayed in a Congressional Budget Office (CBO) official table, which proves, for instance, that a “Paycheck Protection Program” (whatever it eventually may be) is less than half as effective as a “Coronavirus Relief Fund for States” (whatever it eventually may turn out to be).

About the best one can say about the CBO estimates is that they are (usually, somewhat) less politically motivated than Congress is.

The real problem not only is that people believe the WAG estimates, but that the estimates are based on a fundament lie:

‘Importantly, these policies may boost economic activity in the short-term, but they will ultimately add to the debt and thus slow long-term economic growth.

‘Policymakers can balance these risks by focusing on the policies that produce the greatest amount of economic activity for a given cost and can mitigate or reverse them by coupling short-term fiscal support with long-term deficit reduction.“

There is zero, no, make that ZERO evidence that reducing federal “debt” slows economic growth. Here’s why:

1. Federal debt is not really “debt” in the usual sense. It is the total of deposits into Treasury Security accounts.
2. The federal government does not use those deposits to pay its bills. It creates new dollars for that purpose.
3. The federal government pays off the “debt” simply by returning those deposits.
4. The way the government keeps its books, reducing the debt requires running surpluses, which always leads to depressions — or if we’re lucky, just to recessions.

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.

Today, we are running a serious recession. How are we trying to get out of it? By deficit spending, aka “throwing money at it.” That, in fact, is the only way we ever can cure recessions. Increased deficit spending prevents and cures recessions.

As for “coupling short-term fiscal support with long-term deficit reduction,” this makes no mathematical sense at all unless we are prepared to create massive surpluses (probably via tax increases) in the future. This is known as, “Kicking the can down Depression Road.”

In summary, we are being fed bad data compounded by bad economics.

What’s the solution? Begin with the fact that the federal government has unlimited money. Then consider each economics problem separately, and then throw money at it. Given infinite resources, why try to husband those resources via phony mathematics?

The economy is the private sector. When we enrich the private sector, we grow the economy.

And finally, no “inflation” protestations, puleeeze!. Inflation is not caused by federal deficit spending. Inflation is caused by shortages — usually shortages of food or energy — and actually is cured by federal deficit spending.

Want economic growth? Implement the “Ten Steps to Prosperity” and forget about Fiscal Multipliers.

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:

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

MONETARY SOVEREIGNTY

How I agree and disagree with the same article.

Perhaps the greatest Economics problem in the US and indeed, in the world, is the wide and growing income/wealth/power Gaps between the rich and the rest.

Ironically, the following article appeared on the Committee For A Responsible Federal Budget (CRFB) web site.

I say “ironically,” because the CRFB continually calls for reductions in federal spending along with increases in federal taxes, all to reduce the dreaded “debt” and deficit.

Such reductions generally are regressive, slashing such social programs as Social Security, Medicare, Medicaid, and other poverty aids, while increasing FICA.

And yet the thrust of the article expresses concern that certain proposed efforts would be regressive, rather than progressive as is popularly assumed.

The concern is legitimate, and I agree with it, while disagreeing with the article in the overall, because of the second greatest economics problem (or is it first?). That problem is the universal misunderstanding of Monetary Sovereignty.

A Monetarily Sovereign government, like that of the United States, has the unlimited ability to create its own sovereign currency. It creates dollars at the touch of a computer key.

You and I, and businesses, and even state and local governments, are monetarily non-sovereign. We all are the “private sector.” financially different from the federal government, which is the true “public sector.”

You can read more about Monetary Sovereignty, here and here.

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.”

Here are excerpts from the CRFB article:

CYMI: Debt Cancellation and SALT Cap Repeal Would Benefit Higher Earners
January 11, 2021

In her recent Washington Post column, Catherine Rampell argues progressives should “be more progressive in an old-fashioned sense: by helping the poor more than the rich.”

I agree with the concept, though in actual excution, this is not always possible.

Being progressive is not exclusively devoted to helping the poor. It also means aiding the various middle classes. And therein lies the problem.

Rampell argues against three policies that are “handouts to the wealthy” — the repeal of the limit of the federal deductibility of state and local taxes (the SALT cap), canceling up to $50,000 per borrower of federal student debt, and the proposed $2,000 stimulus checks.

Rampell’s description of the $50,000 in student debt cancellation and SALT cap repeal is apt — the vast majority of the benefits of these policies would go to the highest earning families (we’ve written separately on the distribution of the $2,000 checks here).

Nearly two-thirds of the benefit of canceling $50,000 in student debt per person would go to the top 40 percent of households and over three-tenths would go to the top quintile, according to a recent paper by Sylvain Catherine and Constantine Yannelis. Less than 5 percent would go to the bottom quintile.

They estimate an average net lifetime benefit of $5,775 for someone in the top quintile and only $731 for someone in the bottom.

Assuming the math is correct, then in fact, the rich would benefit directly more than would the poor. But there are several points not considered.

1. Because of the above-mentioned three programs, fewer dollars would leave the private sector and go to the federal government, to be destroyed. This alone would stimulate the overall economy, which would benefit the middle- and lower-income groups.

2. More middle- and lower-income students would begin their working lives with the financial ability to create businesses and jobs, which also would benefit middle- and lower-income groups.

3. More middle- and lower income young people would be encouraged to attend college, which would benefit all of America, as more doctors, scientists and other professional talent entered the economy.

4. More middle- and lower-income people would be able to pay their rent and feed their families.

SALT cap repeal is even more regressive. The Tax Policy Center estimates that 96 percent of the benefit of repealing the $10,000 cap on the state and local tax deduction would go to the top quintile.

57 percent would go to the richest one percent of taxpayers. Those at the top would enjoy an average tax cut of $31,000 — while the average taxpayer would see no tax cut at all (the average cut in the middle quintile would be $10).

Even efforts to better target these policies don’t appear to fundamentally change their regressive nature. Catherine and Yannelis find that capping debt cancellation at $10,000 per household would still distribute 28 percent of the benefits to the top quintile and only 5 percent to the bottom.

Similarly, doubling the SALT cap to $20,000 rather than repealing it still delivers over 95 percent of the benefit to the top quintile and almost none to the bottom half of earners, based on estimates using Tax Brain.

This type of targeting can reduce the benefit of these policies for the very wealthiest Americans, but still offers little benefit to the vast majority of lower-earning and middle-class borrowers and taxpayers.

5. Again, I agree with the premise, while disagreeing with the implied solutions, i.e the status quo.

Those implied solutions would maintain or even increase the number of dollars taken from the private sector and delivered to the federal government for destruction.

In her piece, Rampell argues that “in the new year, under a new president, Democrats should remember their obligation to aim their fiscal firepower at those who need it most.”

There are many effective ways to boost the economy and support struggling households during the current crisis.

Repealing the SALT cap or offering blanket debt cancellation are expensive, regressive polices, offer little bang for the buck, and most certainly do not qualify.

I disagree that encouraging and enabling college attendance offers “little bang for the buck.”

I especially disagree, because the federal government creates “the buck” from thin air, at no cost to anyone. So any “bang” that reduces the number of dollars taken from the private sector has overall benefit.

Still, there lingers the legitimate concern about benefitting the rich more than the middle and the poor, and I suggest that this concern can be mitigated in several ways:

A. The federal government can and should give significant per-capita stimulus dollars to each state, enough to reduce each state’s need for taxes. State taxes generally are regressive.

B. The federal government can and should provide significant financial support for grades pre-K-12, which currently receive massive amounts of regressive state tax dollars.

C. The federal government can and should begin to fund other state financial initiatives such as local roads, sewage, garbage, police, fire, parks, etc. The goal would be to substitute free Monetarily Sovereign, federal dollars for expensive monetarily non-sovereign, state and local tax dollars.

D. The federal government can and should offer financial aid to renters, not only to home owners.

E. The federal government can and should implement Step #8 of the Ten Steps to Prosperity: Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

Of course, all of the above-mentioned programs could be scaled according to income, which instantly would eliminate Rampell’s objections. A problem with so much scaling is that it, like our income tax, effectively becomes rescaled by the rich and the devious.

Ultimately, the CRFB cannot resist inserting the Big Lie into its article:

“Importantly, these policies may boost economic activity in the short-term, but they will ultimately add to the debt and thus slow long-term economic growth.”

How is it possible that policies can boost growth in the short term, but slow growth in the long term? Actually, it isn’t possible — not mathematically, not economically, not no way, and not no how — at least it isn’t possible unless the federal government forces it to be possible by unnecessarily raising taxes or cutting benefits.

Since 1940, the fear-mongers have been claiming that the federal debt is a “ticking time bomb.” Meanwhile, the economy has grown from $40 billion to over $20 trillion, and the fake “time bomb” still awaits its detonation.

In Summary:

Some programs for aiding the poor also aid the middle- and upper middle-classes, thus actually widening some of the Gaps between the various income/wealth/power groups. There are several ways to mitigate this effect, including the use of income as a determinant for receipt of benefits.

Better, would be the implementation of the Ten Steps to Prosperity (below) which would stimulate the economy while narrowing the Gaps

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.”

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest. MONETARY SOVEREIGNTY

I hope you don’t mind this personal note

In our anger and passion, and our cold logic and illogic about economics, it’s easy to forget that we all just are people occupying the same tiny “pale blue dot.”

The people you hate or love or admire or dismiss, they still are people. We have fears and hopes and pride. We are ignorant about the vast majority of the universe, and we are knowledgeable about only a minuscule fraction. Good and bad, we all are built of both, and then we die . . .

. . . .which is exactly what my wife Phyllis did last night.

And I had the painful obligation to inform my friends and family, the easiest way being by Email:

“To you who know and love Phyllis (the two are the same), I am sad to announce that she finally has surrendered to the cancer, the salmonella, the pneumonia, and the ARDS she courageously has been battling.

“She is the kindest, most generous, most compassionate, and wisest woman I ever have known, and I consider myself to be the most fortunate man on this planet to have had the honor of being her husband for more than 64 years.

“The world is a less beautiful place now for her passing.

“In these COVID days, I do not plan for there to be a funeral or a shiva. If you would like to honor her memory, her favorite charity (and mine) is the American Friends of Israel Sport Center for the Disabled.

“Those who know her best, love her most, so thank you for loving her as did everyone who ever met her. She loved you in return.”

Just writing it was catharsis, and hearing their condolences was catharsis. I haven’t slept in 30 hours, and I find myself alternating between calm and rage. And exhaustion.

Suddenly, I don’t care about Trump, and Republicans, and angry mobs of traitors, and Democrats. At the bottom of our souls, we all are the same minnows in a vast ocean . . . we struggle and struggle, and ultimately we drown.

If you live long enough with someone, eventually one of you will need to tend to the other, and one of you will mourn the other.

And what you believed to be so very important, the next generation hardly will notice. The tide will wash your footprints from the sand.

But meanwhile, I am so very sad.

Rodger Mitchell

PS. You never know whether the most recent words you have spoken to anyone will prove to be the last words they ever hear. And if those words are harsh, unforgiving, or spiteful, you will suffer from regret for the rest of your life.

Phyllis and I generally went to bed at the same time, and our final conversation each night would be the same: “I love you Phyl.” “I love you, Rodg.”

It’s a good ritual.

What we said about Trump and the GOP back in July, 2015, before he was elected

As a reminder of how obvious a traitor and incompetent Trump was, and the GOP has become, read this article that ran four months before the date which will live infamy — the day he was elected:

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Hitler in America. Why a bigot can win the Presidency

Saturday, Jul 4, 2015
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

If you want to know why a bigot can win the Presidency, read this:

Trump’s model

Republican Donald Trump is an obvious and transparent racist.

Made rich by his daddy, he surrounds himself with bootlickers, telling him he’s right — and like many rich fools, he believes what they tell him.

He appeals to the worst and lowest aspects of American society — the haters and those of low morals and intelligence, who leap at the chance to blame someone, anyone, for their own deservedly low self-esteem:

Donald Trump doubles down on Mexico ‘rapists’ comments despite outrage

Trump claimed statistics show that undocumented Latino immigrants are more likely to perpetrate rape than the wider population. However, the Fusion article he referred to said 80% of women crossing the Mexican border are raped along the way, often by criminal gangs, traffickers or corrupt officials.

When CNN host Don Lemon pointed out that Trump had misread the article, the former Apprentice host said: “Well, somebody’s doing the raping, Don! I mean somebody’s doing it! Who’s doing the raping? Who’s doing the raping?

“If you look at the statistics of people coming, you look at the statistics on rape, on crime, on everything coming in illegally into this country it’s mind-boggling!”

Trump’s entire statement was: “When Mexico sends its people, they’re not sending their best . . .” [Comment: Mexico is not “sending” people. People are fleeing Mexico to come to America for a better life.]

“They’re sending people who have lots of problems. And they’re bringing those problems to us. They’re bringing drugs . . . “ [Comment: The vast majority of arrested undocumented immigrants (actually 95%) are not charged with bringing drugs. They are charged only with . . . that’s right: Being undocumented. That is their crime.]

“They’re bringing crime . . .” [Comment: Does Immigration Increase Crime? The results of the analysis are clear: “There’s essentially no correlation between immigrants and violent crime. Given some media depictions of immigrants as violent, or associated with human trafficking and the drug trade, this finding may come as a surprise to many. There’s a long perception that immigration increases crime, and when you look at neighborhoods where lots of immigrants live. These are typically not the best neighborhoods. These are violent places. So there’s this anecdotal association between immigrants and violent crime that just doesn’t turn out to be true in the data.”]

“They’re rapists. . . ” [There is zero data to support this. Trump twisted a report that said Mexican women are being raped on the way here — a huge jump from Mexican immigrants being rapists.]

Finally, Trump uses the standard bigot’s excuse: “I love the Mexican people; I do business with the Mexican people.”

It’s a take on the old, “Some of my best friends are black,” line.

Any moral person of normal intelligence will see Trump for what he is, a big-mouthed, egomaniacal extremist, as much a danger to America as Hitler was to Germany — and using the same tactics.

Sadly, America has its share of low-morals followers, as witness some of the comments at:

Bush says he takes Trump’s immigration remarks personally

When Trump announced his presidential bid last month, he criticized Mexico and immigrants who come to the U.S. illegally. “They’re bringing drugs,” he said. “They’re bringing crime. They’re rapists.”

COMMENTS BY READERS

–America is sick of the illegal alien problem and Americans are overwhelmingly against any type of amnesty for illegal aliens. Anybody that is anything short of a turnip has figured out by now Jeb Bush isn’t going to do a damn thing about illegal aliens except something that favors and coddles illegal aliens. If elected, Jeb would be a middle of the road push over…a piece of light bread soaked in water. Trump is at least old school tough and not afraid to speak out. We would be way better off with Trump.

–I work at a rural Colorado hospital and am offended every time a fence jumper delivers ANOTHER baby (aka an instant American citizen)…FREE OF CHARGE…on my dime! I am offended that ILLEGALS are allowed to qualify for housing and food assistance…ON MY DIME! These criminals refuse to assimilate and hang their Mexican flags on their porches. I would much rather see our Confederate Flag than a Mexican one. Maybe we should throw a liberal hissy fit and we, the people, ban MEXICAN FLAGS!

–This just shows that Bush has a lot more in common with the Dems than with his own party. Trump, is the only GOP nominee who has come out strongly against immigration and that is what the conservatives want to hear.

–Bush also implied he would be telling conservatives to embrace policies like amnesty and Common Core, which is reminiscent of former Utah Gov. Jon Huntsman’s all-in approach to global warming during his failed 2012 presidential campaign.

–Did anyone ever tell Bush 69% of the american people oppose illegal immigration? About 58% of Americans support deportation of all illegals. Sound pretty mainstream to me.

–How about the many American citizens who have also been killed and murdered, by illegal aliens, including our law enforcement officers; are you taking those murders personally too?

–What about the 25 American citizens who are killed each day by illegal aliens, either by traffic accidents (i.e. drunk driving, hit-and-runs, etc.), during the commission of a crime, and unlawful discharge of firearms; are you taking those personally too?

The hate and bigotry goes on and on. You find this particularly on right-wing web sites.

Why? Because the right wing has been sowing the winds of hatred since Obama became President, and now America is reaping the whirlwind.

No Republican candidate has a chance to be nominated unless he/she spews the anti-science, anti-poor, anti-black, anti-brown, anti-gay, anti-women, pro-rich platform.

Through most of my life, I actually voted Republican, but the current extremist, hateful, religionist bent of the party is too reminiscent of Hitler for my taste. It should be repugnant to every American.

If you are part of any minority in America, you should be very frightened. History is littered with Hitlers, Stalins and Maos. Most dictators have used bigotry and hatred to gain political power.

I pray American will see Trump for what he is. Or the America, of which we are so proud, will be no more. We’ll be Nazi Germany.

And don’t think it couldn’t happen here.

The Germans didn’t think it could happen to them, either.

As Trump followers rampage through America’s capital, does all of the above sound familiar?

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.”

Ten Steps To Prosperity:

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

MONETARY SOVEREIGNTY

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Hitler in America. Why a bigot can win the Presidency

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