–Unelect incumbents

The state of Illinois is the most dishonest state in America. I challenge you to find a more crooked bunch of politicians anywhere in the nation, if not the world. From Chicago’s Mayor Daley (mayor for life, who sold the parking meters and the Skyway, but where’s the money?), to the aldermen (who require bribes for any service), to Cook County president Todd Stroger (who was put in office by his father after his father died), to Governor Pat Quinn (the #3 guy in Illinois), to Michael Madigan (who really runs Illinois — into the ground), to John Cullerton (the Senate President and #2 guy) to State’s Attorney Lisa Madigan (who never will investigate her dad Mike’s backroom deals), to all the compliant Illinois House and Senate politicians (who have given Illinois the worst credit rating of any state), I dare you to find a more nefarious bunch of scoundrels.

Is it any wonder so many of our governors and aldermen wind up in jail. Sadly though, most of them don’t go to jail, so we are left with these criminals, running our lives with our tax money.

Yes, there are a few honest pols out there, just as there are a few unarmed gang bangers, but there is no way for even a studious voter to identify them. So, we are left with one choice. Throw them all out and start over. That is, unelect incumbents.

Thus, readers can try to meet the challenge of proving their political leaders are as dishonest or more so, than those I’ve named. I dare you. Or you can use the space to add to the legends of Illinois incumbents.

And next fall, remember to throw the rascals out. Do it even when the other guy seems as bad, because history proves, the more time in office, the more crooked they become (Hello, Mayor Daley).

Remember, there is only one solution. Unelect incumbents.

Rodger Malcolm Mitchell

–David Malpass: Less money = more money

An alternative to popular faith

On May 26, 2010, the Wall Street Journal published an article by David Malpass*, which began : ”When Ronald Reagan became president, the world had too much inflation, i.e. too much money chasing too few goods. Economists argued for higher taxes to sop up extra demand. Instead Reagan chose to cut tax rates to encourage more output and pursued an strong dollar policy. The result was more goods and better balance between the supply and demand for the dollar. The malaise ended 18 months into his administration, with inflation declining gradually for nearly 20 years. We now face a different, equally severe problem – too much government spending and debt.”

See anything wrong with this? Forget, for a moment, the inaccurate definition of inflation (“Too much . . . too little . . .” See: INFLATION ) and think about the overall substance of the paragraph. He begins at the right place (Cutting tax rates) and ends at the right place (encourages more output), but wanders aimlessly and illogically in between.

First, there is no way cutting tax rates can end inflation, simply because cutting tax rates increases the supply of money, and increasing the money supply never has been considered disinflationary by any economist. However, because cutting tax rates increased the money supply, this did encourage output. So, all right, Malpass may have been a bit confused, but at least he arrived at the right conclusion. More money = more production.

But then, in the article, he wanders off again, claiming: “[…] too much government spending and debt.” Huh? After WWII, the Reagan administration began the greatest debt growth in U.S. history, and it was this debt growth that created the mighty engine of economic growth in the 1980’s.

Malpass spends the rest of his article decrying the federal deficit and debt he helped create (“nosebleed levels,” “debt the size of the Grand Canyon”), and even throws in a couple of non sequiturs about bill length (“health care reform . . . a whopping 2,700 pages,” “financial reform . . . 2,000 pages”), while as usual with debt hawks, not providing any evidence whatsoever that federal debt and deficits have an adverse effect on our economy.

He claims the debt and deficit are “starving small business of capital” without telling how an increase in federal money creation could starve anyone of money, and he finishes with this telling statement: “[…] true leadership requires . . . reducing government spending substantially enough to convince the private sector to invest again.”

So, he wishes us to believe that if the government pays less money to soldiers, military equipment manufacturers, doctors, nurses, hospitals, road and bridge and dam builders, farmers, poor people, teachers, home builders, railroad personnel, security-related firms and to all the other businesses selling to the government, the private sector somehow will have more money for investment.

And once again, this is the way our leaders have managed to guide us into an average of one recession every five years.
———————————————————————————————————————————————–
*David Malpass was deputy assistant treasury secretary in the Reagan administration, and is president of Encima global LLC, and a Republican candidate for U.S. Senate in New York.

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

No nation can tax itself into prosperity

–Giving life to a lie

An alternative to popular faith

The May 15, 2010 issue of NewScientist Magazine included an excellent piece by James Giles, titled “Giving life to a lie.” I strongly recommend you read it. (See: LIE for the full article.)

It tells how a statement by John Houghton, former chair of the Intergovernmental Panel On Climate Change – “Unless we announce disasters, no one will listen” – supposedly was repeated in three books, 100 blogs and 24,000 web pages.

Despite this widespread circulation and belief, the statement never was made. It was created by conservative columnist Piers Akerman. It was a lie.

The article, with its subtitle, “In the battle for hearts and minds, a plausible falsehood too often trumps the truth,” goes on to explain how a lie can acquire almost universal acceptance. Here are a few quotes: “. . . a falsehood has to have at least a shred of believability.” “Any falsehood can acquire currency … so long as there are enough people inclined to believe it . . . Falsehoods can come to be believed simply because others believe them. . . This is an information cascade, a process described by the economist DavidHirshleifer . . .” “The mainstream media often participates in the cascade … the more often you hear something, the more likely you are to believe it is true.”

Today, the big lie in economics is, “The federal debt is unsustainable” (See: UNSUSTAINABLE ).

The word ‘unsustainable,” means unable to endure. What is the evidence the federal debt cannot endure? That is, what evidence shows the debt cannot continue, cannot continue to grow, cannot continue to be serviced by the federal government, or will cause economic hardship? Amazingly, no such evidence exists. It all is myth.

That is why you never will see such evidence provided by any of the newspaper or magazine articles making the claim, nor will economists provide such evidence. They all merely will make the claim and support it with other claims, also unsupported by evidence (i.e., “The debt is unsustainable. It will cause inflation. It will reduce the availability of lending funds. Our children and grandchildren will pay for it through higher taxes. Nations will refuse to lend to us. Eventually, we’ll be like Zimbabwe.”) As each lie begets additional lies, the entire package becomes impervious to fact. More and more believe it, until it seems to become solid truth – all without supporting evidence.

The U.S. is 225 years old, yet the federal debt has grown about 1500% in just the past 30 years – a truly amazing increase. Despite this unprecedented debt growth, the federal government never has trouble servicing its debt, nor do we have inflation beyond what the government specifically wants (about 2%-3%), nor is there any mechanism by which the federal debt, which actually is the main source of dollars, can reduce the availability of lending funds. Nor do taxes pay for debts, which is how the debt managed to grow so much. In fact, tax rates are lower today than 30 years ago. And, nations do not refuse to lend to us. Nor do we even need nations to lend to us.

Why does this lie, which the most easily obtainable evidence shows to be wrong, have such widespread following and persistence? First, it has the requisite “shred of believability.” We think of the federal government as being like us – an anthropomorphic misunderstanding. If my debts grow too large, they are not sustainable. I might not be able to obtain the money to service them, and I even can go bankrupt. The same can be said of you, your business, your city, county and state. It even can be said of the European Union nations. But it cannot be said of the U.S. government.

I cannot create unlimited amounts of money to pay my bills. Nor can you, businesses nor local governments. Even Greece and Spain cannot, for they are constrained by EU rules. The U.S. government however, has no such constraints, as it proves every day. It can pay any bill of any size, immediately, simply by crediting the bank account of any creditor.

Then there is the collection of taxes. Local governments use taxes to pay their bills, which is why local governments can go bankrupt if taxes do not support spending. The federal government does not use taxes to pay its bills, because it alone has the unlimited power to create money. For that reason, our children and grandchildren will not pay for the debt. No one will. The government pays its debts by creating money, ad hoc.

The notion that federal borrowing replaces private borrowing has a quasi-arithmetic logic about it. “There is only so much money to lend, and if the government borrows it all, the funds will be used up and there will be none left for the private sector.” In reality, lending facilitates more lending. When you lend to the bank, by depositing in your bank account, this does not reduce the bank’s ability to lend. When the government borrows, it merely exchanges one form of money for another. It does not “use up” lending funds. And when the government spends, it creates lending funds.

Many nations often are used as an example of what excessive debts cause: Zimbabwe, WWII Germany, Brazil, Italy et al. But, each had special circumstances, that were unlike those in the U.S. and not directly related to excessive deficits. For instance, in the case of Zimbabwe, wars, corrupt leadership (Robert Mugabe), stealing farm land from owners, loss of exports and other problems caused its economic disaster.

As the media broadcast the lie, and more people came to believe it, the lie became a cascade. It became a truth unto itself, a self evident statement requiring no supporting evidence.

Are you old enough to remember when “Stomach ulcers are caused by emotional stress” was such a self-evident statement. No one doubted it, and no one asked for evidence, until one day it was discovered the vast majority of stomach ulcers are caused by a bacterium (Helicobacter pylori). Even today, some people cling to that original lie about ulcers.

In summary, when someone tells you the federal deficit and debt are too large, ask for factual evidence in the form of data. They will not provide factual evidence. They merely will give you more opinions (inflation, taxes, children, eventually, etc.) also unsupported by data. If you would rather depend on facts than on myth, read through the various posts on this blog, beginning with SUMMARY, and do read that article.

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

No nation can tax itself into prosperity

–What can save California?

An alternative to popular faith

California is broke and billions in debt. It’s unlikely California can pay its debts with tax increases and/or spending cuts, either of which could destroy the state’s economy. Tax increases and spending cuts always cause national recessions; the same would likely happen to California.

The best solution for California, and for all the other states in financial trouble, is to have the federal government step in with the necessary billions, which it easily could do. The government merely would credit California’s checking account at the Federal Reserve Bank, and debit its own balance sheet — a step it can take as easily, as repeatedly and as endlessly as the Rose Bowl scoreboard changing a score.

However, that won’t happen under current circumstances. The debt hawk belief that federal deficits are a problem, makes such support politically toxic. There are, however, two events which could force the federal government’s hand: Bankruptcy or disaster.

If California were to announce it planned to declare bankruptcy, businesses world wide would be threatened with ruin. Remember, California is one of the largest “nations” in the world — reputedly the 8th largest ( CALIFORNIA ) ahead of Russia and Spain. The federal government could not ignore such a threat, and would have to pay some or all of the bills, by a direct infusion of money.

Or, it could delay the inevitable, by lending California money ala Greece. (Loans to GM and Chrysler et al do not provide a model, because California cannot lop off large sections of its business and turn away from its citizens as companies can. So such loans, or even loan guarantees, just would put California deeper in debt.)

The other “solution” for California, though having terrible human consequences, would be to undergo a sufficiently large disaster, the most likely being a huge Los Angeles, earthquake, perhaps in the 8.0+ range. The government would declare LA County, perhaps even Southern California, a disaster area, and step in with the billions necessary to rebuild. Many of those billions would spread around the state, allowing the economy to recover.

Yes, FEMA didn’t rebuild New Orleans as it should have, but Louisiana doesn’t have California’s political clout, with only 9 electoral college votes compared to California’s 55.

I don’t know whether Governor Schwarzenegger has begged hard enough for federal support. Perhaps he is waiting for “the Big One.”

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

No nation can tax itself into prosperity