–Economic policy that’s stuck in reverse, by Senator Jeff Sessions

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Here are some excerpts from an article titled, “Economic policy that’s stuck in reverse,” by Senator Jeff Sessions

Monday, January 24, 2011

As record levels of federal spending bring us ever closer to a tipping point, the Obama administration blissfully continues business as usual. We have seen no real plan, no strong leadership, no apparent willingness to confront the growing danger on the horizon.

At no point in his article does Senator Sessions say exactly what that “tipping point” or the “danger on the horizon” is. Will the federal government run out of money? Will we have uncontrollable inflation? Will taxes be forced up? The Senator never says, perhaps because the answer to all three questions is a resounding, “No.” Or perhaps because Senator Sessions has no idea what the answer is, and enjoys using scare words.

Last month, President Obama would agree to maintain current tax rates only if Congress would agree to increase federal deficit spending. We are headed toward a cliff, yet the president hits the accelerator.

Again, no explanation of “the cliff.” Does he mean he economic accelerator, the last thing the party not in power ever wants?

Meanwhile, others are moving in the opposite direction. England has a plan to cut its deficit by 86 percent in just four years. New Jersey Gov. Chris Christie has a plan to close his state’s funding gap without raising taxes. Even California’s new liberal governor has put forward a plan to cut state spending by 9 percent.

Here Senator Sessions demonstrates he does not understand the implications of Monetary Sovereignty. New Jersey and California are not monetarily sovereign, so cannot survive on tax money alone. They need to reduce spending or increase taxes. England is Monetarily Sovereign, but their politicians know as little about economics as do our politicians. If England ever were to reduce its deficit by 85%, they will have a recession or depression. (Worldwide, the nation with the smartest economists and politicians may be Monetarily Sovereign China, which so far has shown no fear of deficits, and thus has had the fastest recovery.)

Just days ago, former Federal Reserve chairman Alan Greenspan ominously warned that U.S. debt may lead to a bond market crisis in two to three years.

Reminder to Senator Sessions: This is the same Alan Greenspan, under whose financial leadership, the nation went into the worst recession since the Great Depression. He has no credibility, nor do the people who quote him. Imagine a Fed chairman who is unaware the U.S. federal government does not need to create T-securities out of thin air, because it already has the power to create dollars out of thin air.

A debt crisis continues to spread through Europe that could reach our financial markets any moment. Now is the time to act. Yet the president continues to resist any meaningful steps to secure our financial future.

Specifically what has the European monetarily non-sovereign debt crisis to do with U.S. budgets? How will reducing our budgets stave off the European debt crisis? Senator Sessions never says, because presumably he has no idea.

To begin turning the corner, I propose that any effort to raise the debt ceiling be tied to no less than a sustained 10 percent reduction of current discretionary spending. Though this is only a first step, it would finally be a step in the right direction – one the country can easily absorb.

A “reduction in spending” is a synonym for a “reduction in money creation,” which invariably has led to recessions and depressions. See: Growth summary. Senator Sessions doesn’t read history. But, O.K., he has me sold. Let’s start with cutting Congressional salaries and perks. Let’s eliminate Congressional health insurance, and let those folks pay for it themselves. No more “fact-finding” junkets to warm climates in winter. Reasonable, Senator?

On Tuesday, President Obama will deliver his State of the Union address. Soon after, he will come forward with a new budget. This is a defining moment for his presidency. His proposals cannot be timid. And he must demonstrate that he is at last willing to shed his Keynesian worldview.

Guarantee: Senator Sessions has no idea what a “Keynsian worldview” is. But it makes him sound learned.

As we enter the annual budget season, Washington will need to consider the kind of change this country has not accomplished since 1997 – when a strong Republican Congress passed a budget that converted soaring deficits into surpluses.

Hmm. Wasn’t it a Republican president named Reagan, who instituted our greatest post-war deficits? And is he really taking credit for the Democratic Clinton surpluses, which caused the Republican Bush recession? Ah, details, details.

We need a budget with a bold vision – like those unveiled in Britain and New Jersey; one that reduces both the size of the deficit and the size of the government. We need a budget that does not require tax increases as the price for spending cuts – because while the spending cuts may disappear, the economic drain of higher taxes will not. And we need a budget that turns us back from the cliff so we can head down a new road – toward leaner government, responsible spending and a thriving private sector.

Again, the cliff? What is that cliff? Will we ever be told? Probably not. Anyway, what we really need is Congressional leaders who understand economics, so we wouldn’t continue to average one recession every five years. Is that too much to hope for, at least from the ranking Republican on the Senate Budget Committee?

By the way, I recently was interviewed on radio station WNZF by Abby Romaine. Click this link to hear the show: Radio Interview

Rodger Malcolm Mitchell

No nation can tax itself into prosperity.

–Arizona tries to gut Medicaid, punish the poor. Who is the bad guy?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Arizona, seemingly in the front lines in the war against poverty striken, now wishes to increase the eligibility requirements for Medicaid. Hundreds of thousands of desperately sick, poor people would be refused health care. So who is the bad guy, here? Not Arizona, in my opinion.

Here are excerpts from a Washington Post article:

By N.C. Aizenman, Washington Post Staff Writer, Sunday, January 23, 2011; 10:58 PM

Republican efforts to repeal or limit the reach of the new health-care law took a new direction last week when Arizona lawmakers approved a novel and controversial attempt to cut Medicaid for 280,000 of the state’s poor.

The bill, requested and signed by Gov. Jan Brewer (R), empowers her to make a formal request, most likely this week, for a federal waiver to avoid complying with provisions of the law that prohibit states from tightening their eligibility requirements for Medicaid.

Twenty-nine Republican governors, including Brewer, have signed a letter calling on President Obama and congressional leaders to remove the provision from the law.

But Arizona is the first state to, in effect, play chicken with the Obama administration by directly requesting a reprieve and daring Health and Human Services Secretary Kathleen Sebelius to refuse.

Arizona’s move reflects two pressing realities: Many states face large budget shortfalls because of continuing economic difficulties, and Republican governors point to Medicaid cuts as one of the most logical ways to balance those budgets.

Advocates for Medicaid, the health insurance program for the poor and disabled that is jointly funded by states and the federal government, say the Republican argument amounts to political posturing at best and heartless, shortsighted policy at worst. Most of the men and women Arizona wants to cut from Medicaid have to earn less than $10,830 per year to qualify for the program.

“If you’re a family and you hit tough times such that you can only afford to feed two out of your three children, you don’t tell your third child, ‘Sorry, Johnny, you’re not going to eat.’ You go out and find a way to get more food,” said Arizona state Sen. Kyrsten Sinema (D-Phoenix), who has made health care a focus.

Similarly, Sinema said, Brewer should attempt to restore the substantial cuts Arizona has already made to its Medicaid coverage in recent years, not seek new ones.

“This is not a political ploy,” Lazare said. “This is our plan. We don’t see a whole lot of other options.” The economic downturn has been particularly devastating to Arizona, Lazare noted, depleting tax revenues even as it led to newly poor residents who swelled the state’s Medicaid rolls by 46 percent over the past four years.

State lawmakers have already responded with some of the deepest Medicaid cuts of any state in recent years – slashing payment rates to doctors and other providers by 10 percent, freezing enrollment in the state’s supplemental health insurance program for children, and ceasing to pay for Medicaid benefits including certain kinds of organ transplants.

When that last high-profile policy took effect in October, nearly 100 indigent patients who were on the waiting list for a transplant were told that the state would no longer cover the procedure.

Since then, one of those patients has died. Another was forced to give up the liver offered to him by a dying family friend. A third man was able to get funding for a bone marrow transplant from an anonymous donor but died of complications from his cancer before the operation could take place.

The bad guy is the debt hawks, the Tea Party, the politicians who pander to them, and the selfish people who already have health insurance, and so are “against big government,” for reasons they don’t understand.

While the U.S. government is Monetarily Sovereign, Arizona is monetarily non-sovereign. It is a feature of non-sovereign governments that they cannot survive long term on tax money, alone. With the federal government’s taxes and inflation draining money out of the states, massive and ongoing federal infusions are needed by all states. Being Monetarily Sovereign, the federal government easily could and should provide these infusions.

Instead, Ron Paul (for example) and his government cronies (all of whom are given the best health insurance money can buy) repeatedly vote against federal spending (except for the aforementioned health insurance for politicians).

Never mind the poor. Never mind the sick children. Never mind the unfortunate, who do not have the means to provide even for minimal health care. Let them suffer. Let them die. We just don’t like government spending, because . . . well . . . just because at some unknown time in the future it might cause something bad, though there is no evidence of what. And anyway, I have insurance.

The English have an expression for that sort of selfish heartlessness, “I’m all right, Jack,” meaning “I’m taken care of, so the hell with you.” That is our Congress and our President. “They’re all right, Jack.” Hey, no problem if you have no conscience.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity.

–Am I MMT? Are you?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

People often ask me whether I am part of MMT (Modern Monetary Theory), and my answer is, “No, I agree with MMT on its factual bases, but disagree with certain areas of opinion.

For instance, it is absolute, undeniable, historical fact that in 1971, the federal government gave itself the unlimited ability to create money, i.e. to spend dollars. This point cannot be argued. And because the government has the unlimited ability to create dollars, it needs neither taxes nor borrowing to support its spending. If taxes and borrowing were zero, this would not affect by even one penny, the government’s ability to create and spend dollars, which means that taxpayers do not pay for federal spending. The federal government does not spend taxpayers’ money. This too is undeniable fact.

If every federal lender (China et al) were to demand payment for all outstanding debts tomorrow, the U.S. government simply could say, “No problem. I’ll push this computer key, which will credit your bank account for the amount of the T-securities you own. All debts will be extinguished.”

Evolving from this is the fact that the federal government cannot be forced into bankruptcy, and evolving from this is the fact that no agency of the federal government can be forced into bankruptcy – not Congress, nor the Supreme Court, nor the Department of Defense, nor the other 1,000 federal agencies, including Social Security and Medicare. All those people who tell you Social Security will be bankrupt in “X” number of years, do not understand that the federal government supports all federal agencies the same way: By federal money creation. And none can be forced into bankruptcy.

Where I depart from MMT is where facts are lacking, i.e. in matters of opinion. MMT believes:
1. Taxation is necessary to give value to money
2. Inflation should be prevented/cured by reducing the money supply.

1. Taxation

Originally, MMTers said federal taxes were necessary to give value to dollars. I pointed out if taxes were necessary, there existed. sufficient state and local taxes to do the job. That belief now has been adopted by MMT.

As I have stated elsewhere in this blog (“Ignorance: Why you will pay more taxes and receive less service in the coming years.”) I do not accept the idea that taxes are necessary for money demand. People accept dollars because:

-They are handier than barter.
-Everyone else accepts them.
-The government has made dollars legal tender in payment of all bills.
-There is no other governmentally authorized form of money.
-If you sell a product or service to the government, it will pay you in dollars.
-If you receive Social Security, Medicare, Medicaid or any other federal benefit, you and your service providers will receive payment in dollars.
-If you receive food stamps, your grocer will be paid in dollars
-Your army pay will be in dollars
-Federal stimulus payments, to cure recessions, will be in dollars
-In 2010, the federal government spend $3.7 trillion, all in dollars. The state governments spent trillions more, also in dollars.

Then there are non-tax payments to the government:
*Fines and Fees (for instance, in court)
*Fees (for instance, garbage pickup)
*Licenses (hunting, fishing, driving)
*Services (real estate registration)

(*Admittedly, these could be eliminated by a Monetarily Sovereign government and could be considered taxes)

Millions of people in America did not pay taxes last year, but they accept dollars. Of course, taxes are not going to disappear, so in practical essence the question is moot.

2. Inflation

I believe inflation can and should be prevented/cured by raising interest rates. MMT holds that rather than curing inflation, raising interest rates actually exacerbates inflation. Their logic is: Raising interest rates, by increasing the cost of borrowing, increases the cost of production, which results in inflation. I suggest that interest payments are a minuscule part of most company’s costs, and increases in interest payments are even less important — not enough to cause significant price increases.

Instead, we should consider money to be a commodity, the value of which is determined by supply and demand. Yes, increase the supply, and the value goes down – unless you also increase the demand, which is influenced by the reward for owning money – i.e. interest. The higher the interest, the greater the demand for money. That is why, when interest rates go up, the demand for non-money (stocks, real estate) declines, while the demand for money (bank CDs, savings accounts, money market accounts) goes up.

MMT believes inflation can and should be prevented/cured by reducing the money supply, i.e by spending reductions and/or tax increases. However, history shows that every depression in U.S history, and most recessions, have coincided with reductions in debt growth or with actual reductions in debt. While recessions and depressions can stop inflation, they certainly are a bad medicine.

So in summary, I agree with the factual basis of MMT, and argue (without proof) against certain opinions held by MMT. If you want to give what I believe a name, call it “Monetary Sovereignty.” I’m not MMT. Are you?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Should we take the government out of energy?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

In today’s Washington Post, I saw an article that could get some traction within three debates: deficit, energy and climate/ecology:

To save the planet and the budget, cut energy off the dole
By Jeffrey Leonard, (chief executive of a private equity investment firm), Friday, January 14, 2011

President Obama promised in the fall that a top priority of his legislative program for 2011 would be an energy policy “that helps us grow at the same time as it deals with climate change in a serious way.” With global warming deniers now in charge of the House of Representatives, there would seem to be little hope for major legislation on clean energy or climate in this Congress. Even a member of his own party, West Virginia’s new senator, Joe Manchin, has boasted of extracting “a deep commitment and personal commitment” from Senate Majority Leader Harry Reid “that cap-and-trade is dead.”

But all is not lost. If Obama wants to set us on a path to a sustainable-energy future – and a green one, too – he should propose a very simple solution to the current mess: eliminate all energy subsidies. . . And with anti-pork Tea Partyers loose in Washington and deficit-cutting in the air, it’s not as politically inconceivable as one might think.

As long as current energy subsidies stay in place, and K Street lobbyists have sway over what interests deserve congressional favoritism, American tax dollars will continue to retard the market forces that are pushing the United States toward energy independence and a greener future.

RMM: Deficit cutting is the last thing the U.S. should do, and since tax dollars do not pay for federal spending, this part of his thesis is suspect.

Major changes in the picture of domestic energy supply make it possible to sweep away decades of accumulated subsidies without seriously threatening the affordability of energy . . . The real game-changer among several major trends is the discovery in recent years that America is sitting on many decades’ worth of exploitable natural gas. Natural gas emits half the carbon dioxide of coal. Other long-term market trends complement the availability of cheaper, abundant natural gas: the growing likelihood in 2011 of more expensive oil; the extended life of existing nuclear facilities, adding thousands of megawatts of unexpected power to American generating capacity; the increasing competitiveness of solar and wind power coupled with state mandates for utilities to adhere to renewable portfolio standards; and the slow but steady electrification of transportation. The U.S. energy market, if left to its own devices, without distortions or subsidies, will provide plentiful and affordable energy while gradually evolving away from oil and coal as the primary fuel sources.

RMM:The reality is that natural gas is not a suitable substitute for oil, under current or even projected technology, and we are decades away from the time when nuclear, solar and wind can take over from coal and oil. I see no way that reduced federal subsidies would not increase the price of energy.

The federal government . . . should invest heavily in long-term research and development to hasten the progress of new commercially viable energy technologies.

RMM: Agreed.

It should stiffen regulations on coal use so that the fuel’s environmental and health costs are borne by industry and reflected in its price.

RMM: The rise in energy prices is the prime motivator for inflation. See: Inflation. Rather than raising the price of coal, the government should help the industry be “cleaner.” Subsidies, not penalties, may be more productive.

Eventually, when the political climate is right, it should impose some form of tariff on carbon and other greenhouse-gas emissions to ensure that the market internalizes the global “costs” of threats to the planet’s life-giving atmosphere.

RMM: All taxes are anti-stimulus. The market cannot “internalize” anything. All costs are passed on to the consumers (aka the taxpayers).

Is eliminating all energy subsidies politically possible? There have always been libertarian elements in the Republican Party that have railed against “corporate welfare,” including the massive tax expenditures that favor oil production. Now they are joined by many Tea Party sympathizers who, appalled by the bailouts of the big banks and automakers, instinctively share the same hostility toward subsidies of big business. Though progressives are inclined to forget, Sarah Palin imposed a steep tax on oil companies’ windfall profits while serving as Alaska’s governor.

RMM: Again, they aren’t “tax expenditures.” Mr. Leonard has no understanding of monetary sovereignty, And, if the Tea Party and Sarah Palin are proposed as experts in this debate, one has to wonder.

Nevertheless, the energy debate is one of our most important. What do you think of the fundamental idea that the federal government should get out of the energy business and allow the market to dictate where we should go and what we should do?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”