Or, do they move randomly, so that when one goes up, the other sometimes goes up and sometimes goes down?
Or do they move in opposition, so that when one goes up, the other goes down? What is your opinion?
I ask because these two lines demonstrate one of the beliefs-vs.-facts arguments we seem to endure all too often in economics. Perhaps because economics is intertwined with psychology, a science notable for guesses trumping facts — or lack of facts — that economics is so filled with myths.
Contrary to popular belief, which is taught in our schools by educated economists, here are some of the facts that are not taught:
Federal “debt” is not real debt. The federal government does not owe it.
The federal debt is infinitely sustainable. Federal “deficits” are economic gains.
The federal government neither needs, keeps, nor uses federal tax dollars or any other form of income.
The federal government cannot run short of dollars. The federal government creates new dollars, ad hoc, by spending.
The federal government does not borrow. T-bills, et al, do not provide the government with dollars. “How will you pay for it” never is a legitimate question regarding federal spending initiatives.
Gold is not, and never has been money. It is, and always has been, nothing but an ore. Federal government spending grows the economy. State/local government spending does not.
The debt ceiling does not put a ceiling on federal debt. Federal “trust funds” are not trust funds and they do not pay for federal spending.
Lately, because of massive spending by the federal government, you have begun to hear about the menace of inflation. The wrong belief is that federal spending causes inflation by increasing the money supply. It’s what you have been told thousands of times.
And it makes intuitive sense. After all, when you increase the supply of something without increasing the demand, the relative value declines. And you surely have seen photos of people, in hyperinflation-ravaged nations, carrying loads of currency in wheelbarrows.
But, in this case, intuition is misleading. Increasing the supply of money does not decrease its value. In the above graph, I do not see any sort of “together” movement. I do not see a cause/effect relationship.
Here is the same graph, except with labels attached. The blue line shows changes in prices. The red line shows changes in federal debt. I see peaks in one corresponding to valleys in the other.
From the above graph, it would be very difficult to deduce that increases in federal debt cause increases in prices. In fact, a better case could be made that increases in federal debt cause a decrease in prices, and that decreases in debt caused an increase in prices.
How is that even logical? I can visualize one possibility. Federal debt, which results from federal deficit spending, stimulates the economy, i.e. it stimulates business’s anticipation of demand.
Even today, businesses are ramping up production in anticipation of increased sales due to projected federal stimulus spending. Is it possible that this anticipation causes businesses to overshoot their production, leading to excess supply and reduced prices?
Perhaps, but for whatever reasons, federal deficit spending has not caused inflation, at least, not inflation above the Fed’s arbitrary, 2% goal.
Over the long term, prices have increased. There has been some inflation. And we know that federal debt has increased. Is this the cause/effect we have been told about?
Here are the same data viewed from another perspective, and with the addition of Gross Domestic Product (green). Since 1970, prices (blue line) have risen slowly, GDP (green) has risen faster, while federal debt (red) has risen massively. This indicates three things you will not hear from the media, the politicians or the expert economists:
- Even during massive debt increases, prices have moved up moderately, actually below the Fed’s target.
- As federal debt increases, GDP grows faster than inflation.
- The growing debt is not a burden on the government, on taxpayers, or on the economy.
Sadly, these facts will not sway those whose motive clearly is to widen the Gap between the rich and the rest.
By claiming that federal spending to support the poor and middle-income groups is unsustainable, the purveyors of the “Big Lie” help enrich the rich and impoverish the rest.
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:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.