It’s a real question. If you had to choose between #1. Inflation or #2. Sickness, A Recession, A Depression, Poverty, Illiteracy, Starvation, Homelessness, Crime and some other bad stuff I could mention, would you chose #1 or #2?
It may sound like a no-brainer, and perhaps it is in the literal sense of “no brain,” because the vast majority of Americans claim they would rather experience #2 rather than #1.
Do you agree that you would prefer to experience sickness, a recession, a depression, poverty, illiteracy, Starvation, Homelessness, Crime, etc. than to experience inflation?
Let’s begin with the generally uncontested fact that the federal government created the laws that created the U.S. dollar. Because the federal government can create any laws it wishes, it can create as many dollars as it wishes, and cannot unintentionally run short of dollars.
The experts agree:
Former Fed Chairman, Alan Greenspan:“The United States can pay any debt it has because we can always print the money to do that.”Former Fed Chairman, 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.”
We could add to the discussion the fact that federal deficit spending does not cause inflation, which we have proved here and here and dozens of other places on this blog.
We could insist that shortages cause inflations, and those shortages can be cured by federal deficit spending. Thus, we can show that rather than causing inflations, federal deficit spending can cure inflations.
But, wait. Why struggle against a tide of misinformation?
Let’s assume, for the sake of argument, that federal deficit spending does indeed, cause inflation. It’s what most Americans believe.
Because the federal government can’t run short of its own sovereign currency, it could risk inflation by using that currency to pay for:
Comprehensive, generous Medicare insurance for every man, woman, and child in America
Generous Social Security benefits for every man, woman, and child in America, regardless of age, income, or wealth
All costs of education from K-12 and beyond, including advanced degrees from top universities
Rent and other housing subsidies, for all.
A healthful diet for all Americans
Subsidies for all states, counties, cities, and villages, so that none of them would have to levy taxes.
Ending the FICA deduction from salaries
Expanded research in all the sciences: Mathematics, Biology, Botany, Social Sciences, Philosophy, Geology, Physics, Chemistry, Astronomy, and all the other sciences not mentioned.
The purpose of such spending would be to improve and extend the lives of humans and the other living creatures with whom we share the earth.
The government has the ability to fund all of #1 through #8. But many people wrongly object, “But that would cause inflation.”
If those people were correct, and that spending would cause inflation, it only would mean they have chosen a lesser life rather than experience inflation.
They have chosen sickness rather than health, poverty instead of affluence, taxation rather than being tax-free, homelessness rather than sheltered, stagnancy rather than advancement, and ignorance rather than knowledge, all for the fear of inflation.
Would you rather suffer from incurable, painful disease than suffer from inflation?
Would you rather risk being impoverished and homeless than to risk inflation?
Would you prefer that your children be unable to attend the best colleges having the best resources money can buy, just so you don’t see prices rise?
Would you rather the type of research that amazed you with the Internet, cell phones, artificial intelligence, moon landings, etc. be discontinued for lack of funds, just so inflation can be avoided?
Would you prefer that America default on its debts by enforcing a debt ceiling?
Would you rather that the federal government cease to improve our military?
Would you rather see the government do nothing to prevent or cure recessions and depressions, just because the cure – federal deficit spending – might cause inflation?
In summary, even if we admit the belief, just for the sake of argument, that federal spending causes inflation, we are left with very unsavory alternatives.
Think about it. Do you really believe that the possibility, or even the false probability, that federal deficit spending could cause inflation is more important than all of the things federal money could buy?
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.
For those of you who don’t remember the Great Depression (almost everyone, now), it began in 1929, after several years of federal surpluses ( Item 3.), but by the early-1930’s we already were on our way to recovery – something like today. Then, the government decided to reduce the federal deficit with increased taxes and reduced spending — something like today. So we had four more years of depression (something like tomorrow?)
According to Wikipedia: “The Recession of 1937–1938, sometimes called the Roosevelt Recession, was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States. Economists disagree about the causes of this downturn. Keynesian economists tend to assign blame to cuts in Federal spending and increases in taxes at the insistence of the US Treasury, while monetarists, most notably Milton Friedman tended to assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.”.
Hmmm. Let’s think about that. “Cuts in federal spending . . . and increases in taxes” = federal deficit reduction. “Tightening of the money supply . . .” also = federal deficit reduction. So here you had two different schools of thought, both saying essentially the same thing. The 1937 recession was caused by what we today refer to as “austerity.”
So what do our political leaders favor, now that we are creeping out of the latest recession. Yes, that same austerity. Republicans hate federal spending. They stand ready with dozens of proposals to slash the federal budget. Reportedly, they want to cut $260 billion (25%) from the federal budget. Now that should be stimulative.
Republicans also do not believe their proposed cuts in education, Medicare, unemployment compensation and many other worthy federal projects will hurt anything or anyone.
The Democrats are no smarter. They have to be dragged kicking and screaming, to retain (not even cut, just retain) the Bush era tax levels. They do not believe taxes, which remove money from the economy, slow the recovery. They want to tax the “wealthy,” because . . . well, because that is what Democrats, with their eternal class warfare strategy, do.
Then we have the media. My hometown newspaper, the Chicago Tribune repeatedly rails against the federal debt. They never explain why. They don’t provide data. They just don’t like it. The Tribune is typical of the media, which almost universally hate the debt, and almost universally don’t provide data supporting their position.
And then there is Fed Chairman Bernanke, who feels we must “act to bring down long-term fiscal deficits.” He too, has no clue about why and never gives a coherent reason.
Finally, we have the mainstream economists – all those Nobel winners – none of whom seem to understand monetary sovereignty, and all of whom call for less deficit spending.
Put them all together and things look very bad for this fragile economy. With leaders like these, who needs enemies?
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.”
An alternative to popular faith
Readers of this blog know debt growth is necessary for economic growth. The graphs and data in the various posts, for instance The federal debt and federal deficit are necessary for economic growth, show that surpluses preceded every depression in U.S. history, and reductions in debt growth preceded every recession in the past 50 years.
While this degree of correspondence transcends coincidence, it leaves a troubling question: What is the trigger? The recession of 2001 was preceded by ten years of deficit growth reductions, while the recession of 2007 was preceded by only three. Other recessions also were preceded by varying periods of reduced deficit growth or surpluses. Similarly, the 1929 Great Depression was preceded by nine years of surpluses, while the 1819 depression was preceded by only two.
This makes predicting a recession difficult. While running a surplus seems to be a fairly prompt causative agent for recessions or depressions, debt growth can decline for several years before a recession begins. Reduced deficit growth is a necessary detonator of recession or depression, but some other event must serve as a more immediate signal, a trigger. For example:
*The recession of 1960 may have been triggered by the Vietnam war, which began in 1959
*The 1970 recession: Possible trigger: Also may have been the Vietnam war, this time by the protests and the public realization the war was going poorly.
*The 1973 recession: Possible trigger: The first Arab oil embargo
*The 1980 recession: Possible trigger: The Iranian revolution causing another oil crisis
*The 1990 recession: Possible trigger: Desert Storm
*The 2001 recession: Possible trigger: The bursting of the “dot.com” bubble.
*The 2007 recession: Possible trigger: Collapse of the subprime mortgage market
All recessions and depressions share one factor – reduction in debt growth – but all have had different triggers. It appears if we have only reduced deficit growth without the trigger, no recession or depression will result. And, a trigger event, without reduced deficit growth, will not cause a recession. The recession/depression bomb requires both a detonator (reduced debt growth) and a trigger.
Triggers are difficult to evaluate (i.e., how serious they are), but as one small step toward predicting recessions we should keep in mind that a recession is far more likely during federal deficit growth rate decreases.