Tag: Concord Coalition

–Failing U.S. transportation system will imperil prosperity, report finds

The debt hawks are to economics as the creationists are to biology.

Failing U.S. transportation system will imperil prosperity, report finds
The Washington Post, 10/4/10

Read this article, then ask the Tea Partyers (You know – those clever people who want less taxes and government) how they plan to handle this.

The United States is saddled with a rapidly decaying and woefully underfunded transportation system that will undermine its status in the global economy unless Congress and the public embrace innovative reforms, a bipartisan panel of experts concludes in a report released Monday.

U.S. investment in preservation and development of transportation infrastructure lags so far behind that of China, Russia and European nations that it will lead to “a steady erosion of the social and economic foundations for American prosperity in the long run.”

That is a central conclusion in a report issued on behalf of about 80 transportation experts who met for three days in September 2009 at the University of Virginia. Few of their conclusions were ground-breaking, but the weight of their credentials lends gravity to their findings.

Co-chaired by two former secretaries of transportation – Norman Y. Mineta and Samuel Skinner – the group estimated that an additional $134 billion to $262 billion must be spent per year through 2035 to rebuild and improve roads, rail systems and air transportation.

“We’re going to have bridges collapse. We’re going to have earthquakes. We need somebody to grab the issue and run with it, whether it be in Congress or the White House,” Mineta said Monday during a news conference at the Rayburn House Office Building.

The key to salvation is developing new long-term funding sources to replace the waning revenue from federal and state gas taxes that largely paid for the construction and expansion of the highway system in the 1950s and 1960s, the report said.
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“Infrastructure is important, but it’s not getting the face time with the American people,” Skinner said. “We’ve got to look at this as an investment, not an expense.”

A major hike in the federal gas tax, which has remained unchanged since it bumped to 18.4 cents per gallon in 1993, might be the most politically palatable way to boost revenue in the short term, the report said, but over the long haul, Americans should expect to pay for each mile that they drive.

“A fee of just one penny per mile would equal the revenue currently collected by the fuel tax; a fee of two cents per mile would generate the revenue necessary to support an appropriate level of investment over the long term,” the report said.

Fuel tax revenues, including state taxes that range from 8 cents in Alaska to 46.6 cents in California, have declined as fuel efficiency has grown. President Obama mandated that new cars get 35.5 miles on average per gallon by 2016, and government officials said last week that they are considering raising the average to 62 miles per gallon by 2025.

Facing mid-term elections this fall, Congress has lacked the will to tackle transportation funding. Efforts to advance a new six-year federal transportation plan stalled on Capitol Hill after the previous one expired last year.

If Congress were to do the report’s bidding, the task would be far broader in scope than simply coming up with trillions of dollars in long-term funding to rebuild a 50-year-old highway system.

The experts also advocated adoption of a distinct capital spending plan for transportation, empowering state and local governments with authority to make choices now dictated from the federal level, continued development of high-speed rail systems better integrated with freight rail transportation, and expansion of intermodal policies rather than reliance on highways alone to move goods and people.

But Mineta noted that 42 days after an eight-lane bridge collapsed into the Mississippi River in Minneapolis a survey found that 53 percent of respondents were against an emergency gas tax increase to pay for infrastructure repairs.

“The shelf life of a tragedy like [I-35W] was 42 days,” he said. Thirteen people died in the collapse and more than a hundred were injured.

The report emphasized that federal policy should be crafted to address congestion by providing incentives that encourage land use that reduces single-occupant commutes and promotes “liveable communities.”

“Creating communities conducive to walking and alternate modes of transportation . . . should be an important goal of transportation policy at all levels of government,” the report said.

It also encouraged expansion of innovative public-private partnerships to further transportation goals, citing the high-occupancy toll lane project in Northern Virginia as an example.
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“The one option that’s not in this report is throwing up our hands,” said Jeff Shane, a former Transportation Department official and a member of the panel. “That seems to be the option that Congress chooses.”

Congress does not want to ask for tax money, so the problems do not get solved. But there is a solution: Federal deficit spending without taxes. Sadly, the debt-hawks’ mistaken belief that deficits are harmful to our children and us, prevents curing our problems. There is a long list of problems our children suffer today, and will suffer in the future, because of the debt hawks. (See: Debt Hawk Problems )

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

No nation can tax itself into prosperity

–John Mauldin, debt hawk pushing on a string

The debt hawks are to economics as the creationists are to biology.

John Mauldin makes a living writing about economics. He posts a blog called “The Big Picture” One of his more recent posts (9/28/10), titled, “Pushing on a string,” contained this observation: “What is needed is fiscal austerity (slowly) before debt spirals out of control. . . “

I entered the following comment to his post:

It’s nice to see that John remains a typical debt-hawk. He never says what “out of control” means, because debt hawks never offer specifics. So let’s speculate:

Does it mean the federal government will be unable to service its debt (the normal meaning for “out of control”)? Nope. Couldn’t be that. As a monetarily sovereign nation since 1971, the U.S. federal government has the unlimited ability to service its debt.

So, does it mean we’ll have inflation? Nope. Since that fateful August 1971 date, there has been no relationship between federal deficits and inflation. Since that time, the cause of inflation has been energy prices.

So, does it mean taxes will be higher or our grandchildren will owe the debt? No, there is no modern (post-1971) relationship between tax rates and inflation or deficits. Our grandchildren actually benefit from federal spending. So what does “out of control” mean. No one knows. I suspect it means something like, “It’s big and I don’t like the word ‘debt.’”

Oh, then there is the “problem” of banks not lending, which is another way of saying, adding to private debt. Does it strike anyone as curious that the pundits want the private sector to borrow more, while these same pundits want the federal government to borrow less? Here is the private sector, where bankruptcies are rampant, and the pundits want more borrowing. And here is the government, which can service a debt of any size, and functionally is incapable of bankruptcy, and the debt hawks want to restrict debt.

And then there is the debt hawk call for less federal spending and more taxes (the only way to get the federal debt down), while being vaguely aware that federal spending is stimulative and taxes hurt the economy.

Oh, you don’t like stimuli because they “don’t work.” Then you will enjoy the story of the man whose roof was on fire. His neighbor showed up with a garden hose and actually was able to reduce the flames, but only somewhat. The neighbor wanted to call the fire department, who would bring out the big hoses, but the man told him to stop, because “The fire still is burning, so obviously, water doesn’t put out fires.” And just as “obviously,” adding money doesn’t cure a recession.

The reason debt hawks continually call for conflicting actions is they begin with a false assumption. The assumption: Federal debt has an adverse effect on the economy. The truth: Federal debt is absolutely necessary for economic growth. Without it, we would have no economy at all.

But try telling facts to a debt hawk.

John has not and will not respond, which is a debt hawk custom. They don’t respond because they have no facts with which to respond. But I’ll give them this: Even with no facts they have managed to convince the world. I’m envious.

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

No nation can tax itself into prosperity.

–The “impossible” cure for stagflation

The debt hawks are to economics as the creationists are to biology.

Stagflation is economic stagnation or high unemployment combined with high inflation. Here is what a Wikipedia author said. “It is a difficult economic condition for a country, as both inflation and economic stagnation occur simultaneously and no macroeconomic policy can address both of these problems at the same time”

This is one statement with which, both mainstream economists and Modern Monetary Theorists (MMT) seem to agree. I disagree with both.

Economic stagnation, high unemployment and recession all indicate the same fundamental problem: The economy is starved for money. Inflation (wrongly) is felt to be caused by too much money, which is why we experience the universal belief that “no macroeconomic policy can address both of these problems at the same time.”

Stagflation is most likely to occur when oil prices spike. A rapid increase in oil prices causes inflation. It also has a negative effect on production and economic growth. U.S. stagflation could occur, even in the near future, were any major oil producing states, for economic or political reasons, decide to reduce production dramatically.

Debt hawks (aka mainstream economists) would address stagflation with increased federal spending, while simultaneously increasing taxes to “pay for” the spending. The benefits of the increased spending would be offset by the damages of increased taxation. The former adds money to the economy; the later removes money from the economy — equal and opposite effects.

Even today, as we try to recover from the worst recession in decades, debt hawks continue to demand increased taxes to “pay for” spending, not realizing that in a monetarily sovereign nation, taxes do not pay for spending. Simultaneously, the Fed, wrongly believing interest rate cuts stimulate the economy, would lower rates, thereby exacerbating the inflation.

The Fed believes this, because raising interest rates does cure inflation, and for reasons known only to the Fed, they believe inflation is the opposite of recession, so for recessions, they do the opposite. Unfortunately for Fed theorists and for us citizens, the opposite of inflation is deflation, not recession, so doing the opposite doesn’t work.

MMT followers also would increase spending (good) and increase taxes (bad), because they believe taxes control inflation.

In short, MMT and debt hawk economists would follow the same path, an irony lost on both groups, each of which correctly claims the other does not understand current economics.

To cure stagflation, one must deal with two distinct problems – recession and inflation – using two distinct solutions. The solution for recession is federal deficit spending. Money is the lifeblood of an economy. During a recession, an economy suffers from “anemia,” a shortage of money. The treatment for anemia is to increase the blood supply. The government’s deficit spending adds money to the economy, curing the stagnation. Deficit spending can be accomplished by cutting taxes, increasing spending or both.

Then, to cure the inflationary part of stagflation, the government must raise interest rates, thereby increasing the reward for owning money, i.e increasing the value of money.

Increase deficit spending while increasing interest rates: The simple solution for taxation. Why will the government not take these easily administered steps? Because the mainstream economists wrongly belief deficit spending causes inflation, while MMT wrongly believes tax increases control inflation, and the Fed wrongly believes raising interest rates slows the economy.

Until these three groups understand economic realities, please pray we don’t encounter a stagflation, because the government will find it incurable.

Summary of how each group would attempt to defeat stagflation:

Mainstream economics (debt hawks):
Reduce taxes to stimulate economy
Reduce federal spending to cut federal debt
Increase interest rates to fight inflation
(Result: Reduction in federal spending nullifies tax reduction and exacerbates recession)

Modern Monetary Theory:
Increase taxes to fight inflation
Increase spending to stimulate economy
Reduce interest rates to fight inflation
(Result: Tax increase nullifies spending increase and exacerbates recession. Reduced interest rates exacerbate inflation)

Mitchell:
Reduce taxes to stimulate economy
Increase spending to stimulate economy
Increase interest rates to fight inflation
(Result: Tax reduction & spending increase cure recession; interest rate increase cures inflation)

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

No nation can tax itself into prosperity

–A solution for unemployment

The debt hawks are to economics as the creationists are to biology.

The single most contentious subject in our economy is unemployment. Everyone is against it, but there is scant agreement about how to reduce it. Most of the suggested efforts involve federal spending of some sort, but there is widespread agreement among politicians, economists and the media, that the federal deficits and debt should not be increased.

So countless hours have been spent trying to find just the right combination of targeted spending and tax increases, that would reduce unemployment in a “revenue neutral” way, the belief being that some government spending and some tax cuts reduce unemployment while other spending and tax cuts do not.

As to which does which is not known by anyone, though ample, strong opinions are rife. So we offer this graph:

The above graph shows one of the more remarkable correspondences you will find in economics. Most of the time, when deficit growth goes up, unemployment tends to go down, and vice versa. Though one may argue that correspondence does not equal cause/effect, it certainly is suggestive. And what it suggests is this: Increases in federal deficit growth help prevent and cure unemployment, while decreases in federal deficit growth help cause and increase unemployment.

Yes, there are yearly exceptions. Unemployment is complex and there are no perfect correlations in economics, but the tendency is clear. The two lines are almost mirror images, save for recessions, when unemployment rises and federal debt rises to cure the recession.

Importantly, the graph doesn’t differentiate among different causes of deficit growth, nor does it identify where money is spent, nor whether tax decreases (if any) played a role. It merely shows that deficit increases — any deficit increases –reduce unemployment. This tells me that all the conversation about “revenue neutral,” or which taxes can be cut, or where money should be spent are not germane to unemployment, and merely reflect blue sky speculation by self-anointed experts.

In short, the graph seems to say: “Increase federal spending — any federal spending — and decrease federal taxes — any taxes, and stop all the mindless debate about things you know not.” Although I personally favor the immediate end to FICA taxes for Ten Reasons , I would accept seeing personal taxes reduced or eliminated.

And while I favor a simple stimulus in which a total of $1 trillion or more is sent to each state according to its population, I’ll settle for any equally ample spending idea. In short, deficits cure unemployment, so let’s have the deficits, now.

In 1971, we went made ourselves a monetarily sovereign nation, let’s not waste the opportunity this effort gave us.

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

No nation can tax itself into prosperity