Tag: Concord Coalition

-New thinking from the New America Foundation


An alternative to popular faith

        Here is the text of an Email I sent to Steve Coll, President and CEO of the New America Foundation (http://newamerica.net/) (Offices in Washington, DC and San Francisco, CA). According to their web site, “The New America Foundation is a nonprofit, nonpartisan public policy institute that invests in new thinkers and new ideas to address the next generation of challenges facing the United States.” They publish 12 “Principles” by which they live.
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Dear Steve;
        Your principle #10, “Do not perpetuate budget myths” is excellent. In that regard you might wish to reconsider certain statements on your web site:

“In reality, the availability of debt financing is far from unlimited; in fact Japan and China have already begun to slow their purchasing of U.S. debt.”
        A myth. The federal government does not need to sell U.S. debt to Japan, China or to any other country or person. The government creates debt (T-securities) out of thin air, collateralized only by full faith and credit. It just as easily could create money out of thin air, also collateralized by full faith and credit, and eliminate the debt creation and sales step. Debt creation and sales is a relic of the gold-standard days.
See: How to eliminate federal debt, deficits and interest payments

        “While deficits can spur consumption and thus improve the immediate economic situation when there is slack in the economy, they lead to slower growth in living standards over the long run.”        
A myth. Federal deficits are necessary both for short term and long term growth. A growing economy requires a growing supply of money. Where else will the money come from to grow our economy?
See: I believe

        “Moreover, high deficits increase interest payments, which crowd out important tax and spending priorities and leave the budget with far less flexibility than it would otherwise.”        
Partly true, partly a myth. High deficits can increase interest payments. However the conclusion is circular reasoning. Interest payments can “crowd out” spending priorities only if the government is precluded from running deficits. To date, despite massive deficits for the past 30 years, interest payments never have crowded out anything.

        “Lastly, deficits shift the burden of paying for today’s spending to future generations, which may cause over-consumption by present generations at the expense of consumption by future generations.”
A myth: Today’s deficits are paid by future generations only if the future generations decide to run surpluses. When any generation runs a deficit, it’s tax payments do not even cover its current expenses, let alone past expenses. Deficits do not cost taxpayers money. Only surpluses cost taxpayers money.
See: It isn’t taxpayers’ money

        I have suggestions for a 13th and 14th principle:
13. Base all suggestions on supporting data, not on popular faith.
14. To accept new thinkers and new ideas, be prepared to let go of old thinkers with old ideas.”

Rodger Malcolm Mitchell

-Open Letter to Maya MacGuineas, President of CRFB

An alternative to popular faith

        On September 23, 2009, Ms. Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote an article titled, “Can Deficits Fix the Economy” (http://crfb.org/blogs/can-deficits-fix-economy). In the article, she agrees on the need for deficit “ . . . spending on public investments . . .” but she expresses concern about the government’s ability to borrow more money. I wrote her the following note:

Ms. MacGuineas,
         In your article, “Can Deficits Fix the Economy,” I’m pleased to see you understand the necessity of federal deficit spending for economic growth. This puts you well ahead of debt hawks like the Concord Coalition, who actually have called for surpluses large enough to eliminate federal debt, demonstrating their misunderstanding of money and its sources.
        Nevertheless, you said, “. . . given how much we have borrowed in the past, there is little room for deficit financing new investments, and I would instead shift our budget by cutting spending on consumption and directing it toward higher levels of public investment. If we had listened to budget scolds in the past, we would have more room on our balance sheet now for government borrowing – unfortunately, we did not.”
         Exactly the same concerns were expressed by many back in 1979, when the debt was less than $800 billion. In the past 30 years, the debt has grown 1,400% and not only does there remain plenty of room on our balance sheets, but the federal government does not need to borrow at all. See the post:
“How to Eliminate All Federal Debt, Deficits and Interest Payments”

        The government borrows by creating T-securities out of thin air, then selling them. The government far more easily could create money out of thin air, and eliminate the borrowing stage. This also would eliminate misguided concerns about our debt and our ability to borrow.

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

-Do you believe President Obama is gay ??


An alternative to popular faith

       If a reporter were to come to his editor with a proposed article titled, “President Obama is gay,” the editor would demand supporting evidence, before that article ever saw daylight.
      However, if the same reporter submitted an article titled, “Federal deficit is too high,” history says the editor would ask for no supporting evidence, nor would the article contain any. The media merely assume, as a matter of faith, that revenue neutrality is more prudent than deficits.

      Economics is rare, perhaps unique, among sciences, most of which demand evidence for their hypotheses. Only in economics can intuition and popular faith obviate facts or even the desire for facts. Thus, I have had editors, columnists and reporters tell me it is “obvious” that large deficits are unsustainable, crowd out lending funds, lead to recessions, depressions, inflations and hyper-inflations. When I ask for evidence to support these views, I seldom hear from them again, probably because they feel scientific evidence is unnecessary in a science, but more importantly, they don’t have any.
      Even the Concord Coalition, an organization that for seventeen years, has collected vast amounts of money to preach for federal deficit reduction, unashamedly offers no evidence to support its views. Check its website, http://www.concordcoalition.org, or write to them and you will see they neither offer, nor have, evidence.
      Because our leaders parrot the economic beliefs promoted by the media, lack of evidence has contributed heavily to the government actions that yield repeated recessions. Until the media learn to ask, “What is your evidence?” we will continue to suffer periodic, economic traumas. These traumas may seem inevitable and unavoidable, but in reality they are caused by beliefs lacking evidence.
      If you don’t believe President Obama is gay, unless you see solid evidence, don’t believe the federal deficit is too high, unless you see solid evidence.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com

-How to Eliminate All Federal Debt and Interest Payments — if we want to

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.
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AP: August 12, 2009:
“The Obama administration is projecting that when the current budget year ends on Sept. 30, the (deficit) will total $1.84 trillion. The soaring deficits have raised worries among foreign owners of U.S. Treasury securities including the Chinese, the largest holder of such debt.”

Perhaps no subject has caused more controversy than the federal debt and deficit. The deficit includes interest payments, which this year are projected to be $260 billion, a substantial amount, even with today’s low interest rates. Interest payments will continue to grow as the debt and interest rates rise.

So we deal with three related worries: We worry about paying for the large and growing federal debt. We worry about our creditors buying our debt. And we worry about the growing amount of interest the government must pay.

Every one of these issues could be solved with one stroke of the pen.

The federal government borrows by creating Treasury securities (T-bills, T-notes and T-bonds) from thin air, backed only by “full faith and credit.”  It then trades these securities for dollars it previously created.  When the securities mature, the government trades them back, plus interest.

“Full faith and credit” is an intangible collateral. The government has an unlimited supply. This gives the government the power to create unlimited amounts of T-securities.  Finding buyers for these T-securities is addressed by offering interest rates high enough to attract investors.

While the government currently creates T-securities from thin air, it just as easily creates dollars from thin air – similarly backed only by full faith and credit – and can eliminate the borrowing step.  No longer would we be troubled by federal debt, federal deficits, concerns about China et al or interest payments. The same controls over T-security creation would apply to money creation. We merely would eliminate the one step that causes so much controversy.

Why does the U.S. government create T-securities ostensibly to obtain U.S. dollars?  Borrowing is a relic from the gold-standard days, which ended in 1971. Prior to that, U.S. dollars were backed in part by gold, a tangible product in limited supply.  This limit prevented the government from creating as many U.S. dollars as it needed, so it had to borrow these dollars.

When you think about it, the notion of the U.S. government “borrowing” U.S. dollars – dollars it alone has the power to create – is ironic. The government can eliminate debt, along with all the controversy these subjects cause.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com