House Speaker John Boehner was asked about the probability that the GOP plan to cut $100 billion from government spending would cause federal job cuts: He replied, “Over the last two years since President Obama has taken office, the federal government has added 200,000 new federal jobs. And if some of those jobs are lost in this, so be it. We’re broke. It’s time for us to get serious about how we’re spending the nation’s money.”

Two problems with this:

1. We’re not “broke.” As a Monetarily Sovereign government, the U.S. has the power to pay any bill of any size. No federal check ever has bounced and none ever will (unless this silly Congress fails to raise their silly debt ceiling) – not even during the Great Depression, and not even during the worst recession in recent history, and not even while spending trillions to cure that recession.

In short, John Boehner simply does not know what the heck he is talking about. The man is completely ignorant of modern economics and is using that ignorance to guide the American economy. Visualize the Large Hadron Collider run by Mortimer Snerd (You young folks can look him up.)

2. The GOP repeatedly criticized the Obama initiatives for failure to add jobs, but their own “job-killing” (GOP phraseology) plan receives a shrug and a “. . . so be it.”

Not that the Democrats are without guilt. Obama wishes to “pay for” federal spending by raising taxes on the rich. Two problems with this:

1. In a Monetarily Sovereign government, taxes do not “pay for” spending. In fact, federal taxes have zero relationship to federal spending; the two processes are completely separate, independent and unconnected. The proof: We could eliminate federal taxes without changing federal spending, and we could eliminate federal spending without changing federal taxes. Federal taxes are a relic of the gold standard days.

2. Soaking the rich either is meaningless or harmful, depending on how successful it is. The more taxes collected, the more damage is done. Contrary to popular myth, taxing the rich does not add one penny to the pockets of the poor, in fact, such taxes remove money from the pockets of the poor. (See: Does taxing the rich help the poor? )

So here is what I think will happen, based on what we know now: The economy will grow, albeit slowly, for the next three years, because of projected, large, so-called “deficits” (i.e., money creation), while Congressional ignorance and hubris will cause a continual struggle to maintain spending on beneficial projects.

The poor and the jobless will be the primary losers, as these beneficial projects will be squeezed. Obama repeatedly will play the class-warfare card, using poverty as evidence taxes on the rich should be increased. (Visualize warming the poor by shredding the clothes of the rich.)

After three years, when fiscal “prudence” (i.e., reduced money creation) takes hold, the economy will tank, again. Meanwhile, the right will offer a plan to solve the economic problem: Eliminate abortion and Medicare, and allow everyone to carry a gun. The left also will offer a plan: Raise taxes on everyone making “too much” money and require the states (who really are broke) to absorb more unfunded mandates for the poor.

In answer to the title question, ‘Who cares about jobs?”, Congressmen and Congresswomen do. But, it’s their own jobs, not yours.

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

No nation can tax itself into prosperity, nor grow without money growth.

In the previous post, I speculated that concerns about “big government” had less to do with size than with control. (Suggestion: Read that post, before reading this one.) Those who abhor big government face the difficult task deciding which federal initiatives to eliminate, for every federal expenditure benefits some group. Eliminating benefits neither is popular nor appropriate for a great nation. There may be a solution to that dilemma.

Many people equate big government with “Big Brother,” the dictator in the book “1984,” whose motto was, “Big Brother is watching you, “ and who controlled every aspect of people’s lives. I suggested the concerns about big government would be allayed, not by reducing the physical size of government, but rather by reducing its control over us. In the previous post, I had said:

Visualize a new nation, called “Freedom.” The Freedom federal government creates dollars, which on a per-capita basis, it distributes to each state, each county, each city and each person. There would be no federal, state or local taxes. The states, counties and cities would get all their money according to a formula, and spend the money they receive according to their local requirements. The people would spend the money according to their personal desires.

The solution to big government is not to do away with the services government provides, but rather to transfer responsibility for implementing those services to state and local governments, while the federal government continues to pay the bill.

Let’s say in year 1, the federal government were to give each state $2,500 per state resident, while transferring to each state $2,500 worth of financial obligations currently funded by the federal government. There would be no net effect on the federal deficit, but the states would take control over $2,500 per capita of funding now controlled by the federal government. This would have no effect on the federal deficit.

Assume, in addition, the government were to give each state an additional $1,500 per resident, which the states could use for debt reduction, tax reduction or for new initiatives, at each state’s option. This would increase the deficit $1,500 per capita. The U.S. has about 310 million people, so that $1,500 gift would total about $465 billion. The federal government estimates it will spend about $3.9 trillion in 2011, so that $465 billion would add a net of about 12% to the federal budget, bringing the federal budget up to $4.4 billion.

In year 2, assume the federal government were to transfer an additional $2,500 in per capita obligations to each state, while giving each state $5,000 ($2,500 to cover existing obligations and $2,500 for the additional obligations). Again, there is no net effect on the federal deficit. In addition the government again gives each state a gift of $1,500 per resident.

Assume the federal government continues to follow this procedure each year.

What does this accomplish? At the end of 10 years, the federal government will have transferred to the states control over nearly $8 trillion worth of federal spending. Further, depending on how the states decide use their annual $1,500 per resident gift, some can be debt-free, or tax-free or both.

The above example assumes a steady $1,500 per capita gift from the government. What if, instead, the government provided a steady 12% increase as a gift to the states. By the end of 10 years, the states would receive about $4,600 per resident. The table below shows the per capita debt, deficit and taxes for several states. You can judge how additional annual support from the federal government might affect these states.
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Each state would acquire the option to eliminate its deficit, reduce its taxes, reduce its debt and/or create new state initiatives for the benefit of its citizens.

In summary:
-The above approach could reduce the power of “big government” to rule our lives, since “small government” would acquire the finances to assume many big government initiatives.
-States could become healthier financially, while providing more services to their citizens.
-Any reduction in state debt would reduce states’ interest cost, thereby speeding the elimination of debt, reduction of taxes and increase in citizens’ money ownership.
-Any reduction in state taxes would add to the dollars owned by the private sector, increase each state’s GDP, reduce unemployment and increase each state’s average standard of living.
-The federal government, being Monetarily Sovereign, has the money-creating, legal power to support any additional per capita spending, subject only to inflation. The deficit increases are well within the levels of previous, non-inflationary deficit increases, so are unlikely to cause inflation, which in any event can be prevented/cured via interest rate control.

This would mark the end of big government control, while not giving up the benefits of federal spending.

One caveat: Every state has different financial circumstances, different needs and different spending philosophies. So transferring each federal obligation to each state, will not affect the states identically.

Comments?

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

No nation can tax itself into prosperity, nor grow without money growth.