Tag: deficits

–Replace the euro

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

In a previous post, –The solution for France and the other Monetarily Non-Sovereign Governments (MNSGs) – I commented on France’s difficulty in resolving union pension demands with the European Union requirement of financial austerity. I suggested that as long as France remained monetarily non-sovereign, there would be no resolution to this dilemma, and France would face bankruptcy, along with it’s EU partners.

A reader, Tom Hickey agreed, while reminding me of Keynes WWII suggestion that the world adopt a quasi “super euro” called the “bancor.” Under the heading, “They never seem to learn,” the bancor was one in a long list of attempts to eliminate monetary sovereignty, with the ostensible goal of facilitating trade, but with the underlying goal of preventing inflation. It was yet another scheme to create one, uniform currency in a multi-nation world. It was a “standard,” and as such, it was similar to the gold and silver standards of yore, and to the current “euro standard” and the “dollar standard” (under which the U.S. states, counties and cities labor).

If there is one rule fundamental to the science of economics, it is this: A growing economy requires a growing supply of money. So, any time you create a standard, you also must create a method for each political entity to grow its money supply. The EU forgot this.

Subsequent to Keynes’s ill-conceived bancor idea, the U.S. dollar became the world’s “reserve” currency, without the baggage of being an official or fixed standard. Nations wisely retained the power to control the supply of their own currency and the exchange rate with the dollar, a reasonable process.

However, as always happens in economics, there was a perceived problem, and that perceived problem was called the “Triffin dilemma.” Going back to the fundamental rule of economics, a reserve currency must increase in availability, which the Triffin dilemma requires U.S. to run trade deficits fulfilling world demand for dollars. And trade deficits lead to the dreaded federal deficits – at least dreaded by debt hawks.

Although all money is debt, some economists and all politicians tell us that anything containing the words “debt,” “deficit” or “negative” – as in federal debt, federal deficit, trade deficit, negative balance of payments, current account deficit – are to be much feared, despite no rational reason for such fear. So, our saying the current world financial system requires America to run trade deficits, is tantamount to economic blasphemy, though trade deficits actually benefit America.

This is explained in more detail at Trade Deficit Myth, but briefly, trade deficits supply us with scarce goods and services in exchange for the dollars we create at the press of a computer key.

In short, the European nations would have been far wiser to support the U.S. dollar as their trading currency, while using their monetarily sovereign power to buy as many dollars as they wished – a system used by most other nations, worldwide. Instead, they voluntarily surrendered their monetary sovereignty for a mythical financial prudence. They made a pact with the devil, and now pay the price.

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

No nation can tax itself into prosperity


–“How to Slash the State: 14 ways to dismantle a monstrous government, one program at a time”

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

The November 2010 issue of reason.com contains an article titled, “How to Slash the State: 14 ways to dismantle a monstrous government, one program at a time”

It’s a thoughtful article, but only if you believe the federal government should be smaller, the federal deficit should be lower and taxpayers pay for federal spending. Unfortunately, there is no evidence to support any of these three beliefs. In fact, all the evidence points to the need for ever increasing federal deficit spending, i.e. money creation. (A growing economy requires a growing supply of money.) Also, in a monetarily sovereign nation, taxes do not pay for federal spending (though taxes do pay for state and local spending, as the states, counties and cities are not monetarily sovereign).

Further, some of the “dismantling” they suggest is more like shifting, because some of the suggestions merely push expenses from the federal government (which has unlimited money) to state and local governments (which are having great difficulty paying their bills) – a terrible idea.

Nevertheless, here are the ideas, with my comments.

1. Overhaul Medicaid
“stop the matching grant funding process, in which states receive federal money for each Medicaid dollar they spend” or “scrap the program entirely in favor of a temporary assistance program that doesn’t create long-term dependency.”

The first part of the suggestion shifts more burden to the struggling states, which are not monetarily sovereign, and so cannot create unlimited money. The second part of the suggestion goes under the heading, “These Medicaid recipients aren’t really poor; they are lazy. If we stop giving them help, they’ll go to work.” That simply is nuts.

2. Bring the Troops Home
“. . . a swift and total deoccupation . . . probably would save “$50 billion to $70 billion in fiscal 2011 and perhaps $80 billion to $100 billion a year in 2012 and beyond.”

I’d like to see the troops come home, but not for financial reasons. I have no idea why we’re in Afghanistan, but saving money is a foolish way to manage a war. It kills soldiers.

3. Erase Federal Education Spending
“. . . the federal education budget is full of cuttable programs. If eliminating the entire Department of Education is politically impossible, then the programs with the most tenuous relationships to raising student achievement need to be the first to go.”

This falls under the “make government more efficient” heading. Sure, who can argue with that, but again, it’s not a money thing. It’s an effectiveness thing.

4. Slash State Budgets
“ . . . lawmakers have been living way beyond their means for far too long.”

Not sure what this has to do with the federal government, but I love it. Any specific ideas?

5. End Defined-Benefit Pensions
“ . . . public servants of the future should be put into 401(k) plans like the rest of us, with responsibility to contribute to and manage their own retirement nest eggs.”

This would mean federal employees would receive less money, which would be anti-growth. I agree however, for state and local government employees, as the state and local governments spend taxpayer money.

6. Declare Defeat in the Drug War
“To enforce drug prohibition, state and federal agencies spend more than $40 billion and make 1.7 million arrests every year. This effort wastes resources that could be used to fight predatory crime. . . While imprisoned (as half a million of them currently are), drug offenders cannot earn money or care for their families, which boosts child welfare costs.”

I agree, but again not for money reasons. Prohibition didn’t work in the 1920’s. I can’t imagine why the public and the politicians think it will work, today. Prohibition caused crime in the 1920’s. It causes crime, today. The war on drugs is a perfect example of how the government and the public are incapable of learning from experience.

7. Cancel the Federal Communications Commission
“. . . just about everything the FCC does is either onerous, constitutionally dubious, ineffective, or all three.. . . its role as broadcast censor . . . The best alternative is a world in which spectrum is freely tradable private property rather than a government-managed resource, interference is treated as a tort, and no one worries about whether their next on-air word will result in a seven-figure fine—in other words, a world with no FCC at all.”

The FCC’s role as public scold is useless – actually harmful. The Internet has eliminated the prohibition against swear words, as today one easily can find the most pornographic videos. Fining CBS for Janet Jackson’s 1 second breast reveal, while every sexual act imaginable is available on the Internet, is just plain silly. But, the limited public bandwidth has to be managed to prevent monopolies.

8. Uproot Agriculture Subsidies
“They distort markets and spark trade wars. They make food staples artificially expensive, while making high-fructose corn syrup—the bogeyman of crunchy parents, foodies, and obesity activists everywhere—artificially cheap. They give farmers incentives to tamper with land that would otherwise be forest or grassland. They encourage inefficient alternative energy programs by artificially lowering the price of corn ethanol compared to solar, wind, and other biomass options. School lunches are jammed full of agricultural surplus goods, interfering with efforts to improve the nutritional value (and simple appeal) of the meals devoured by the nation’s chubby public schoolers.”

I agree. Any time the federal government subsidizes an industry, it controls that industry. So you have bureaucrats determining what food is best. While those agriculture subsidies are stimulative, in that they add money to the economy, they distort the market.

9. Unplug the Department of Energy
“. . . more than half of the department’s $26 billion budget ($16 billion) was devoted to managing . . . facilities that make and dispose of materials used for nuclear weapons. . . If Congress and the White House must pursue the development of alternative energy via social engineering, a far more effective alternative to allowing DOE bureaucrats to pick technology “winners” would be a tax on conventional energy. The boost in energy prices would at least encourage inventors and entrepreneurs to get to work.”

All taxes hurt the economy. Taxing energy would tax us all, as we all use energy. The federal gasoline tax has accomplished nothing but take money out of the economy. It certainly has not reduced the consumption of gasoline. It has been an economic cost. This falls under the heading: “If something is harmful, do it again, only more so.” Once again, a failure to learn from experience.

10. Dismantle Davis-Bacon
“. . . which requires all workers on federal projects costing more than $2,000 to be paid the “prevailing wage,” which typically means the hourly rate set by local unions. . . . born as a racist reaction to the presence of Southern black construction workers on a Long Island, New York, veterans hospital project.”

I agree. See #8. It’s another example of the federal government distorting the market, this time the labor market.

11. Repeal the Stimulus
“. . . as of early September, 18 months after the stimulus was passed, an estimated $301 billion remained unspent. That money should be banked, not wasted . . . deficit spending has crowded out private investment.”

A demonstration of financial ignorance. There is no way federal money can be “banked.” And there is no way deficit spending can “crowd out” anything. This is a myth. Without deficit spending, we would be in the deepest depression one could imagine. Of all 14 suggestions, this is the most ignorant.

12. Spend Highway Funds on Highways
“ . . . just to maintain the Interstate Highway System at a decent level is $10 billion to $20 billion per year. . . . lesser highways should all be the states’ problem.”

In other words, transfer the cost from the federal government, which can afford it, to the state governments, which can’t. And how does this help the taxpayer?

13. Privatize Public Lands
“Letting the states manage this land instead would take up to $5 billion a year off the federal books. . .One Forest Service contractor in Arizona recently offered to take over six state parks targeted for closure amid budget cuts. The concessionaire would collect the same visitor fees the state charges today while taking the operations and maintenance costs off the state’s books entirely. Further, the company would pay the state an annual “rent” based on a percentage of the fees collected, turning parks into a revenue generator instead of a money eater.”

In the very few cases where a private company could do this, profitably and under federal supervision, it could be a good idea. Now let’s talk about the other 99% of the public lands. Get real.

14. End (or at Least Audit) the Fed

It’s not explained how auditing would cut federal spending. Bernanke warned that opening the Fed’s books would diminish the central bank’s political independence. I believe him. Imagine relying on Congress to make quick economic decisions. These people can’t decide to go to the bathroom without the threat of filibuster. Let’s face it. The most dysfunctional of all federal agencies is Congress.

In summary, most of these suggestions simply are foolish or would not save taxpayers anything. A couple have some value, not because they “save” money, but because they are good governing policy. All are based an the false assumption that federal spending should be reduced.

Think of the economy as a child and money is its food. Today, the child is starving. To make the child healthy, we must feed it. As the child grows, it will need an increasing amount of food. Yes, if you overfeed the child, it will become fat (inflate), but we are a long way from that. The debt hawks want to starve the child, and then always are surprised when it becomes ill.

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

No nation can tax itself into prosperity

–How the debt-hawks would “save” Social Security and Medicare

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

The Committee for a Responsible Federal Budget proposes the following steps to “save” Social Security and Medicare. The CRFB projects the indicated 10-year federal savings (more correctly, “increases in payments by you”). If the numbers are correct (big “IF”), here are the implications:

Medicare:

“Increase Cost-Sharing” Government pays $150 billion less. Americans will pay $150 billion more for our health insurance.

“Enact Medicare Malpractice Liability Reform” Government pays $60 billion less. Americans will be limited as to what we will receive in the event of serious negligence by a doctor or hospital.

“Limit Tax Exclusion on Employer-provided Health Care” Government receives $250 billion more from all employees. This is a $250 billion tax increase for working people.

“Increase Medicare Eligibility Age to 67” $60 “savings” for federal government. We will have to buy private insurance for two additional years – our older years when private insurance is most costly.

“Strengthen the Independent Payment Advisory Board ((PAB).” Government “saves” $30 billion. “Strengthen” is a euphemism. The purpose of PAB is to reduce federal payments for drugs and medical procedures. We Americans will pay $30 billion more.

Social Security:

“Use ‘more accurate’ measure of inflation to calculate cost-of-living adjustments.” Government pays $140 billion less. “More accurate” is a euphemism meaning, “more restrictive.” Result: We’ll receive lower benefits.

“Slow the growth of benefits for middle-and high income earners” Government pays $25 billion less. Remember how the Alternative Minimum Tax was only supposed to affect “rich” people? This proposal eventually would penalize nearly all Americans.

Raise the retirement age to 68, then increase it further, based on life expectancy. Government savings: $? Social Security already pays you nothing if you die before retirement, and not even a living wage if you live after retirement. Now they want to raise the retirement age, so we receive less, and receive it later.

Increase FICA by another 1% for anyone making more that $56,000 per year. Government savings: $? Since you pay 7.65% and your boss pays another 7.65%, that “little 1%” amounts to an 6.5% FICA tax increase.

Thus, does the mistaken belief that Social Security and Medicare will go bankrupt, erode our quality of life. The federal government is a monetarily sovereign nation, which means it cannot go bankrupt. It can produce unlimited money to pay debts of any size. Similarly, Social Security and Medicare never can go bankrupt, nor can the Department of Defense, Congress, the Supreme Court or any other federal agency. No agency of the federal government can go bankrupt.

Debt-hawks wrongly believe FICA pays for Social Security and Medicare. It does not. FICA could be eliminated, and this would not affect by even one penny, the federal government’s ability to support these federal agencies.

Even the most obtuse debt-hawk recognizes the ability of the federal government to create enough money to pay any bill of any size. So what is the concern? It all boils down to fear of inflation. But, since we went off the gold standard, inflation has not been related to federal deficits (See: INFLATION), and inflation easily is prevented and cured by interest rate control. So in brief, debt-hawks prefer the absolute surety of great harm to us today, because they have the unreasoned, unsubstantiated fear that maybe, possibly, perhaps we sort of might have some unknown degree of inflation at some unknown time in the theoretical future.

Organizations like the CRFB do great harm, by supporting unnecessary limitations on Social Security and Medicare. And that’s not all. Their grim calls for austerity, their unreasoned fear of inflation, has limited the government’s ability to cure this recession, costing millions of people their homes, their livelihoods and their happiness. Debt-hawks claim fiscal responsibility, when in fact they are the most irresponsible people imaginable, prescribing bitter snake-oil cures for real economic problems.

My only hope is that when these debt-hawks personally need help from Social Security and Medicare, the limitations they have supported make benefits unavailable to them. And I hope this recession causes them the great grief they have caused the rest of this nation. That would be justice.

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

No nation can tax itself into prosperity

–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