–Initial results from the survey

All respondents agreed “the U.S. government has the power to print all the money it wants to” and half thought the federal deficit was too low. But, only half thought high taxes were a big problem. There was a logical disconnect between the government’s unlimited ability to spend money and the need for taxes.

Nearly everyone thought a “continuation or resumption of the recession” was a big problem, and only a handful thought the federal deficit was a big problem.

The majority wanted more spending on Retirement, Medical care, Education, Infrastructure, The environment and Unemployment. I was surprised that the majority wanted less spending on The military and Homeland security.

Perhaps the most interesting parts of the survey were the answers to “If I were President of the United States, this is what I would do to improve the economy.”
One person wanted to “cut the budget by 1% across all departments each year for 3 years and eliminate earmarks.” But that same person wanted more spending on medical care, education and the environment, with no change in spending on retirement, housing, business, infrastructure and unemployment.

One person wanted to end all federal taxing and borrowing, and to cut the size of the federal government to 20% of the size it is today. That person wanted less spending in all listed categories, while feeling the following problems were big: recession, state deficits, unemployment, mortgages, medical costs.

Several people wanted to end FICA along with other taxes, but some felt the federal deficit was too high.

Obviously, the results are skewed by the fact that most respondents read this blog. I was encouraged by the unanimous knowledge that the federal government has the unlimited ability to create money. So I was surprised by the common belief that taxes are necessary, especially since very few people felt inflation was a problem. (If the government can create money, and inflation is no problem, why the need for taxes?)

As I read through the comments, I was struck by one theme: Even those, who generally understand federal financing, tend to have some elements of anthropomorphic economics disease – the intuition that the federal government is like you and me. There was some“Tea Partyism” – wanting more federal spending on most projects, while wanting less government.

The debt hawks have a simple, highly intuitive model: Our own personal experience. Those who understand monetary sovereignty haven’t found such a model. So even among readers of this blog, whom one might expect to understand monetary sovereignty, the intuitive pull of personal experience is quite strong.

You can see it best while watching Congress try to stimulate the economy while limiting the only thing that can stimulate the economy: money creation.
========================================================================================================================
Response Summary

Chart1. I believe the federal deficit is:

Too low 57.7%
Too high 15.4%
About right 26.9%

Chart2. My belief about the size of the federal deficit is based on: (Indicate all that apply)

My own research 66.7%
What I learned in school 11.1%
What I hear and read in the media 33.3%
What the experts say 37.0%
What my friends say 7.4%
Other 14.8%

Chart3. Do you believe the U.S. government has the power to print all the money it wants to?

Yes, it has that power 100.0%

Chart4. How big are these problems facing the American economy.
Extremely big—–Fairly big—–Moderate or Not sure—–Not very big—–Not at all big

Continuation or resumption of the recession
63.0% 29.6% 7.4%

Federal deficit too high
7.4% 7.4% 14.8% 14.8% 51.9%

State deficits too high
37.0% 37.0% 18.5% 0.0% 7.4%

Unemployment
85.2% 14.8%

The economy has too little money
30.8% 26.9% 34.6%

Federal taxes are too high
26.9% 26.9% 15.4% 3.8% 26.9%

Too little support for the poor
38.5% 30.8% 23.1% 3.8% 3.8%

The gap between rich and poor
63.0% 14.8% 11.1% 7.4% 3.7%

Mortgages
26.9% 53.8% 15.4% 3.8%

Bank lending
15.4% 30.8% 42.3% 11.5%

Medical costs
51.9% 29.6% 11.1% 7.4%

Inflation
0.0% 7.7% 19.2% 11.5% 61.5%

Chart5. The federal government should spend on:

More than it currently spends—–About what it currently spends—– Less than it currently spends

The military
7.7% 26.9% 65.4%

Homeland security
15.4% 34.6% 50.0%

Retirement
63.0% 29.6% 7.4%

Medical care
53.8% 26.9% 19.2%

Housing
38.5% 46.2% 15.4%

Business support
30.8% 42.3% 26.9%

Education
74.1% 22.2% 3.7%

Infrastructure
85.2% 11.1% 3.7%

The environment
53.8% 30.8% 15.4%

Unemployment
74.1% 18.5% 7.4%

========================================================================================================================
If I were President of the United States, this is what I would do to improve the economy. [Selected responses]

1. suspend FICA collection
2. put people to work on infrastructure projects.
bring our troops home from all over the world.
build an network of wind-power projects, and feed them into a much upgraded national electrical grid.
facilitate a truly high-speed internet.
build a very high-speed maglev train network.
enable a national network of college-level courses that anyone could take over the internet.
3. Hugely increase spending in job creation, infrastructure, education, health care, energy R&D, heath care R&D, health and safety regulations and environmental clean up and protection.
4. First, I would institute a full payroll tax holiday, a per capita disbursement to the states, and an ELR program. Then hopefully we can begin to turn our economy around and start to reap the benifits of our real terms of trade.
5. Cut the budget by 1% across all departments each year for 3 years. Eliminate earmarks.
6. remove/eliminate payroll/FICA/medicare taxes & fund them from the general fund like everything else (great idea you have)… spend/hire billions more on DARPA, National Insitutte of Health, Medical Corps, QUADRUPLE medical schools/nursing schools/PA schools, etc to increase supply of medical personnel for increased medical demand of baby boomers & lower prices by increasing supply of medical services
and $1 TRILLION (like China is doing) on 250mph bullet trains between L.A. & Vegas, Chicago & Detroit, DC & NY, etc
7. Eliminate the payroll tax.
8. FICA holiday forever, Per capital state support, Work program.
9. End the Income Tax, Social Security Tax, and Medicare Tax. Stop borrowing our own currency. And cut the size of government to 20% of the size it is today.
10. Not too sure. Support green jobs and green infrastructure – this reduces unemployment, strengthens our infrastructure, and increases national security (moreso than a war in the Middle East would anyway). I would reduce some of the corporate welfare and unnecessary defense projects (and probably pay our soldiers more). Spend more overall, however, until the private sector picks back up.
11. Cut taxes for everyone. Fix health care, dump the current law
12. go back to the barter system.
13. Eliminate the payroll taxes
14. No taxes (including FICA) on 1st 100K of income (all sources), graduated marginal rates going up to 90% on all else. Guarantee job to anyone wanting one. Raise social security payouts by 50%. Really regulate financial sector and introduce transaction taxes
15. Cut military spending, eliminate tax cuts for rich, and dedicate more resources to meaningful stimulus packages.
16. cut taxes, increase the stimulus packages because I believe that the current stimulus is barely helping people pay off their debt and willing not increase their spending. I would seek reform of the IRS tax code(So it is not so complicated and the average American can do their own taxes), Audit and Tax the federal reserve on their income. Eliminate congressional spending to what they bring in only.
17. I would aim to catch up and overtake the Chinese in infrastructure and education. The US has to spend and tax the rich whatever it takes to achieve this. I would tell the American people that the US is in an economic war with China and is currently losing and is going to lose unless it changes course.
18. Dismantle the Tax code, make it a simple structure, a % of earnings at 4 or 5 stages (say 0% for under 30,000; 8% over 30K and under 50K; 15% over 50K and 150K; 25% over 150K and 250K & 32% over 250K. No loopholes, no deductions, no credits on anything.
19. Learn about how the govt’s role in providing money to the economy. They dont’ know how things work.
20. Tax all offshore tax haven corporate sales in USA at a higher rate than sales from US based corps and corps based in countries we have trade agreements with.
– Bring taxes on top 3% into line with Reagan or Clinton rates.
– Pass a War Tax which would go into effect automatically whenever US troops enter a foreign country for military engagement. Progressive tax, no exceptions. Exempt special ops from this tax.
– Pass a 1 trillion dollar stimulus bill.
– Disengage as quickly as possible from Afghanistan.
– Withdraw as many troops as possible from Muslim countries.
– Emphasize special ops in any future engagement, avoid ground troops. Retire most generals. keep number of generals to a smaller number.
– Increase veteran benefits, cut back on military budget by 30%.
– Fully support Head Start programs.
– Encourage savings by giving 10-20 year US bonds to all families below a certain income, add 50% on every dollar in savings accounts first year for low income people, 20% afterwards, 10% after 5 years.
– Create a federally funded, independent bond and equities rating agency. Prosecute executives and CEOs at any financial company who provides this agency with deceptive information.
21. Direct hiring program, single-payer health-care, increased taxes on rich.
========================================================================================================================
Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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 “investigative” newspaper comments on the new tax agreement

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.
====================================================================================================================================================================================
For reasons I cannot even begin to imagine, the Chicago Tribune, which prides itself on being an investigative newspaper, refuses to investigate facts before or even after, writing about the economy. I have contacted them often, and they never have displayed even a modicum of interest in learning anything about how the economy works. Instead, they rely solely on popular myth.

Here is a verbatum copy of an Email I sent to editors and others at the Tribune:

“Today’s (12/7/10) Chicago Tribune editorial titled, “Tax Dealing” contains a mixture of truth and myths.

1. Truth: “ . . .raising marginal (tax) rates, especially with the tax year ending an a matter of weeks, would hurt an economic recover still on life support. Obama knows he needs all the growth he can get.” Translation: Yes, taxes hurt the economy because they remove money from the economy. A growing economy requires a growing supply of money.

2. Myth: ” . . . nobody is reducing the cost of government to make up the lost revenue.” Fact: Federal spending is not constrained by taxes, nor do taxes pay for federal spending. Tax money is destroyed (i.e. “lost”) upon receipt and is not stored anywhere.

3. Truth: “The (commission on debt reduction) work can be a catalyst for historic change.” Yes, if we follow the commission’s debt reduction advice, we will have a depression of historic proportions. See item #1, above.

4. Truth: “The panel’s plan involves cutting everything from defense to Social Security . . . Everyone from senior citizens to post-office customers have complained about the pain involved if the plan were enacted.” Yes, it’s a plan that hurts everyone and benefits no one. It’s all pain and no gain.

5. Myth: “That’s unavoidable. Everyone is going to feel some pain when the nation makes its government live within its means.” Fact: Causing economic pain neither is unavoidable nor praiseworthy. As for the government “living within its means,” the Tribune demonstrates it does not know the difference between monetarily sovereign finances (U.S. Government) and monetarily non-sovereign finances (everyone else). You and I have “means.” We must have a source of money before we spend. We are limited in how much we can spend. The federal government is not limited. It creates money by spending. It alone has the unlimited ability to pay any bills of any size. It has no “means.”

6. Myth: You repeated Sen. Durbin’s comment, “Borrowing 40 cents out of every dollar we spend for missiles or food stamps is unsustainable.” Fact: The federal government does not need to borrow even one cent. Borrowing the money the federal government originally created, and can continue to create endlessly, makes no economic sense. It is a relic of the gold standard days, when federal borrowing was necessary. The government does not spend borrowed money. As for federal spending being “unsustainable,” this myth has been bandied about since 1980 (See: Unsustainable) It is no more true today than it was 30 years ago.

7. Myth: “It’s irresponsible for our nation to go on accumulating unaffordable debts that will force even more painful cuts down the line.” What makes the debt “unaffordable”? The Tribune has no idea. In fact, “federal debt” merely is a synonym for “federal money created.” Without federal debt there would be no money and no economy. The Tribune makes the nonsensical complaint that money is unaffordable.

8. Myth: “The coming agreement on tax cuts will avoid an unwelcome shock to the U.S. economy. It will buy time. But it has to lead to an agreement on long-term deficit reduction.” The Tribune editors do not realize that the first part of this paragraph contradicts the second part. If increasing deficits will help the economy, why do the Tribune editors want to decrease deficits? Ever?

In summary, the Tribune editors continue to parrot the myths of the day. Not once do they even make an attempt to provide evidence supporting their beliefs. So I’ll leave you with a couple of questions, you may or may not wish to answer:

–Exactly what do you mean by “make up for lost revenue.” Do you mean that without this “lost revenue” the federal government will be unable to pay its bills?
–Why do you feel economic pain is beneficial. Has the economic pain we already have felt proved beneficial?
–Why do you feel cutting defense will benefit the economy and American security?
–Why do you feel cutting Social Security benefits will benefit the economy?
–Why do you feel reducing postal service will benefit the economy?
–What is the definition of “means,” when you say the government must live within its means. What has happened because the government has not lived within its “means.”
–What do you mean by ‘unaffordable debts.” Do you think a government with the unlimited power to create money, cannot afford to pay for the T-securities it creates out of thin air? Similarly, what do you mean by “unsustainable”?
–Does the Tribune feel any concern about spreading false information that could damage your readers and the entire American economy?
–Is the Tribune interested in learning the facts?

If any of you are readers of the Chicago Tribune, you may wish to write to them. Perhaps mutiple voices would help. I write to:
Zoll, Yerak, Dold, Japsen, Page, Greising, Letters, Ponpei, Delama, Kern, , Oliphant, Hirt, Business, Knowles, Kass, Lythcott, McHolt, O’Brien, Epodmolik, Lev, Doneal
Hughlett, Nicholas, Widder, Jones, Hunter, Wong

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

–How to fight inflation and how not 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.
==================================================================================================================================
I know this is a strange time to talk about fighting inflation. Recently we struggled up from a minus inflation (aka “deflation”) and now are at a puny 1% level. But too often, when I say that federal deficit spending should increase, a debt-hysteric concern expressed to me, is not just inflation, but the typical debt-hawk exaggeration: hyperinflation!

The debt-hawks seem to be the kind of folks who, upon seeing a starving child, would not feed that child for fear the food would cause obesity. Today, our economy is starved for money, but the debt hawks fear monetary obesity (aka “inflation”) and they warn us of wheelbarrows full of money. They give silly speeches about what they term “fiscal prudence” and what I term, “starving the baby.”

So as long as we must face debt hysteria, and the hysteria has to do with a non-existent though dreaded inflation, we might as well talk about preventing and curing inflation. Inflation is the loss in value of money compared to the value of goods and services.

So, there are two fundamental methods for curing inflation: Reduce the supply of money or increase the demand for money. Both methods increase the value of money vs the value of goods and services. (In theory, increasing the supply of goods and services or decreasing the demand for goods and services also would work, but there is no known method for accomplishing this without changing the money supply.)

Ideally, any anti-inflationary activity should be effective, quick to activate, quick to take effect, incremental, easy to rescind and not damaging to the economy. But while tax increases remove money from the economy, and so can be effective, they fail all the other tests. They are highly political; They are slow to pass through Congress. They take effect slowly, because taxes are collected slowly. They cannot be passed and implemented incrementally. They are difficult to undo. And they damage the economy. The require answers to difficult questions: Exactly which taxes should be increased? By how much? Should we have a tax increase during a stagflation? How do we calibrate an incremental tax increase?

Compare this approach with another approach: Interest rate increases. Interestingly, interest rate increases have both pro-inflation and anti-inflation effects. Pro inflation: Increase in business costs and increase in the money supply due to increased federal interest payments. Anti-inflation: Increase in the demand for money vs the demand for non-money.

On balance, the anti-inflation effects are stronger. One hint is this graph: graph 1 that seems to indicate interest rate increases are followed about one year later by inflation decreases.

The other hint is the Fed’s ongoing success in controlling inflation despite massive increases in the money supply. Interest rate increases actually work.

Interest rate increases can be done quickly and in small or large increments — just what is needed for inflation control. And contrary to popular faith, high interest rates do not negatively affect GDP growth. See:

In summary:
–We are nowhere near inflation
–We can control inflation by raising interest rates
–High interest rates do not negatively affect GDP growth

We can and should feed the starving economy without letting unfounded worries about our ability to prevent or cure the economy’s obesity, prevent us from saving the child.

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

–Senator Durbin wanders in Fantasyland

Read about Senator Durbin’s wanderings in Fantasyland. Today, 12/3/10, the Chicago Tribune published an article by Dick Durbin, the senior Senator (D) from Illinois. The title: “Why I’m voting ‘yes.” Here are some quotes from the article, and my comments.

“On Friday, when President Brach Obama’s National Commission on Fiscal Responsibility and Reform gathers to consider a plan to bring our national debt under control, I will be voting yes. . . . America needs to grow our economy and reduce our $13.trillion debt. “

Never mind that almost 30% of that debt is merely one government department owing another government department. (Think of your checking account owing your savings account.) We can forgive that “minor” arithmetic error, because the good Senator makes a much larger one.

It mathematically is impossible to cut the debt and grow the economy at the same time. Money not only is the engine, but also the measure, of economic growth. GDP is a money measure. Cutting the debt requires taking money out of the economy, either by raising taxes or with reduced spending, or both. When you take money out of the economy, there is no mechanism by which you can grow the economy. There are no caveats about efficiency or savings or reducing waste or any other supposedly mitigating concepts. It simply is 100% impossible to grow an economy while reducing the money supply.

It’s like telling someone to take a lower paying job so he can buy a bigger house. The arithmetic doesn’t work.

Apparently Senator Durbin realizes this, because later he says:

“I worked (to) make certain that the (recommended) spending cuts do not start until 2013. We cannot run the risk of hitting the brakes in the midst of this recession, driving more people into unemployment and shredding the safety net to protect our families.”

So let’s see if we understand his thinking. Spending cuts “hit the brakes and drive people into unemployment.” We don’t want to do that now, but we do want to do it in 2013. Huh?

Then he said:

“I also insisted on two things to spark the economy: a payroll tax holiday that can create up to 900,000 jobs and a longer-term investment of $100 billion in infrastructure, education and reserach and development – key investments for long-term economic growth.”

Hmmm. So he wants to cut the deficit, but realizing that deficits stimulate the economy, he wants to increase the deficit with a payroll tax holiday and $100 billion investment.

So tell us again, Senator Durbin why do you want to cut the deficit? Oh sorry, you never told us the first time. Could it be because you have no reason? None at all?

“Borrowing 40 cents out of every dollar we spend for missiles or food stamps is unsustainable.”

Ah yes, the old “unsustainable” line. Back in February 7, 1982, almost 30 years ago, when the Federal Debt Held by Private Investors was $733 billion, President Ronald Reagan referred to the, “rapid, unsustainable expansion of Federal spending and money growth.” (See: Unsustainable) Today, the FDHBPIN is $7.9 trillion, having increased an astounding 1,000% in only 29 years, and politicians continue to refer to it as “unsustainable” – while we keep sustaining it with no difficulty whatsoever. When you say that something we have done, actually since the 1930s, is impossible, at some point you must question yourself. If it’s unsustainable, how have we sustained it?

Senator Durbin is yet another politician who does not understand monetary sovereignty. He does not understand that the U.S. can “sustain” any spending of any amount. Its spending is not constrained by deficits, debt or taxes, but rather by inflation – the inflation the Fed easily controls, the inflation from which we are a long, long way.

And he does not understand the federal government does not need to borrow the dollars it previously created, and does not need to borrow what it can create in unlimited quantities.

How frightening it is that Senator Durbin expresses the false beliefs held by the majority, not only of Congress but of the American people. One only can imagine how Galileo felt.

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

Share this:

Share this:

Share this:

Share this: