Tag: economic myths

–Japan, Ireland, Greece: Facts vs. Mainstream Economists

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

The mainstream economists never change, but my hope is if I continue to demonstrate the inconsistencies of mainstream economics, eventually the word will get to the politicians, the media and the public. Here is a quick sampling of 10/26/10 AP articles:

“TOKYO — Japan’s Cabinet approved an extra budget to help finance $63 billion of stimulus spending aimed at spurring the country’s lackluster economy as it battles deflation and a strong yen.”

The CIA’s World Factbook 2010 shows Japan’s Debt/GDP at 189%. According to mainstream economics (aka debt-hawk economics), that Debt/GDP ratio should force a terrible inflation on Japan, and its debt should be “unsustainable.” But Japan is battling deflation, and seems to have so little difficulty “sustaining” its debt. And it will spend an additional $63 billion. See the disconnect?

The same source lists the Debt/GDP ratio for the U.S. as 53% (More recent data from the Treasury shows this to be 66%), far lower than Japan’s. Yet, the debt hawks claim – without any supporting data — the U.S. federal debt must be reduced by raising taxes and/or reduced spending, either or both of which will injure the economy.

But wait, there’s more. According to mainstream economics, all that borrowing should have forced Japan’s interest rates up, which should be bad for economic growth. But Japan’s benchmark interest rate is 0%, as low as it has been in 5 years. The reason: Japan’s benchmark interest rate is not market-derived; it is set by the Japanese government, just as the U.S. Fed Funds rate is set by the Fed.

“DUBLIN — Ireland’s government said it must slash euro15 billion ($20.8 billion) from its annual budgets in a four-year plan designed to bring Europe’s highest deficit back within EU limits.”

The EU demands that its nations have a Deficit/GDP ratio below 3%. However, as Ireland reduces stimulus spending, GDP also will fall. So, Ireland must chase a moving target, in which reductions in the numerator cause reductions in the denominator. Visualize a dog chasing its tail, and you have the EU mainstream economics version of Ireland.

“ATHENS, Greece — Greece’s central bank governor says the government must not relent in its planned deficit-cutting efforts but warns against further tax increases, which would deepen the recession.”

Just so we understand, tax increases will “deepen the recession” (by removing money from the economy), but deficit cuts, which also will remove money from the economy, are O.K.???

And this is what the science of economics has become.

There are two and only two solutions for Greece and Ireland. Either,
1. Return to Monetary Sovereignty by re-adopting your sovereign currency
or
2. Have the EU create a true United States of Europe whereby the EU would supply euros to its member nations as needed.

There are no other solutions. Oh yes, and stop demanding that your member nations commit economic suicide.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–Easy money for debt hawks.

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

O.K. boys. It’s time to put up or shut up.

The Concord Coalition is a self-proclaimed “non-partisan, grassroots organization dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America’s unsustainable entitlement programs, and how to build a sound foundation for economic growth.” Their web site http://www.concordcoalition.org/ asks for donations.

The Committee for a Responsible Federal Budget – http://crfb.org/ – publishes articles like: “How To Avoid a Debt Doomsday,” and writes, “Creditors could lose faith and pull their money from the United States. Interest rates would spike, causing interest payments to grow. The government would be forced to borrow more, which would push rates even higher. The endgame would be a vicious debt spiral and another recession.” They too ask for donations.

As you have seen from my previous post, “How to make a million. No kidding,” Warren Mosler (Mosler) said “it is an indisputable fact that U.S. Government spending is not operationally constrained by revenue and will give $100 million of his own money to pay down the Federal deficit if any Congressman or Senator can prove him wrong.” O.K., he said Congressman or Senator, but I’m sure Warren will be glad to extend the offer to any debt-hawk who can show that Social Security is “going broke” as so many claim, or that FICA supports Medicare and Social Security, or that the federal debt is “unsustainable.”

Back in July, I offered ($1,000 ) for the same kind of proof, but I guess I’m a piker, and no one has taken me up on it. Warren is offering the big bucks.

Just think. $100 million dollars, debt-hawks, and all you need do is prove what you have been preaching all these years. You’ve been begging for donations and here is your chance. I urge all my readers to go to any debt-hawk web site – you know, the ones publishing those ridiculous debt clocks and claiming the government can’t afford this or that, or saying we need austerity, or debt reduction or some other suicidal action — and urge these folks to come up with the proof. And if they don’t, I guess we’ll all know that what they are selling is a load of BS.

Speak up, boys. My book is called FREE MONEY, but this offer is easy money, and the money is waiting for you. Warren is waiting. I’m waiting.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–England is doomed; it doesn’t know it is monetarily sovereign

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

Back in 2005, I said, “The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.” I said that because the euro, or specifically the rules surrounding the euro, transformed a group of monetarily sovereign nations into helpless, monetarily non-sovereign nations.

These were nations that thirty years earlier had rejected the straightjacket of the gold standard, only to adopt the straightjacket of the euro standard. One EU nation, England, was wise enough to reject the euro. It still uses the pound sterling. So England is the only monetarily sovereign EU nation.

Alas, England has forgotten why it rejected the euro, and now has begun to act as though it were monetarily non-sovereign. Here is the headline for today’s article in the Washington Post, by Rebecca Omonira-Oyekanmi: “British budget cuts to include nearly 500K job losses”

The article says, “The measures announced by Chancellor of the Exchequer George Osborne will span four years and include an average cut of 19 percent in central government departments’ budgets, an $11 billion reduction in welfare spending and an increase in the pension-eligibility age to 66. The government acknowledged that 490,000 public-sector jobs would be lost over the four years as result of the cuts.”

Osborne went on to say, “The cuts deal decisively with the largest budget deficit this House of Commons has ever had to face outside of wartime.”

Isn’t austerity wonderful? What a clever way to cure the recession: Destroy 500K jobs. But what choice do they have? As long as they mistakenly believe they are not monetarily sovereign, and so cannot afford budget deficits, they are required to cut spending and/or to raise taxes, both of which will send the English economy into a tailspin.

So England is doomed, because the debt-hawks have taken over.

In a similar vein, the debt-hawk Committee for a Responsible Federal Budget (what an ironic name), has posted a questionnaire titled “In Search of Fiscal Responsibility: Ten Questions to Ask the Candidates.” The ten questions boil down to one: Would you rather have a tax increase or have certain federal programs cut? I urge you to go to their site and see what your answers would be.

Of course, the questionnaire is based on their false premise that cutting the deficit will benefit the economy. If you write to their president, Maya MacGuineas, as I have many times, and ask, “What evidence do you have that the federal deficit is unsustainable, and the budget should be cut?, you either will receive no answer (likely) or you will be given non-sequitur answers like, “The deficit is a high percentage of GDP.” Try it yourself. Her Email is:crfb@newamerica.net

Meanwhile, watch England fall – unless it comes to its senses.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–Elect me and I will build America

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

Since this is the season for campaign promises, here are mine. When you elect me, I promise to: (O.K., I’m not running for office, but this is what I would do.)

Reform Congress

I will work to end the Senate filibuster rule. I find the notion of one person being able to thwart the will of Congress and the American people, and to prevent the appointment of federal judges and other federal personnel, to be repugnant. It’s a bad rule.
.

Improve Social Security and Medicare

1. I will end FICA. This is the worst tax in America for reasons explained at FICA . Briefly, it’s a regressive tax that discourages hiring and discourages spending, and has no function. The federal government does not use FICA taxes.

2. I will reduce the retirement age back to 65 (early retirement at 62).

3. I will stop taxing Social Security benefits. Only a government mentality could pay people benefits, then tax the benefits. It makes as much sense to tax SS benefits as it would to tax Medicare benefits, i.e. no sense at all.

4. I will pay everyone, man or woman, married or single, who begins to claim benefits at age 65, the same Social Security benefit, regardless of prior earnings. Under the current system, the people who need benefits most are paid the least.

5. I will increase Medicare payments to doctors and hospitals to equal the current levels paid by private insurance companies. The current Medicare payment levels discourage doctors from accepting Medicare, and discourage young people from entering the medical profession.

6. I will include long-term care as part of Medicare. Current long-term care policies as too expensive for lower income people.

7. I will eliminate all “donut holes” and other similar limitations from Medicare Part D (drug coverage). I will cover all drugs, generic or branded, from day 1.
.

Rescue the States, Counties and Cities

The primary reason the states, counties and cities are in such bad shape: They are not Monetarily Sovereign. Mathematically, inflation and population growth make long-term survival on taxes alone, impossible for any monetarily non-sovereign government. Such governments must have money coming in from outside, via exports and/or federal assistance. I will pay each state $10,000 per person in the first year, then $5,000 inflation-adjusted each year thereafter.
.

Cut Income Taxes

I will cut income taxes from the bottom up. Each year, I will increase the standard deduction by $10,000. At the end of the first decade, the standard deduction would be $100,000, and the vast majority of taxpayers will file their taxes on a postcard. (This will impact charities, all of which except faith-based, should be supported by the government, anyway.)

I will eliminate business taxes. The economy is business. Taxing business = taxing the economy, exactly the opposite of what a growing economy needs.
.

Support Education

I will pay all students a salary for the job of attending school. (See: Salary 1 and Salary 2 and Salary 3 ).
.

Spend Liberally on Research and Infrastructure

I will offer federal support to a myriad of science research and development projects – medical, physical, military, energy – together with rebuilding our aging roads, bridges and dams. Under my watch, we will go back to the moon and on to Mars.
.

Raise Interest Rates

If any debt hawks have read this far, they undoubtedly are foaming at the mouth about the federal debt being “unsustainable” (nonsensical for a monetarily sovereign nation) and inflation. There is no post-gold standard relationship between federal deficits and inflation, (See: Inflation) And federal deficit spending reduces unemployment (See: Unemployment ) there is a distant point, when federal spending could be sufficient to cause inflation. So, I will take peremptory action to increase the value of money, by increasing interest rates.

This will strengthen the dollar, providing us with more imports of better goods and services at lower prices. (See: Stronger dollar )

Higher rates also will be stimulative, as it will force the federal government to pay more interest on its debts, thereby adding money to the economy. See: Interest

On a related subject, I will increase FDIC to $1 million, to protect more Americans’ savings.

.
So that’s a good start for my first year in office. What do you think? Do I have your vote?

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

No nation can tax itself into prosperity