A step in the wrong direction does more than fail to get you to your destination. It takes you farther from your destination.
Smallpox: Evil spirits aren’t what cause smallpox. Any efforts to prevent and cure smallpox via exorcism would have been wasted.
Worse, they would have led us down the wrong path, taking time, effort, and money from finding and addressing the actual cause, a virus. Worse than doing nothing, a false belief does real harm.
Before vaccination was invented, doctors gave smallpox victims “supportive care, ” mainly of fluids to prevent dehydration. The patient was isolated until all scabs had fallen off to prevent disease transmission.
One of the leading theories suggests that Alzheimer’s disease is caused by the abnormal accumulation of two proteins called amyloid beta and tau in the brain, resulting in plaques and tangles.
Despite the huge amount of research that’s happened to date, there’s not been much success in treating and preventing Alzheimer’s disease.
This has led many experts in the field to wonder whether there’s something else we should look at to understand and cure Alzheimer’s disease.
A recent article in New Scientist Magazine highlights an alternative theory: that damage to mitochondria (the energy-producing structures within cells) could actually be the cause of Alzheimer’s.
The focus on ridding the brain of amyloid didn’t work, but actually may have hindered efforts to find the real cause of Alzheimer’s.
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Inflation: Inflation is a general increase in prices. Bing AI says: Inflation is caused by two main factors: demand-pull and cost-push. Demand-pull inflation occurs when demand from consumers pulls prices up.
Cost-push inflation occurs when supply costs force prices higher. Inflation can also occur when prices rise due to increases in production costs, such as raw materials and wages.
“Demand-pull” and “cost-push” are classic descriptions of inflation’s causes. They can be found in many economics textbooks. There are two problems with these supposed causes:
They don’t explain what has happened. They only describe what is. But, inflation is a dynamic process. Something changes to cause inflation. An economy moves from normal pricing to inflation.
Re. Demand pull: What causes a sudden, general increase in consumer demand? Anything? Do you know any examples of sudden increases in the consumer demand for a wide range of products and services?
Re. cost-push. This supposed explanation is a tuatology: In essence it says, prices increases because prices increase. It does not explain what has caused the inflation in supply costs. It merely passes the blame downstream.
Inflation is caused by shortages of crucial goods and services, usually oil, food, and/or labor.
Oil shortages do not come about because of sudden increases in the demand for oil. They are caused by sudden reductions in supply, which may be due to decisions by oil suppliers like OPEC (Organization of the Petroleum Exporting Countries), Canada, and the U.S. itself.
Food shortages do not come about because of sudden increases in the demand for food. Food shortages can be caused by weather, crop disease, and/or government decisions.
Today’s inflation is caused by COVID-related and human-caused shortages, not by sudden increases in demand.
COVID reduced the world’s ability to drill, refine, and ship oil, which affected the prices of nearly every product and service on the planet. COVID impacted the supply of food and labor. COVID isn’t finished with us. The aftereffects still can be felt.
Oil drilling and refining still are down, partly because of COVID and partly because of OPEC and the Russa/Ukraine war. Food shortages result from oil shortages, weather anomalies, COVID-related labor and supply-chain shortages.
There is no evidence that inflations are caused by interest rates being too low.
The graph demonstrates the Fed’s failed attempts to fight inflation (red line) by raising interest rates (blue line). In the 23 year period, from 1967 through 1990, the Fed raised interest rates to extraordinarily high levels, but inflation also kept rising to high levels, only to fall before or during recessions.
Similarly, in the 12-year period, from 2008 to 2020, interest rates were kept extraordinarily low, while inflation remained low.
Twenty three years of high interest rates did not cure inflation and eight years of low interest rates did not cause inflation.
So what caused inflation and what cured inflation?
Oil prices (green line) respond to supply and demand. When oil is scarce, prices rise. When oil is plentiful, prices fall.
The graph demonstrates that inflation responds to oil scarcity, because oil availability affects the pricing of most other products and services.
Historically, the primary cause of inflation has been scarcities of oil, which have led to high product and service prices.
Today’s inflation has also been caused by COVID scarcities, not only scarcities of oil but of food, computer chips, supply chain availabilities, construction materials, labor, etc. COVID affected everything.
There are those who take the Libertarian view that federal deficit spending causes inflation. History does not support this belief
Changes in federal deficit spending (purple line) bear little relationship to inflation (red line). Increases in federal deficit spending do not correspond to high inflation, nor do decreases in deficit spending correspond to low inflation.
SUMMARY The prevention and cure for a disease requires the prevention and cure for the cause of the disease.
Evil spirits and lack of fluids did not cause smallpox, so fighting evil spirits/dehydration did not prevent or cure smallpox.
If damage to mitochondria, not the accumulation of amyloids in the brain, proves to be the cause of Alzheimer’s, curing amyloids will not prevent/cure Alzheimers, but preventing/curing damage to mitochondria will.
Low interest rates do not and have not caused inflation, so raising interest rates will not prevent/cure inflation.
Inflation is caused by shortages, most often shortages of oil or food. Today’s inflation is caused by multiple, COVID-related shortages, and curing those shortagesis the only way to cure inflation.
Our Monetarily Sovereign federal government, having the infinite ability to create dollars, should fund efforts to increase availabilities of oil, food, computer chips, construction materials, and labor.
Decreasing in taxes on businesses and employees would be a good place to begin.
For example, the FICA tax, which serves no purpose, raises the price of goods and services, and discourages employment. Eliminating FICA would be a good, easy first step toward reducing inflation.
Here is an easy way to detect economics bullshit: If someone tells you that U.S. federal government spending — any U.S. federal government spending — is “unsustainable” without explaining why, you can be sure that person is a liar or a fool. No exceptions.
“Unsustainable” long has been the word of choice for those who spread fear about federal deficits, federal debt, Social Security, Medicare, Medicaid, aid to the poor, and everything else the rich don’t like.
But what exactly is “unsustainable” about federal spending? Will the federal government, which created the very first laws out of thin air, and will the laws that created the dollar out of thin air, suddenly be unable to create more dollars out of thin air?
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
When challenged, the liars and fools reluctantly admit, “No, the government can’t run out of dollars, but deficit spending causes inflation.”
We’ve debunked that myth so many times my typing fingers are worn down. See here, here, here, here, and here, and many other places.
The simple and obvious fact is that inflation is not caused by federal deficit spending. And inflation is not caused by interest rates that are too low. The cause of all inflations is scarcities of key goods and services, most notably oil and food.
So the cure for inflation is not to cut federal deficit spending, nor is it to raise interest rates. The treatment for inflation is to cure the scarcities of critical goods and services, most notably energy and food.
How does one cure those inflation-causing scarcities? Federal deficit spending to obtain and provide the scarce goods and services.
Sadly, the Libertarian Reason.com’s solution to all ills is to claim government spending is “unsustainable.”
Libertarianism = Anarchy
Medicare? “Unsustainable.” Social Security? “Unsustainable.” Military spending? “Unsustainable.” Everything the federal government does? “Unsustainable.”
Never mind that we have been “sustaining” huge and growing federal deficit expenditures for more than 80 years, while the economy has grown massively.
When you’re a Libertarian, you hate the government. Period. You are an anarchist.
And here is an example of that, from Reason.com’s website:
For The New York Times’ Paul Krugman, the real crisis facing America’s entitlement programs is that the media isn’t working hard enough to ignore their impending collapse.
“I’ve seen numerous declarations f,rom mainst,ream media that of course Medicare and Social Security can’t be sustained in their present form,” Krugman wrote in a Times op-ed this week. “And not just in the opinion pages.”
Perhaps that’s because the unsustainable trajectories of Social Security and Medicare aren’t a matter of opinion.
They’re factual realities, supported by the most recent annual reports of the programs’ trustees and the independent analysis of the Congressional Budget Office central). Social Security’s main trust fund will hit insolvency somewhere between 2033 and 2035, according to those projeleadingns, while one of the main trust funds in Medicare will be insolvent before the end of this decade.
Have you ever wondered why you never hear worries about the “trust fund” for the military? Or the “trust fund” to support the Supreme Court?
And why no concern about “trust funds” to fund the White House, the Senate or the House of Representatives?
Federal Trust Funds Are Not Real Trust Funds
Here is what the Peter G. Peterson Foundation says about these “trust funds”:
Federal trust funds bear little resemblance to their private-sector counterparts, and therefore the name can be misleading.
A “trust fund” implies a secure source of funding. However, a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.
In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries. In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.
Rather, the receipts are recorded as accounting credits in the trust funds and then combined with other receipts that the Treasury collects and spends.
Further, the federal government owns the accounts and can, by changing the law, unilaterally alter the purposes of the accounts and raise or lower collections and expenditures.
Get it? Trust funds aren’t real funds. They are just accounting mechanisms to track inflows and outflows. The federal government owns the books andcan change the books at will.
The federal government can change the purposes of the Medicare and Social Security “Trust Funds”; it can add or subtract dollars at will; it can continue to fund Medicare and Social Security in any desired way and in any desired amounts.
The government and its liars and fools wring their hands and claim the trust funds are in danger of insolvency. But no federal agency can become insolvent unless that is what the President and Congress want.
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
The federal government literally has the power to change the account books simply by passing a law. All the bleating and worrying about a federal agency becoming insolvent is a lie.
If the federal government wished, it instantly could add a trillion dollars to the Medicare “trust fund,” and eliminate FICA altogether. Keep in mind: The government owns the books.
When insolvency hits, there will be mandatory across-the-board benefit cuts—for Social Security, that’s likely to translate into a roughly 20 percent reduction in promised benefits.
“Mandatory,” until the government decides it isn’t mandatory.
Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.”
Nevertheless, Krugman says he’s got a solution that “need not involve benefit cuts.”
His argument boils down to three points. First, Krugman says the CBO’s projections about future costs in Social Security and Medicare might be wrong.
Second, he speculates that they might be wrong because life expectancy won’t continue to increase.
Finally, if those first two things turn out to be at least partially true, then it’s possible that cost growth will be limited to only about 3 percent of gross domestic product (GDP) ov,er the next three decades and we’ll just raise taxes to cover that.
There never is a need to raise federal taxes. There is no funding need for federal taxes at all. The federal government destroys all tax dollars it receives, and creates new spending dollars, ad hoc.
When you pay your taxes, your dollars come from the M2 money supply measure. When they reach the Treasury, they cease to be part of the M2 money supply or any other money supply measure. They literally are destroyed.
When the federal government spends, it sends instructions (not dollars) to the creditors’ banks, instructing the banks to increase the balances in the creditors’ checking accounts.
This creates the new dollars that are added to the M2 money supply.
The banks clear the instructions through the Federal Reserve preserving the tidy, double-entry bookkeeping.
If you remember just one thing from this post, remember that dollars are not physical things. They are legal, bookkeeping entries, and the federal government controls the laws and the books.
If the government wished, it could eliminate all federal trust funds, or add a trillion dollars to each of them, and it all would just be bookkeeping.
Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
“America has the lowest taxes of any advanced nation; given the political will, of course we could come up with 3 percent more of G.D.P. in revenue,” he writes. “We can keep these programs, which are so deeply embedded in American society, if we want to.
Killing them would be a choice.”
Federal taxes do not fund the federal government. The purpose of federal taxes is to control the economyby taxing what the government wishes to discourage and giving tax breaks to what the government wishes to encourage.
The federal government could eliminate all federal taxes, yet continue to spend forever.
It’s notable that Krugman sees benefit cuts as “a choice” but believes that implementing a massive tax increase on American employers and workers would be “of course” no big deal.
But that hardly addresses the substance of what he gets wrong. Let’s take each of his three arguments in order and show why they’re incorrect.
First, he says the CBO’s projections about future costs for the two programs might be inaccurate because the agency is assuming that health care costs will continue to grow faster than the economy as a whole.
At best, that means postponing insolvency by a few years. The structural imbalance between revenues and outlays means that depletion of the trust funds is a question of “when” and not “if,” as this chart from the Committee for a Responsible Federal Budget makes clear.
The above would be true if the federal government were monetarily non-sovereign, like the states, counties, cities, euro nations, you and me.
We monetarily non-sovereign entities do not have the unlimited ability to create our sovereign currencies. We have no sovereign currencies.
But the U.S. government is absolutely sovereign over the U.S. dollar. It can create as many or as few dollars as it wishes.
It can give those dollars any values it wishes and it can change those values (which it has done many times) at will.
The U.S. dollar is a tool of the U.S. government.
The Reason.com Libertarians seem ignorant of the difference between Monetary Sovereignty and monetary non-sovereignty, and thus ignorant of economics
Krugman even concedes that despite a decline in the expected rate of growth in future health care costs, those costs are still expected to rise faster than the economy grows.
Combined with the aging of America’s population, this is a demographic and fiscal time bomb. Ignoring that reality is certainly not a sound policy strategy.
Even if healthcare costs were to triple tomorrow, the federal government could fund Medicare while not collecting a single penny in FICA taxes.
Second, he speculates that mortality rates might continue to drop. While that might be good news from an actuarial perspective, it seems both morally horrifying and incredibly risky to base a long-term entitlement program on the assumption that more people will die at a younger age.
Even if every American retired at 50 and lived to age 200, the federal government could fund Medicare for All, and a generous Social Security for All, again while not collecting a penny if FICA taxes.
In fact, Krugman gets this point exactly backward. Instead of banking on a decline in life expectancy, Congress ought to raise the eligibility age for collecting benefits from Social Security and Medicare.
That would create the same demographic benefits on the accounting side even as people live hopefully longer, better lives.
And there you have it. The Libertarian solution for all government problems is to cut benefits, especially those benefits that aid the poor and middle classes.
The Libertarians refuse to accept this vital truth: The sole purpose of any government is to protect and improve the lives of the governed.
How cutting benefits accomplishes that purpose has yet to be explained.
Krugman would no doubt see such a change as an unacceptable benefit cut, but in reality, it would restore Social Security to its proper role as a safety net for the truly needy, not a conveyer belt to transfer wealth from the younger, working population to the older, relatively wealthier retired population.
The so-called “conveyer belt” would only be true if federal taxes funded federal spending. But they don’t.
Federal taxes fund nothing. FICA could and should be eliminated, while Social Security benefits should be increased.
When Social Security launched in 1935, the average life expectancy for Americans was 61. That’s changed, so the program’s parameters should too.
Yes, Social Security parameters should change. Benefits are too low. FICA should be eliminated.
Finally, the blitheness of Krugman’s actual solution—a massive tax increase—ignores all the knock-on effects of that idea.
Keeping Social Security and Medicare whole will require a tax increase in excess of $1 trillion, which would have massive repercussions on wages, the costs of starting a business, and economic growth in general.
It’s far from an ideal solution.
Keeping Social Security and Medicare whole will require no tax increase at all. The programs are not funded by tax dollars, which are destroyed upon receipt. The programs are funded by laws, and Congress controls the laws.
Paraphrasing Reason.com’s claim, eliminating FICA would have massive positive effects on wages, the costs of starting a business, and economic growth in general.
In all, Krugman’s column amounts to an argument that his addiction to donuts is totally sustainable as long as someone else agrees to keep buying donuts for him (and as long as he ignores the long-term costs to his health).
Maybe the doctors are wrong about the projected consequences of eating too many donuts. Maybe it will turn out that living longer just isn’t all that great anyway.
But if all else fails, at least he’s got someone else willing to pay for his habit—and making any changes would be tantamount to killing a tradition deeply embedded in the Krugman morning routine. We must take that option off the breakfast table.
The above analogy might make some sense for monetarily non-sovereign governments, but it is completely false for the federal government.
Instead of lying to their readers and constituents, America’s thought and political leaders (not just President Joe Biden and Krugman but lawmakers and media commentators on all sides) should start acknowledging that America’s entitlement programs are not sustainable in their current form.
Instead of lying to their readers and constituents, Libertarians (not just Reason.com) should acknowledge the differences between Monetary Sovereignty and monetary non-sovereignty.
Without changes, they will wreck the economy or force many retirees to deal with sudden cuts to benefits they expected to receive. Maybe both.
Waiting to deal with this problem will only make it worse. If Krugman’s column is the best argument for the long-term sustainability of America’s two major entitlement programs, it should only underline how seriously screwed they are.
No, Krugman’s column is not the best argument for long-term sustainability.
Using the facts about Monetary Sovereignty is the absolute guarantee of long-term sustainability.
No, tariffs do exactly two things: Yes, they raise prices, but they also take dollars from the economy.
Right now, prices don’t need any help getting higher.
Economic data released Friday by the Bureau of Labor Statistics show that year-over-year inflation hit 6.8 percent in November—the highest level recorded since 1982. Despite other indicators showing that the economy is strong, persistently high inflation is a serious problem for American households.
That includes the current resident of the White House, for whom inflation is becoming a major political headache.
There’s probably not much President Joe Biden can do to curb inflation in the short term. That ship sailed when he pushed for and signed off on a major economic stimulus bill earlier this year—one that economists warned was too large and could overheat the economy.
The “too large” phrase might make you believe Mr. Boehm believes stimulus is good, just not so much. Don’t be misled. For Libertarians all federal spending is “too large.”
Had the stimulus package been $5, Mr. Boehm would have complained it was “too large.” Why? Just because. Libertarians are anti-government everything, and would prefer that the economy sink into depression than see more federal spending.
Other factors influencing inflation, like the disconnect between supply and demand that’s largely a result of the ongoing COVID-19 pandemic, are well beyond Biden’s (or any president’s) power to change.
“The disconnect between supply and demand” are not “other factors influencing inflation” They are THE factors causing inflation, the only factors.
All inflations are caused by shortages. Today’s inflation is caused by shortages of oil, food, computer chips, lumber, shipping (and everything else that gets shipped), and labor.
This stimulus package, like all previous stimulus packages, did not cause the oil shortage. It did not cause the food shortage. It did not cause the computer chip shortage. It did notcause the shipping shortage.
It may temporarily have caused a labor shortage by giving people an alternative to low-pay, crap jobs. Unfortunately, the unemployment compensation safety net now has been pulled out from under workers, who the employers hope will be forced to accept those jobs.
But there is one thing Biden could do to immediately provide consumers with relief. He could eliminate the tariffs imposed by former President Donald Trump.
If Boehm is claiming that the tariffs were just another, stupid Trumpian attempt to punish China by punishing American consumers, he is correct. China doesn’t pay for American import taxes. Americans do.
But what Boehm neglects to mention (or doesn’t realize) is that import tariffs take dollars from the American private sector (aka “the economy”) and give those dollars to the federal government, and that reduces the federal deficit and debt.
And as anyone familiar with Libertarians knows, those folks absolutely hate the federal deficit and debt (despite the fact that whenever the deficit and debt are reduced we have recessions and depressions).
So in the backward logic of Libertarians, deficit-reducing tariffs should be a good thing.
Those tariffs, which Biden has been stubbornly unwilling to reverse during his first year in office, are adding roughly 0.5 percent to annual inflation across the economy.
Trump’s tariffs on washing machines, solar panels, steel, aluminum, and a host of Chinese-made goods are a “secondary but noticeable contribution” to overall inflation right now.
That’s pretty much in line with what four economists at the San Francisco Federal Reserve warned in February 2019, shortly after Trump began slapping tariffs on various goods. “Imports from China are an important part of overall U.S. imports of consumer and investment goods,” they wrote.
“Thus, tariffs on these imports are likely to have sizable effects on consumer, producer, and investment prices in this country.”
But wait. Remember Boehm’s “supply and demand” comment at the start of the article. He claimed, in effect, that increased demand is half the problem. But tariffs reduce demand. That’s the underlying purpose of tariffs.
So in Boehm’s world, reducing demand via tariffs should mitigate inflation!
And as we have said, tariffs are taxes. Deficits and debt are the difference between taxes and spending. Libertarians supposedly hate deficits and debt. Tariffs, i.e. taxes, reduce deficits and debt.
Unlike other policies that could help slow inflation, like raising interest rates, Biden could cut tariffs without having to wait for Congress or the Federal Reserve to act.
He’s right, but cutting tariffs also would increase the federal debt, which Boehm doesn’t want.
Similarly, cutting tariffs would not come with some of the negative tradeoffs that other actions might. Raising interest rates will harm the economy in other ways (for example, by making it more expensive to borrow).
Boehm is correct that Trump’s tariffs were, as usual, stupid. But he is dead wrong about raising interest rates. While raising interest rates makes borrowing more expensive, private borrowing adds stimulus dollars to the economy. Banks lend by creating dollars.
Even more importantly, higher interest rates force the federal government to pump more interest dollars into the economy, which helps grow the economy.
Rising Rates Could Further Balloon Interest Spending, Mar 21, 2018
The Federal Open Market Committee (decided) to raise the federal funds rate by 0.25 percentage points to 1.5-1.75 percent.
The federal government (is projected) to spend $6.8 trillion on interest costs over the next decade. If interest rates end up just 1 percentage point higher than projected, interest costs would increase by a further $2 trillion. If interest rates return to their pre-recession levels, costs could rise by $3.4 trillion.
Let us rephrase as follows:
The federal government (is projected) to pump $6.8 trillion interest dollars into the economy over the next decade.
Should a $6.8 trillion stimulus — which is similar in effect to a $6.8 trillion tax cut — be a cause for concern?
Contrary to popular myth, raising interest rates does not “harm the economy” as Boehm and many other economists claim. In fact, raising interest rates stimulates the economy by forcing the federal government to pump more dollars into the private sector.
Blue line is interest rates. Red line is Gross Domestic Product growth.
Higher interest rates are associated with higher GDP growth, because higher interest rates cause more money growth.
The illusion that high interest rates “harm the economy” is caused by the stock markets, which decline in anticipation of raised rates. But anticipation is based on belief, not on fact.
Adding dollars to the economy, which is what higher interest rates accomplish, stimulates economic growth.
Lifting tariffs will ease inflation and provide a tax cut to many American businesses.
Correct. Tump’s tariffs should be lifted, just not for the reasons Boehm claims.
Again: The one and only thing that tariffs do is raise prices. That is their only function.
Again, their other function is to take dollars from the economy, give them to the federal government (which has no use for them), and reduce deficits and debt (both of which are necessary for economic growth).
Politicians might want to deploy tariffs (to raise prices) for a number of reasons: to protect domestic industries, to influence where in the world individuals choose to invest, to retaliate against what they perceive as unfair trade practices from other countries, and so on.
Tarrifs are nothing more than a spite-one’s-face-by-cutting-one’s-nose exercise. All of the above goals can be accomplished via federal tax cuts and federal spending.
If Biden is going to keep ignoring this basic bit of economic reality, then he is choosing to make inflation worse than it already is.
The basic bit of American economic reality is this:
Inflation is caused by scarcity, not by federal spending. Not by “too much money,” but rather by too few goods.
Cutting tariffs does not increase supply, so it does not reduce inflation.
Inflation can be cured by federal spending to obtain and distribute the scarce goods.
Federal deficit spending is economically stimulative, i.e cutting taxes and spending both grow the economy
Interest rate increases are stimulative
Tariffs are not a good solution for any economic problem
While Mr. Boehm is correct about the need to cut tariffs, he is wrong about the way to cure inflation. That cure requires increasedfederal deficit spending to acquire and distribute the scarce products while decreasing taxes.
A great place to begin would be to eliminate the FICA tax, which has zero positive effects, but increases business costs and drags down the economy.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
The big argument of the day has to do with federal deficit spending. The Republicans say they don’t like it because increasing the federal “debt” causes inflation.
The Democrats agree that increased federal “debt” is inflationary, but that their proposals are “paid for” by increased taxes. So, according to the Dems. the federal debt wouldn’t increase enough to cause inflation.
In total, both parties and all their hired economists wrongly agree that federal deficit spending leads to inflation, a false belief demonstrated in the following article:
It’s unclear whether moderate Senators Joe Manchin and Kyrsten Sinema will agree to some of the provisions included by the House.
“The Build Back Better Act is fiscally responsible,” Mr. Biden said in a statement. “It reduces the deficit over the long-term. It’s fully paid for by making sure that the wealthiest Americans and biggest corporations begin to pay their fair share in federal taxes.
“Leading economists and independent experts on Wall Street have confirmed that it will not add to inflationary pressures. Instead, it will boost the capacity of our economy and reduce costs for millions of families.”
Yellen spreading the Big Lie that federal taxes fund federal spending and that the federal debt is too large.
The CBO said it would increase the deficit by more than $367 billion over 10 years.
But the estimate did not include the revenue that could be generated from increasing IRS enforcement, which the CBO suggested would be $207 billion.
Treasury Secretary Janet Yellen noted that the Treasury Department estimates that the crackdown on tax evaders would raise $400 billion, and her own department’s analysis “make it clear that Build Back Better is fully paid for, and in fact will reduce our nation’s debt over time by generating more than $2 trillion through reforms that ask the wealthiest Americans and large corporations to pay their fair share.”
The White House, which estimated its framework would cost $1.75 trillion, claims it would reduce the deficit over time, generating more than $2.1 trillion over 10 years.
Sounds great, doesn’t it? The spending is “fully paid for,” and increased tax collections would “reduce our nation’s debt” and “reduce the deficit.”
Thank heavens it’s all a lie, a Big Lie.
Despite all the chest-thumping by Biden and friends, the bill will be “fully paid for” simply because allfederal spending is fully paid for by federal money creation, never by taxes.
The federal government uniquely is Monetarily Sovereign. Unlike state and local taxes, which do pay for state and local government spending, federal taxes pay for nothing.
That is a fundamental difference between monetarily non-sovereign state and local governments vs. the Monetarily Sovereign federal government.
State and local taxes are M1 (money supply) dollars that remain in the private sector, even after they are received by state and local governments. (The state/local governments deposit their tax dollars into private sector banks.)
By contrast, Federal taxes are M1 dollars that are removed from the economy and destroyed when they hit the Treasury, where they no longer appear in any money measure.
Anyone not understanding that fundamental truth simply doesn’t understand economics, and has no business voting on or commenting about federal spending.
(In all probability, most of the federal politicians do understand, but don’t want you to understand, lest you ask for more benefits. Rich political benefactors want the Gapbetween the rich and the rest to widen, an event which makes the rich richer.)
Worse yet, if in fact, the increased federal taxes equal or exceed spending (which is what the Dems claim will happen) then the removal of money from the private sector (aka “the economy”) will lead to a depression, as has happened so often n the past.i
We only can pray the Dems are lying about reducing the debt and deficit.
The other issue, perhaps the biggest issue currently, is whether increased deficits and debt will cause inflation.
This is the one the GOP harps on, because they can’t complain about deficits, as they recently gifted the rich with major deficit-causing tax decreases (which by the way, increased the deficit and debt, but didn’t cause inflation).
So what causes inflation? Is it the money supply, as so many economists claim?
Do you see any relationship between the M2 money supply and inflation?
Inflation (blue) vs. The M2 Money Supply (red)
No, there doesn’t seem to be any relationship between the M2 money supply and inflation.
But wait. Some economists claim it isn’t just the increased money supply that causes inflation, but rather increases in the velocity of money that causes inflation.
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. (per the Federal Reserve of St. Louis)
Inflation (bright blue) vs. the velocity of M2 (pale blue).
No, there is a massive difference between the two lines. The velocity of money doesn’t seem to be a cause of inflation.
So what about federal debt? That’s one that many economists claim causes inflation.
Inflation (blue) vs. Federal Debt Held By The Public (purple)
No, the peaks and valleys are completely different. Despite the bleating by Republicans and Libertarians, there doesn’t seem to be any relationship between federal debt and inflation.
Here’s another thought. Some folks worry that the world (China especially) won’t “lend” us enough dollars. It’s a ridiculous concern, because the federal government does not borrow dollars from anyone, and further, it never can run short of dollars.
But ridiculous concerns are part of what constitutes today’s economics. So, when the federal government doesn’t sell enough “debt” (Treasury Securities) to meet legal (though not financial) requirements, the Federal Reserve jumps in with its infinite supply of dollars.
So, is there a relationship between inflation and the Federal Debt held by Federal Reserve Banks?
Inflation vs. Federal Debt held by Federal Reserve Banks
Nope. No relationship there, either.
So, what does cause inflation?
Here’s one hint:
Inflation (blue) vs. Spot Crude Oil Price (orange).
That’s more like it. Notice how the peaks and valleys of inflation generally match up with the peaks and valleys of oil prices.
Of course, the match is not perfect because oil prices, which closely are related to oil shortages, are not the sole cause of inflation.
Today’s inflation is related to the shortages not only of oil, but also of food, labor, shipping, computer chips, and other vital resources. And that gives you the answer to the question, “What causes inflation?”
Inflation always is caused by shortages of key commodities, most often food and energy, along with other supplies. Inflation never is caused by “too much money,” never by federal spending, and never by federal deficits and debt.
Not only do shortages, not money supply, always cause inflation, but inflation can be cured by federal deficit spending to cure shortages and to distribute the scarce items.
Currently, the federal government is trying to ease inflation by distributing oil from the Strategic Petroleum Reserve. This is an example of government spending, because the government previously had deficit-spent to acquire that oil.
The government can reduce the shortages of food and shippingby strategic spending to aid growers and shippers. The government can spend to bring more computer chip manufacturing to our shores.
If the government would eliminate the nonsensical, useless FICA tax, (and act that would increase the federal deficit and debt) that would effectively raise salaries and encourage more people to come to work, thus easing the labor shortage.
In summary, all the worries about federal deficit spending causing inflation are completely misplaced and in most cases, dishonest. They are nothing more than an attempt to widen the Gap between the rich and the rest.
Finally, if federal deficit spending does not cause inflation, what does federal deficit spending do?
Federal deficit spending helps prevent and cure recessions:
Gold line shows increases and decreases in federal deficit spending. Vertical gray bars indicate recessions.
When federal deficit growth declines we have a recession, which is cured by a deficit growth increase.
SUMMARY
The federal government, unlike state/local governments, cannot run short of U.S. dollars. It can pay any debt denominated in dollars, simply by creating dollars.
Though state/local government taxes fund state/local government spendinng, federal taxes do not fund federal spending. Unlike state/local tax dollars, federal tax dollars are destroyed upon receipt by the Treasury.
No evidence supports the belief that “too much” federal deficit spending causes inflation. On the contrary, federal deficit spending can prevent and cure inflations.
Additionally, federal deficit spending can prevent and cure recessions and depressions.
There is no financial reason ever to restrict federal spending. The false belief that federal finances are similar to state/local government finances and personal finances is fostered by the very rich, who strongly influence the government via bribery.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
#Monetary Sovereignty - Mitchell 