The U.S. federal government, being Monetarily Sovereign, has infinite dollars. It never can run short of dollars.
The government can pay for comprehensive, no-deductible health care for every man, woman, and child in America without collecting a penny in taxes.
This would not be the Bernie Sanders Medicare for All, which is merely an expansion of our current Medicare. It would be a comprehensive, no-deductible, no FICA, no Part A, Part B, Part C, Part D, Medicare that truly is for All. It would cover everything and everyone one.
And it would not be government-provided health care. It would be government-funded healthcare. Everyone still would have their own doctors. Hospitals would remain privately owned.
The only differences would be that insurance companies no longer would be the middlemen, and everyone would have free health care.
There is no functional reason why America needs privately-owned, for-profit insurance companies that collect medical dollars but provide no medical services.
It is a costly scam. The insurance companies, in essence, tell you, “Give me your healthcare dollars. We’ll give some of them to doctors, nurses, and hospitals and keep the rest for ourselves.”
What’s the purpose of having middlemen take some of your hard-earned medical dollars?
It would be far better for the federal government to tell you, “You don’t have to give us anything. We’ll create the dollars and pay them to the doctors, nurses, and hospitals. It won’t cost you acent. You and your doctors will make all the medical decisions. We’ll just pay for them.”
That is the way medicine should and could operate.
An article in today’s Palm Beach Sun Sentinel reminds me of these simple facts. Here are excerpts:
More than half of hospitals in rural Miss. facing closure Leaders at the publicly owned Greenwood Leflore Hospital in Greenwood, Miss., say they will be out of business before the end of the year without a cash infusion. Rogelio V. Solis/AP By Michael Goldberg Associated Press JACKSON, Miss. — Over half of Mississippi’s rural hospitals are at risk of closing immediately or in the near future, according to the state’s leading public health official.
Dr. Daniel Edney, the state health officer, spoke to state senators at a hearing last week about the financial pressure on Mississippi hospitals. Edney said 54% of the state’s rural hospitals — 38 — could close.
Rural hospitals were under economic strain before the COVID-19 pandemic, and the problems have worsened as costs to provide care have increased.
Mississippi’s high number of low-income uninsured people means hospitals are on the hook for more uncompensated care. At the same time, labor costs weigh on hospitals as they struggle to pay competitive wages to retain staff.
Why does America have uninsured (for healthcare) people when the federal government has infinite dollars? It makes no sense at all.
“The costs on an income statement for a hospital have skyrocketed,” said Scott Christensen, chair of the Mississippi Hospital Association Board of Governors. “The liabilities on the balance sheets of hospitals around the state have reached some unsustainable levels given what we face.”
The crux of the problem facing Mississippi’s hospitals is that revenues have not kept pace with rising costs, Christensen said.
The strain is most acute in Mississippi’s Delta region, an agricultural flatland where poverty remains entrenched. Greenwood Leflore Hospital has been cutting costs by reducing services and shrinking its workforce for months.
But the medical facility hasn’t been able to stave off the risk of imminent closure. Hospital leaders say they will be out of business before the end of the year without a cash infusion.
At Greenwood Leflore and other hospitals across the state, maternity care units have been on the chopping block. Mississippi already has the nation’s highest fetal mortality rate, highest infant mortality rate and highest preterm birth rate, and is among the worst states for maternal mortality.
Does anyone care? Do the Republicans who run Mississippi care?
A rising number of healthcare deserts are emerging in the Delta, but financial pressures are bearing down on hospitals in more prosperous areas of the state as well, experts at the hearing said.
But hospitals in poor communities often treat patients who don’t have insurance and can’t afford to pay for care out of pocket. An expansion of Medicaid coverage would reduce costs that result from uncompensated care.
Gov. Tate Reeves and other Republican leaders have killed proposals to expand Medicaid, which primarily covers low-income workers whose jobs don’t provide private health insurance.
Opponents of expansion say they don’t want to encourage reliance on government help for people who don’t need it.
This is the same -old, same-old trope that poor people are lazy takers, and giving them help will make them even lazier.
It is a vicious lie promulgated by the richer to keep the more destitute down. It is the classic expression of Gap Psychology, in which the richer want to widen the Gap between them and the poorer.
As a near-term solution, the Mississippi Hospital Association has suggested the state’s Division of Medicaid work with federal officials to raise the Medicaid reimbursement rate cap.
The move would lower the cost of providing care for people who are already covered under the state’s current Medicaid plan.
It’s a Band-Aid, as are Medicaid, Obamacare, and Medicare. They all should be merged to provide comprehensive, no-deductible, 100% coverage, fully government-funded, no taxes healthcare insurance for every American of every age and every income. No exceptions.
Finally, it isn’t “socialism.” The rich falsely chant “socialism” every time a benefit for the not-rich is mentioned. But socialism is government control, not government funding.
With real Medicare for All, the government only would take over funding from the for-profit insurance companies. All Medical decisions would remain with your doctors and hospitals.
It is a disgrace of American politics that we don’t already have it.
Animation of a double-rod pendulum showing chaotic behavior. Starting the pendulum from a slightly different initial condition results in a vastly different trajectory.
Here is why the economy is devilishly hard to predict. Think first of the weather. We all agree it’s hard to predict, though it’s based on just a few simple facts:
The sun is essentially a point source of our heat that heats the ground and water and, to a lesser degree, the air.
Hot air rises; cool air falls; the earth’s uneven surface turns, and all that motion creates wind.
Warm water evaporates, forms clouds, and comes down as windblown rain or snow when it cools.
Add in a few other things like cloud covers, volcanos, and the human creation of CO2, and that’s about it. The whole thing, though complex and chaotic, can be described mathematically.
You could predict the weather with sufficient data, the proper formulas, and the fastest supercomputers. It’s just numbers.
Now consider economics, the science of money. It’s a bifurcated science, part Monetary Sovereignty and part Gap Psychology. The Monetary Sovereignty part is similar to the weather in that it can be described mathematically.
A monetarily sovereign entity creates laws from thin air, and these laws create money from thin air.
Money is scarce to users but never scarce to issuers. Being able to create infinite laws, the monetarily sovereign entity can issue unlimited money. It never can run short, even without collecting taxes.
All money is a form of debt; it’s the issuer’s debt in that the demand for any one form of money is based on the issuer’s full faith and credit. If the issuer has good credit: People want that money. Bad credit: No one wants that money.
Because money is an infinitely available exchange medium, money’s value is generally based on the scarcity of the goods and servicesfor which it is exchanged. Scarcity makes goods more valuable, thus requiring more money in exchange.
Like the weather, Monetary Sovereignty, though complex and chaotic, can be described mathematically. Given sufficient data, one could predict the flow and value of money.
Except . . .
Except for Gap Psychology, the human desire to widen the income/wealth/power Gap below and to narrow the Gap above. We want to distance ourselves from those below us and come closer to those above us.
Gap Psychology is based on human emotions about comparisons. Consider a middle-income, middle-wealth person today. He (she) has much more and much better “stuff” than even a wealthy person of yesteryear.
Today’s “middle” people have air-conditioned, heated homes and cars, televisions, cell phones, computers, and indoor flush toilets. They drink purified water, eat purified foods, and receive painless (relatively) dentistry. They have modern medical care paid for by insurance. Vaccination protects them from dozens of diseases, many fatal.
They fly or drive hundreds of miles in a few hours on paved roads. They ride escalators and elevators up tall buildings.
They are middle-income, middle-wealth, but by the standards of yesteryear, they are fabulously wealthy. Even John D. Rockefeller, possibly the richest person in history, didn’t have what the average Joe in America has now.
You would feel poor if you had smelly plumbing, mud streets, no air conditioning, and a horse-drawn buggy to get around.
Gap Psychology creates the appeal of lotteries and Las Vegas, expensive cars, natural diamonds rather than fake ones, and celebrities. Gap Psychology is the genuine desire to earn more money, own more wealth, and have more power, in short, to be more prosperous.
“Rich” is not absolute. It is a comparative.
There are two ways for you to become more prosperous, i.e., to widen the Gap below or narrow the Gap above. You either must acquire more income, wealth, and/or power for yourself, or others must lose income, wealth, and power.
And this is where economics becomes hard to predict. It is based on human psychology, which devolves into individual psychology and often into one person’s psychology.
Gap Psychology causes people to vote against poverty aid lest it narrows the Gap below. That narrowing would make you feel poorer. Gap Psychology encourages people to vote against their freedoms if that vote would restrict the poor even more, thus widening the Gap.
There is no mathematics to predict that an incompetent psychopathic President would receive enough votes to be elected. And there is no mathematics to measure what that incapable psychopath would do to the economy.
One such President added duties on Chinese goods (for which you paid and which raised prices). COVID came along, and its denial caused hundreds of thousands of Americans to die and raised prices further. Shortages and inflation were direct results.
There is no mathematics to reveal that millions would ignore their eyes, ears, and brains to continue believing the most recent election was stolen. A mob is chaotic.
It took losing a war, but the German people finally understood what Hitler had done to them, and belatedly they rejected white supremacy and fascist hatred. The Italians hung Mussolini by his heels.
Recently, Italy elected a pro-Russia, anti-gay conservative to be Speaker of their lower house of Parliament.
One day earlier, an ultra-conservative lawmaker, who collects fascist memorabilia, became their Senate Speaker; a month earlier, a neo-fascist conservative became Prime Minister.
Mussolini must be laughing (upside down) in his grave. Who could have predicted post World War II Italy’s (and America’s) failure to learn where extreme conservatism leads?
IN SUMMARY Chaos theory describes the difficulty of predicting some events because of the “butterfly effect.” Some small events can multiply upon themselves until a butterfly flapping its wings in Brazil eventually results in a hurricane over Florida — or an extreme conservative being re-elected.
Edward Lorenz described chaos this way: “When the present determines the future, but the approximate present does not approximately determine the future.”
American economics is a blend of Monetary Sovereignty and Gap Psychology.
The former is a factual and mathematical description of money. It could allow us to predict our economic future if we were logical machines having sufficient data.
The latter results from human psychology, individual and herd, which is chaotic. Here, logic disappears, as witness the likes of Donald Trump, Herschel Walker, Lauren Boebert, Marjorie Greene, Ted Cruz, Matt Gaetz, Jim Jordan, et all, intentionally being chosen by many voters.
Think about it. These politicians, and others of their ilk with economic and political power, actually received votes from sentient human beings. It boggles.
For the same reasons why Psychology is not a science, Economics, which relies on psychology, is not a science. They are beauty contests with results in the eyes of the beholders.
And as with beauty contests, where no strict criteria are possible, everyone is absolutely, positively, unequivocally sure about the correctness of their opinions.
Now, try to predict who the next U.S. President will be and what effects she will have on the economy.
One might think the Democrats would win every election, and not just win but win big.
One might think the Dems would gather nearly every vote from the poor and middle-income, the gays, blacks, browns, yellows, reds, Jews, Muslims, immigrants, the elderly, the sick, the educated, and those who care about the environment, women’s right to an abortion, and America’s democracy.
After all, the Dems are the party that invented and tries to protect and expand Medicare, Social Security, and ACA (Obamacare). They want to raise the minimum wage, give unions a greater voice, and support equal housing legislation.
They also passed the Civil Rights Act of 1964 and the Economic Opportunity Act of 1964. They support free preschool programs for disadvantaged children (Head Start) and volunteer teachers in schools in poor areas (the AmeriCorps VISTA program).
The Wilderness Act, protecting 9 million acres of forestland;
The Voting Rights Act banned practices intended to deny African-Americans the right to vote;
The Elementary and Secondary Education Act provides federal funding for public schools;
The Older Americans Actcreated home and community-based services for older Americans;
The Immigration and Nationality Act ending immigration quotas based on ethnicity;
The Freedom of Information Act making government records more easily available to the people; and
The Housing and Urban Development Act for construction of low-income housing.
And they enacted laws strengthening the anti-pollution Air and Water Quality Acts; raised standards ensuring the safety of consumer products; and created the National Endowment for the Arts and Humanities.
The GOP either has opposed all of the above or supported some of it reluctantly. They promise to cut Social Security benefits and/or raise FICA taxes. They repeatedly try to deport the “Dreamers,” children who were brought to the US before the age of 16 and don’t have lawful immigration status. They try to eliminate abortion, even under the most extenuating circumstances.
They also promise to cut Medicare and Medicaid and have tried, for six years, to eliminate Obamacare.
The current Democratic administration added to the list of Democrats’ accomplishments;
1) $1.2 trillion to rebuild America’s infrastructure
2) $1.9 trillion COVID relief deal
3) Halt on federal executions
4) Rejoined the international Paris Climate Accord
5) Mandated converting the federal fleet to zero-emission vehicles.
6) Support for transgender service members
7) Reduced unemployment
8) Strengthened QUAD, the alliance of the U.S., India, Australia, and Japan.
9) Student loan debt relief
10) Strengthened NATO.
11) Sanctioned Russia for its invasion of Ukraine
12) Fought Saudi’s oil prices by releasing180 million barrels
of oil from the country’s Strategic Oil Reserves.
13) Pardoned anyone convicted of a federal marijuana charge
The above should help the middle- and lower-income classes and/or aid America’s security. The GOP opposed all of it.
On the other side, the GOP’s main accomplishment is a tax cut for the rich and belated support for the creation of the COVID vaccine (while simultaneously denying the need for a vaccine).
The GOP is led lockstep by a convicted tax cheat, the head of the scam operation known as “Trump University,” an unceasing liar, a conspiracy theorist, and a sympathizer with white supremacists, Nazis, QAnon, and traitors who tried to overthrow the U.S government.
His false and damaging claims about a “stolen” election repeatedly have been rebutted by facts from all sides, though unfortunately parroted by many in the GOP..
He has expressed bigotry against blacks, browns, yellows, reds, Jews, Muslims, gays, Mexicans, and women who are not “beautiful” enough to suit him.
He has cheated on three wives, groped many women, paid hush money to hookers, and disseminated anti-vaccine, anti-virus lies that cost hundreds of thousands of Americans their lives.
No matter what measure one uses, Donald Trump is a bad human being, a psychopath, and a danger to America. That is reality.
Based on the above, one might expect the Democrats to trounce the Republicans in every election. After all, there are far more poor and middle-income people, brown, black, yellow, and red people, far more Jewish, Muslim, and gay people, and far more people who favor abortion than wealthy, white supremacist, right-wing, Christian, male bigots.
Yet, the Republicans are projected to do well in the mid-term elections and beyond.
There are several reasons having to do with individual issues and with the strange way our founders created the American “minority-vote-wins” voting system. But the one overriding reason is Gap Psychology.
Gap Psychology describes your human desire to widen the income/wealth/power Gap below you and to narrow the Gap above you.
Because of Gap Psychology, the middle classes despise the poor even more than the rich do.
While the rich see the poor as a minimal threat — the Gap is too wide to worry much about — the middle sees the poor as an existential danger.
Sometimes, the Gap between the poor and the middle is so narrow as to be almost invisible. For example, some in the middle are outraged about poor children receiving a college scholarship to a school unaffordable for a middle-income family.
The issue of “fairness” — fairness in education, hiring, and all types of government aid — hangs heavily over the middle-income mind. While the middle may be mildly concerned about the massive tax breaks the rich receive, they are outraged by the small preferences the poor may receive.
A narrowing of the Gap below you is far more frightening than a widening of the Gap above you.
Many in the middle live in neighborhoods that abut poor, crime-ridden areas. They see the poor as dangerous criminals living right next door. That Gap is perceived as narrow.
The poor, of course, live among the poor and despise them. It’s a form of self-loathing related to denial of the truth. Most poor don’t think of themselves as poor but rather “unlucky.” It is those around them who are deservedly “poor” and so should not receive aid.
These people seek a leader who will not lift the poor but rather will punish them and push them down. Lifting the poor would narrow the Gap vs. the “unlucky,” which is the last thing the “unlucky” want.
The poor and middle do not hate the rich. They admire the rich and aspire to be rich. If they cannot be rich, they want to be like the rich, and in that way, narrow the psychological Gap between them and the rich.
Far from being a negative, Donald Trump’s wealth is an election advantage in that it attracts his MAGA followers. They live his extravagant life through him. They resent those who would bring their hero down.
Never mind his many failings, he is their rich guy, their protector.
The cliched example is the poor man who wins a lottery and goes broke while trying to emulate the rich. No one tries to emulate the poor.
Common sense might dictate that the massive population advantage of the poor and middle-income/wealth/power groups vs. the rich would mean the GOP — the party of the rich — never would win an election.
And that would be true if people voted logically and in their own self-interest.
But people do not act logically; they act emotionally, with fear and hatred being our strongest emotions.
The Republican leadership has nurtured the idea that only the GOP can be trusted to keep “them” (the poor, the blacks, browns, gays, etc.) down, so the various Gaps between the middle and poor will be maintained or widened.
The GOP message is: “You don’t need to worry that the blacks will climb up over you. We’ll protect you.
“Don’t worry that the gays will absorb your children. We’ll protect you.
“Don’t worry that the browns will take your job and rape your women. We’ll build a wall.
“Don’t worry that the Jews will take over and rule you. Our white supremacists will fight them for you.”
So when Marjorie Taylor Greene says Nancy Pelosi should be killed, otherwise decent middle-class and poor people overlook the obvious evil. They feel comforted that someone will protect them against those they fear.
Fear and hatred. You can’t have one without the other. They are our twin, primary survival emotions. It was the duo Hitler and Mussolini used to influence the mob.
Think of the Democrats as the strict mother, who tells you not to drink, smoke, or take drugs but instead to eat healthful foods, exercise, and avoid bad company.
The GOP is the affable corner gang leader, who tells you to join up, and he’ll get you all the alcohol, tobacco, and drugs you want, and all you need do is help him rob someone.
I suspect that most Americans understand intellectually that a coup is wrong, Trump is wrong, the GOP is wrong, and the election was not stolen. I suspect that most Americans know intellectually that the white supremacists and the Nazis, and Marjorie Taylor Greene are wrong.
I suspect that most Southerners always knew slavery was wrong.
But fear, hatred, and Gap Psychology are powerful drugs. It looks like America needs first to succumb to the temptation of addiction before reason takes over, if it ever does.
Meanwhile, the Dems underachieve because the poor and middle-income people succumb to Gap Psychology in their desire to be protected from pain. Ironically, they will feel the pain of right-wing rule.
We may not get what we need; we may not get what we deserve; we may not get what we want, but we get what we vote for.
I come from Chicago, and so am, by DNA, a Bears fan.
We Bears fans often ask, “Given that they repeatedly have high draft choices, why are their teams so bad, year after year?” (Cleveland Browns fans can empathize.)
The answer can be stated in two words: Bad leadership. And that also answers the title question, “Why is inflation so hard to defeat?” Bad leadership.
Here are quotes from the Committee for a Responsible Federal Budget (CRFB), which usually parrots the propaganda of the very rich:
Inflation is currently surging at the fastest rate in more than four decades, with the Consumer Price Index (CPI) up 8.2 percent over the past year and Personal Consumption Expenditure (PCE) price index up 6.2.
By comparison, the Federal Reserve (“the Fed”) generally targets 2 percent annual PCE inflation.
In general, the federal government has two types of tools available to fight inflation. Monetary policy, conducted by the Federal Reserve, can raise interest rates.
Or fiscal policy, controlled by the Congress and President, can adjust taxes and spending.
Immediately, they limit possible tools to those that impact the “not-rich” and widen the Gap between the rich and the rest. It’s known as “Gap Psychology,” the human desire to widen the income/wealth/power Gap below you and to narrow it above you.
“Raise Interest Rates” Impacts homebuyers who seek mortgages.
Adjust Taxes: “Adjust” is a disingenuous word for “raise.” When taxes are raised, the rule always includes exceptions and loopholes for the rich, not for the rest of us.
Adjust Spending: Here, “adjust” means “cut.” Deceptively, the CRFB uses one word to mean two opposite things (just like their use of the word “adjust.”.
When federal spending is cut, benefits to the middle and the poor always suffer. The false “need” to cut spending will be reflected in the Big Lie in economics that Social Security and Medicare are “running short of dollars” and that all aids to the poor, students, renters, etc., are “unaffordable.” Utter nonsense.
Specifically, Congress and the President can use their tools to assist the Federal Reserve in its efforts to fight inflation. Using fiscal policy in this situation can:
Ensure all federal actions are rowing in the same direction;
Reduce recessionary pressures and support stronger economic growth;
Diversify and limit the economic pain from inflation-reducing actions; and
Reduce the budgetary cost of fighting inflation.
The CRFB wants everyone to “row in the same direction.” Lovely words. But it also wants to “support stronger economic growth” and “limit economic pain” while raising taxes and cutting spending.
It is impossible to support economic growth and limit economic pain while raising federal taxes and cutting federal spending. Absolutely, 100% impossible.
Federal Reserve in fighting inflation. Through deficit-reducing tax and spending changes, they can help temper demand, boost supply, and directly or indirectly lower prices in the economy.
Translation of the above sentence: “By taking dollars out of the economy, they can take dollars from consumers, reduce supply, and drive the economy into a recession.
Congress and the President should act soon to pass legislation that helps fight inflation on all of these fronts.
Key to any legislation will be deficit reduction, which 55 of the nation’s top economists and budget experts recently explained is one tool in helping to ease inflationary pressures.
Translation: “55 of the nation’s top economists say to ease inflation, we must plunge the economy into a recession. (And never mind about stagflation, which we have no idea how to fight.) This is known as “austerity,” which was attempted in the euro nations. [From the Harvard Business Review, September 28, 2018]:
Eurozone governments – especially those in struggling Southern European countries (Spain, Greece, or Portugal) – switched dramatically towards austerity in the years 2010-2014.
Most experts now agree that these policies had such damaging and persistent negative effects on growth that they were self-defeating.
Governments were reducing spending in order to bring their debt levels under control. But GDP fell so much that . . . debt became even less sustainable than before the austerity measures were implemented.
Consider that euro nations are monetarily non-sovereign, like you and me. Their debt is like my debt and yours. We are not Monetarily Sovereign, so we don’t have the unlimited ability to create dollars.
They had to cut debt because the Monetarily Sovereign EU wouldn’t support them. The Monetarily Sovereign U.S. doesn’t and shouldn’t cut “debt” (which isn’t real debt) or deficits, and there is no reason for the U.S. to undergo the horrors of austerity.
But that is exactly what the “55 top economists” recommend.
At a minimum, Congress and the President should stop adding to the deficits, so that fiscal policy is not worsening inflation.
Translation: “At a minimum, Congress and the President should stop adding dollars to the private sector so that a recession is assured.”
In addition to helping contain inflation, thoughtful deficit reduction can also help to grow the economy, reduce geopolitical risks, improve fairness and efficiency of the budget and tax code, and put the national debt on a more sustainable path.
Translation: “In addition to helping cause a recession, mindless deficit reduction can also help to shrink the economy, exacerbate geopolitical risks, have no effect on the fairness and efficiency of the budget and tax code, and put the nation on a path to a recession or depression.
Inflation in the United States has been elevated for 22 months and shows few signs of abating.
High inflation originated from a mismatch between total demand and supply in the economy – largely as a result of constraints from the COVID-19 pandemic and an aggressive fiscal and monetary policy response.
Translation: Inflation has been growing because COVID caused reductions in the supply of oil, food, computer chips, shipping, labor, and other goods and services. The resultant scarcities caused prices to rise.
The Federal Reserve has already begun to act, raising interest rates by three percentage points since March of 2022, beginning to shrink its balance sheet, and signaling further tightening – with rates headed toward 4.6 percent by the end of 2023 – until inflation is brought under control.
Translation: The Federal Reserve’s massive interest rate increases have done nothing to increase the supplies of oil, food, etc., so they have done nothing to cure inflation.
Economists believe that monetary policy should play the lead role in stabilizing the economy because of the Federal Reserve’s ability to act quickly and effectively to adjust interest rates, using its technical expertise and political insulation to balance competing priorities.
In this case, the Fed can expeditiously and gradually raise interest rates and shrink its balance sheet – based on real-time data – to encourage savings, discourage large purchases, and reduce wealth-driven consumption.
And as we can see, the Fed’s expeditious and gradual interest rate raise has cured inflation. Oh, it hasn’t because it does nothing to remedy shortages?
Would someone please tell the CRFB and the 55 top economists? And by the way, “Encourage savings, discourage large purchases, and reduce wealth-driven consumption” describes a recession.
Yet even as the Fed is better equipped to bring down inflation, doing so is not without its challenges.
Higher interest rates put upward pressure on the unemployment rate and can also lead to financial instability – especially when rates are increased well above the long-term neutral rate (believed to be 2.5 to 3.0 percent).
Indeed, some recent research suggests the inverse relationship between inflation and unemployment described under the Phillips curve might be particularly strong now, suggesting a high “sacrifice ratio” whereby reductions in inflation require large increases in unemployment.
The CRFB has it all backward. High prices don’t cause unemployment. Unemployment occurs because shortages of goods and services discourage hiring. You don’t hire more people when you can’t produce, ship, or service.
In acting alone to fight inflation, there is a substantial risk and perhaps likelihood the Fed’s actions will spur an economic recession.
Finally, one factual statement from the CRFB. More than a “substantial risk. It borders on certainty.
The Federal Reserve has only a limited set of tools to fight inflation, which work by boosting interest rates.
While generally effective in reducing inflation, higher interest rates can also impose substantial pain on the housing and labor markets, reduce investments that promote long-term growth, and take a long time to affect the economy.
Translation: Replace the word “effective” with “ineffective and economically harmful.” The rest of the sentence is correct.
For these and other reasons, economists and policymakers have long supported supplementing monetary policy with fiscal stimulus to fight recessions.
Elemendorf and Furman, for example, argue policymakers should sometimes use fiscal policy even though monetary policy is superior.
Fiscal stimulus (i.e., federal deficit spending) always (not “sometimes”) is necessary. It should be targeted toward reducing shortages: More federal spending to aid oil exploration and production, to aid and encourage food production, and to encourage hiring.
The first step: The FICA tax should be eliminated, a monumental and useless drag on the economy. The federal government neither needs nor even uses FICA dollars for anything. It destroys them upon receipt.
When FICA dollars are sent to the Treasury, they come from the nation’s M1 money supply measure. But when they reach the Treasury, they cease to be part of any money supply measure. They effectively are destroyed.
There is no measure for the government’s money supply because the government has infinite money.
Specifically, spending increases and tax cuts work to boost demand in the near term, while high levels of projected deficits and debt can boost inflation expectations.
One standard measure of an economy is Gross Domestic Product (GDP). It is a measure of spending. The CRFB admits that federal spending increases will increase GDP.
And what will federal spending decreasesdo? Right, they will decrease GDP.
“Recession” is a decline in GDP for two or more quarters, and a depression is a decline in GDP for two or more years. Unwittingly, the CRFB and the 55 top economists have admitted recommending a recession or depression as the cure for inflation.
This is especially true if markets believe the government will attempt to inflate away a portion of its debt.
The notion of the federal government inflating away its debt is nonsense on several levels.
I. The federal government’s “debt” is nothing like personal or local government debt. It’s deposits into privately owned T-security accounts, which the government pays off upon maturity simply by returning the dollars.
The government neither uses nor even touches those dollars. You, as a depositor, own them.
The government spends using dollars newly created, ad hoc. The federal government never can run short of its sovereign currency.
II. Inflation does not affect the government’s ability to return the dollars in T-security accounts. Federal interest rate increases affect the number of dollars in those accounts, but the number does not affect the government’s ability to return those dollars.
No matter how large the “debt” (that isn’t a debt), the government just returns the dollars. It’s like a safe deposit box. No matter the value, the contents belong to you, and the Bank simply returns them.
III. The CRFB’s comments demonstrate their confusion between federal (Monetarily Sovereign) debt vs. state government and personal (monetarily non–sovereign) debt.
It’s the classic case of using one word with two unrelated meanings.
Personal debt comes from borrowing, wherein the borrower needs the dollars for some use. Federal “debt” comes from the federal government’s desire to stabilize the dollar by providing a safe haven for unused dollars.
The government neither needs nor uses those dollars. It has the unlimited ability to create dollars for any purpose.
Contrary to popular myth, the U.S. federal government never borrows U.S. dollars. Same reason: It has the infinite ability to create new dollars. Additionally, those T-security accounts help the government control interest rates.
Sadly, the CRFB either doesn’t understand economics or deliberately misleads its readers on behalf of the rich. Their hope might be to discourage the “not-rich” from asking for benefits, thereby increasing the Gap and making the rich comparatively more affluent.
Enacting deficit reduction during a period of high inflation can also help to reassure markets that elected officials are committed to responsible policy and won’t attempt to undermine Federal Reserve tightening in the future should inflation persist.
What can one say about the above nonsense? Deficit reduction (aka subtracting dollars from the economy) during high inflation will assure the markets that elected officials are committed to causing a recession or a depression.
While higher interest rates help to fight inflation, they also increase the risk of a recession by weakening labor markets and threatening financial stability.High interest rates also discourage personal and business investment, which in turn slows long-term income and economic growth.
Right, CRFB, except for the false “help fight inflation” part. But what happened to the CRFB’s “row in the same direction” philosophy?
Following their warning about the risk of recession, the CRFB published many word-salad paragraphs that could be summarized thus: “We should increase deficit spending without increasing deficit spending” and do all that to “stimulate the economy without stimulating the economy.”
Of course, they had to finish with the Big Lie in economics that the federal government’s spending is constrained by tax income. Like the Bank in a Monopoly game, the federal government doesn’t need tax dollars. It can create all the new dollars it needs.
Even if all tax collections totaled $0, the federal government could continue spending forever.
Given the risks and threats from deficits and debt, substantial deficit reduction is needed even absent high inflation.
Surging prices makes deficit reduction more necessary and urgent while dramatically reducing any macroeconomic risks associated with near-term deficit reduction.
Wha? Surging prices . . . reduce risks of near-term recession?? Where did that idea come from?
It’s almost as wrong-headed as their final paragraph:
Rather than continuing to enact policies that increase deficits and worsen inflationary pressures, Congress and the President should act swiftly to enact deficit-reducing legislation that would help the Federal Reserve fight inflation today, while putting the national debt on a more sustainable pathfor years to come.
So there it is folks. Allowing the world to deposit dollars into T-security accounts is not sustainable because . . . well, no one knows why.
It’s just what the rich want you to believe, so you will be docile and obedient when they tell you they have to cut Social Security, Medicare, ACA, aid to students, assistance to the poor, and, oh yes, raise your taxes.
The rich become more prosperous by widening the Gapbetween the rich and the poor.
Why is inflation so hard to defeat? We Bear fans understand the concept perfectly. Bad leadership.