Are there good deficits and bad deficits?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

While Congress struggles with plans to cut federal deficits (i.e. cut federal money creation), and simultaneously tries to encourage banks to lend (i.e increase private money creation), it might be instructive to see why this is exactly the wrong approach. Please go to a post I wrote last June (since updated), titled, Is federal money better than other money?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth.

–Reducing the federal deficit and other forms of national suicide

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Here is what my local newspaper, the Chicago Tribune, says about the federal debt and deficit:

“First pay attention to Ireland, the latest nation to discover that when no one will take your IOUs, terrible things happen. In exchange for a bailout, Ireland has committed to huge spending cuts and brutal tax hikes that will inflict sever economic pain across the Emerald Isle for years.”

Right you are, Tribune. Tax hikes and spending cuts always cause severe damage to a nation and its people..

“Second, pay attention to Erskine Bowles and Alan Simpson. The dogged co-chairmen of the president’s deficit commission are telling you how difficult it already will be to save the U.S. from reaching the day when no onee will take our IOUs.”

If that’s what Messrs. Bowles and Simpson are saying they are more dog-brained than dogged. The U.S., as a monetarily sovereign nation, does not need anyone to accept our IOUs, for this simple reason: A monetarily sovereign nation never needs to borrow the sovereign money it already has the unlimited ability to create. In fact, when the U.S. “borrows,” it simply exchanges T-securities it creates out of thin air for dollars it already has created, also out of thin air. Monetarily non-sovereign nations do need to borrow, because they do not have the unlimited ability to create money.

“The lesson from Ireland, the lesson from Bowles and Simpson, the lesson that official Washington still doesn’t want to hear: If we don’t make painful choices on spending and taxes right now, we’re going to invite chaos.”

Ireland is monetarily non-sovereign; the U.S. is monetarily sovereign. The Tribune doesn’t understand the difference. And because the Tribune and Messrs. Bowles and Simpson, and indeed the entire political establishment thinks U.S. finances are similar to monetary non-sovereign finances, we most certainly will have chaos. What these people imagine as a problem (deficits) actually is a benefit (money), and they try to cure this supposed problem with solutions that will damage us for decades. It’s like trying to “cure” good height by cutting off a person’s legs.

“(Bowles’ and Simpson’s) plan would raise the retirement age for Social Security [Keep paying FICA, but work ’til you drop], put federal health care programs on a strict budget [i.e. cut Medicare and Medicaid to improve health care], slash defense spending [for a stronger America] . . . It targets everything from federal payments to states reclaiming abandoned coal mines [Goodby environment] to restrictions that stop the Postal Service from shifting to five-day-a-week delivery [What next? Once-a-week delivery?]. Everybody gets gored one way or another.”

Yes, we all will get gored. But aside from worse health care, poorer retirement, more poverty, less national defense, worse education, worse environment and a thousand other reductions in the American life style, not only for us but for our children and our grandchildren, why worry? There is only one small detail. I almost hate to mention it, but: Where is the economic evidence that our federal deficit is too large? Nowhere.

Where do we see that the federal government can’t pay its bills? Nowhere. Where do we find that inflation threatens us? Nowhere. Where do we find that deficits cause recessions, depressions, stagflations, unemployment, poverty or any other form of economic miserey? Nowhere. According to the Tribune et al, the debt is big, ergo bad. Don’t ask for evidence. There is none. Just take your bitter pill on our say so.

Bowles and Simpson will make Osama bin Laden happy. Between them, they propose more damage to America than the Taliban and al-Qaeda together would be able to effect in a century. And all because of brutal ignorance.

“All together, the 16-nation eurozone has less debt and a much lower deficit in relation to its size than the United States has.”

The ignorance just grows and grows. The 16-nation eurozone is composed of both monetarily sovereign nations (which can service any size debt), and monetarily non-sovereign nations, which have limited debt-serving ability. The Tribune treats them as one. This respected paper sees no differences among the U.S., our states, counties, cities, businesses you and me. To the Tribune, whatever applies to one, applies to all.

“We’re not heading into trouble. We’re there.”

With thinkers like Bowles, Simpson, our political leaders and the Tribune editors, we are in desperate trouble, indeed.

But dammit, if they expect us to endure all this misery, and if they expect us to agree to harm our children and our grandchildren, and if they, in their own words, want to “inflict sever economic pain for years,” shouldn’t they at least be required to provide evidence all this is necessary?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–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

No nation can tax itself into prosperity

–The trade deficit myth

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

WASHINGTON (AFP) 10/14/10: The US trade deficit ballooned in August as the gap with China hit a fresh record, official data showed Thursday, suggesting further weakness in the economic recovery.

The Commerce Department said the August trade deficit rose nearly nine percent from July to 46.3 billion dollars. That was far worse than economists predictions of a 44.5 billion dollar gap. […] “The ongoing, American job-destroying leakage of national wealth to China confirms the House’s wisdom in passing the anti-currency manipulation bill last month,” said Alan Tonelson, a research fellow at the US Business and Industry Council.

“President Obama finally needs to wake up as well, urge Senate passage, and help American businesses and their employees fight foreign protectionism,” he said.

Look at the pejorative words used to describe the trade deficit: “Ballooned,” “weakness,” “far worse,” “job-destroying,” “leakage of national wealth,” “foreign protectionism.” Sounds like we are one step from financial disaster, and the trade deficit is pushing us there.

But what does “trade deficit” mean? Simple: It means foreign countries send fewer of our dollars to us, than we send to them. Where did the dollars we send to foreign countries come from? We created them out of thin air. And were did the dollars foreign countries send to us come from? We created them too, also out of thin air.

The U.S. is monetarily sovereign, meaning the U.S. federal government has the unlimited ability to create dollars – as many as it wants, whenever it wants. Given that unlimited ability, why would we care how many U.S. dollars foreign governments send us?

Further, our imports help supply us with the world’s best, cheapest, most convenient, most desirable goods and services, else we wouldn’t import them. We get the best of everything, and all we have to do is give the world our dollars, which we create at the touch of a computer key. So what’s the problem?

“But,” you say, “all this importing destroys American jobs.” Oh, really?

First, let’s be honest, it really isn’t jobs we want. We want money. Not that Americans are lazy, but for the vast majority of people in this world, jobs merely are a means to an end, and the end is acquisition ability.

So when we bemoan unemployment, we really bemoan lack of income. Unemployment and employment figures should be replaced with acquisition-ability figures. If domestic unemployment were 90%, but every man, woman and child had the financial ability to acquire everything he/she wanted, we would be a wealthy country. (Think of a nation with all the citizens living on generous, guaranteed pensions, and all the work being done by foreigners – something similar to an extreme Saudi Arabia.)

Today, the problem is not that the economy is starved for jobs. The problem is that the economy is starved for money. Ironic isn’t it, when you consider that our own government can create all the money we need.

Second, the main inhibition of job creation is not foreigners working for low wages and receiving “strong” money. The main problem is taxes. We want our businesses to be more competitive, so what do we do? We tax them.

We want businesses to hire more people, so we make them pay a FICA tax on every single hire. And we make them pay a tax on the profits they otherwise could use for expansion and hiring.

Then we tax the employees, so they have less to spend on goods and services. And we want more investment, so we tax the profits on investment. And when the federal government is finished taxing, the states levy more taxes, and the counties levy even more and the cities levy more, yet.

And when every American is taxed, taxed and taxed again, we blame foreigners for ruining our economy.

Rather than railing against foreign protectionism, our first step should be to cut taxes – especially since the federal government, the unlimited creator of dollars, neither needs nor uses tax money.

If the federal government immediately would eliminate FICA, and support Social Security and Medicare by deficit spending, the recession would end, today. And if the federal government would send each state a flat amount of money according to population – say $10,000 per person – we would have instant prosperity for all states, counties and cities.

Trade deficit merely means sending more dollars overseas than “overseas” sends to us. This leaves us “starved” for dollars, and all the while we are the sole creators of dollars. Does this make sense?

And oh yes, deficit spending has not caused inflation since we went off the gold standard in 1971. Not only are we a long way from inflation, but inflation easily is cured. So let’s not use phony fears of inflation as an excuse for keeping those economy destroyers called “taxes.”

Oh, you don’t believe me about inflation? Well consider this. The effect of exports is to bring dollars into the U.S. economy, which is identical with what federal deficit spending does. So if you like exports, you should like federal deficit spending, for exactly the same reason.

“The fault is not in our foreign neighbors, but in ourselves.”

Rodger Malcolm Mitchell

No nation can tax itself into prosperity