How the President and Congress will fix the lost decade. (Curing anemia by bleeding the patient)

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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At the end of this post, I pose a question to the President of the United States and for Congress:

Obama urges supercommittee leaders to reach deal; warns against undoing consequences of failing to reach accord

Andrew Harrer/BLOOMBERG , By Rosalind S. Helderman, Published: November 11

President Obama called the Democratic and Republican chairmen of Congress’s special deficit reduction supercommittee Friday and urged them to reach a deal, as the panel’s deadline for agreeing on a strategy to slash the nation’s debt rapidly approaches.

The congressional supercommittee has less than two weeks left to agree on a plan to reduce the federal deficit and avoid harsh, across-the-board spending cuts to every government agency.
[…]
According to that agreement, if the committee of six senators and six representatives deadlocks, budgets will be cut automatically by $1.2 trillion over the next decade.

Half of those cuts would come from the Pentagon, a prospect daunting enough that leading lawmakers have suggested the cuts should be repealed. But the so-called sequester could not be undone without a sign-off from Obama, and he made clear Friday that he would not agree.

“The sequester was agreed to by both parties to ensure there was a meaningful enforcement mechanism to force a result from the Committee,” the White House said in a statement. “Congress must not shirk its responsibilities. The American people deserve to have their leaders come together and make the tough choices necessary to live within our means, just as American families do every day in these tough economic times.”

Translation of Mr. Obama’s comment: “Your income is down, and you must cut back on your spending. So I, your leader, will cut back on government payments to you. See? We’re in this together.”

It is frightening indeed, that the President of the United States of America does not understand the difference between the U.S government (Monetarily Sovereign) and American families (monetarily non-sovereign).

While the President wants to cut federal deficit spending, here is a snapshot of the past decade:

Mr. President, ladies and gentlemen of Congress: does this really look like an economy that needs cuts in federal deficit spending? Will reduced federal spending help increase health insurance coverage, reduce home vacancies, reduce unemployment, support national defense and reduce mortgage delinquencies? Really?

I award 3 dunce caps to the President for wanting to raise taxes while cutting Social Security and Medicare.

I award just two dunce caps to Congress for wanting to cut spending, but at least having the sense not to increase taxes.

(This brings my dunce cap deficit to 1075. Taking my lead from President Obama, I plan “to make the tough choices necessary to live within my means”, and cut back on my dunce cap spending “just as American families do every day in these tough economic times.”)

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

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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

–Oh, you want to cure unemployment? Why didn’t you say so? Here’s how:

In the following graph, the blue line shows annual percentage changes in the civilian employment / population ratio. The higher the line, the lower is unemployment (allowing for varying definitions of “unemployment.”)

The red line shows annual percentage changes in federal debt, which under current law corresponds to annual percentage changes in the federal deficit.

Notice how movement in the blue line (employment %) generally follows movement in the red line (deficits) by 1 to 3 years. For clarity, let’s examine the results in smaller increments. Take the period, 1975 – 1980:

Deficit growth reaches a peak in 1976, then declines. Employment reaches a peak in 1978, then declines.

Or take the period, 1979 – 1985. Deficit growth peaks in 1981, falls back, then peaks again in 1983. Employment peaks in 1981, falls back, then peaks again in 1984.

In the next graph, deficit growth reaches a trough in 1989; employment reaches a trough in 1991.

In the next graph, deficits peak in 1992 and 2004. Employment peaks in 1994 and 2006. The 2000 deficit trough is followed by the 2002 employment trough.

And now we come to the latest graph. Deficits peak in 2009 and employment — well, we don’t know. What do you think will happen if the Congressional supercommittee succeeds in cutting deficits? (Remember that the U.S. is Monetarily Sovereign, so has zero need to reduce deficits.)

I know. I know. Correlation doesn’t necessarily mean causation. But add the above data to the fact that every depression has been preceded by years of federal surpluses, plus the sheer logic of money supply reductions having an adverse affect on the economy, and I come to one inescapable conclusion: Deficit-cutting by Congress, the President and the “super committee,” will give us a super recession, with massive unemployment.

The American economy needs federal deficit increases, today, tomorrow and far into the future. The American government, being Monetarily Sovereign, can and should provide those deficit increases.

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

MONETARY SOVEREIGNTY

–The selling of science in America. How to make economic facts penetrate closed minds.

A word may mean one thing to scientists and something completely different to lay people. Consider “theory.” In everyday usage, “theory” means speculation, as in, “That’s just a theory.” But a scientific “theory” is a whole body of facts that leads up to a scientifically acceptable belief. For an idea to be labeled a theory, it must have been researched and tested by many scientists, and based on undeniable facts.

What the layman thinks of as a “theory,” actually is a hypothesis, which is a suggested solution based on limited facts: An educated guess. So for instance when the scientifically ignorant deride Evolution as “just a theory,” they misuse the word, perhaps intentionally.

In economics, “debt” and “deficit” have different meanings and different implications, depending on whether the subject is a Monetarily Sovereign government or a monetarily non-sovereign entity. Among my quibbles with MMT (Modern Monetary Theory) is its name. It’s not a theory. It’s a statement of facts about how our Monetarily Sovereign government works, the same facts Monetary Sovereignty uses — the same facts politicians, media and economists deny or ignore. A few of these facts are:

1. The federal government creates dollars by paying its bills
2. Without federal deficits there would be no dollars; surpluses reduce the money supply
3. Taxes destroy dollars
4. Neither taxes nor borrowing help the federal government pay for its spending.
5. Today’s and future taxpayers will not pay for today’s federal spending.
6. A Monetarily Sovereign nation can pay any bill of any size at any time, and cannot be forced into bankruptcy.
7. No agency of a Monetarily Sovereign can be forced into bankruptcy without the consent of the government
8. Bank lending creates bank reserves that form the basis for further bank lending.
9. The federal debt is the total of outstanding T-securities and not functionally the total of federal deficits.
10. State, county and city governments finances are unlike federal finances.
11. Greece’s and Italy’s finances are unlike U.S. finances in that they can be forced into bankruptcy.
12. The debt/GDP ratio does not measure the federal government’s ability to service its debts.

None of these are theories or even hypotheses. They are undeniable statements of fact, which somehow have been unable to penetrate the mainstream. In this vein, I want to call your attention to a marvelous article in the October 29th edition of NewScientist magazine, titled, “Don’t tell it so straight,” by Peter Alhous.

Today’s post cannot begin to do justice to this excellent article, so I’ll merely quote a few lines, and urge you to buy a copy or read the article at http://www.newscientist.com/article/mg21228361.600-science-in-america-selling-the-truth.html.

. . . a classic example of the “deficit model” of science communication . . . assumes that mistrust of unwelcome scientific findings stems from a lack of knowledge. Ergo, if you provide more facts, scepticism should melt away. This approach appeals to people trained to treat evidence as the ultimate arbiter of truth. The problem is that in many cases, it just doesn’t work.

True. It has not worked for MMT or for Monetary Sovereignty

People aren’t empty vessels waiting to receive information. Instead, we all filter and interpret knowledge through our cultural perspectives, and these perspectives are often more powerful than the facts.

One of the most powerful cultural perspectives is personal experience, which is misleading when applied to federal financing. Another cultural perspective comes from “expert” opinion.

Dan Kahan of Yale University . . .(explained that) we have a strong interest in mirroring the views of our own cultural group. . . In one experiment, . . when presented with balanced arguments for and against giving the HPV vaccine to schoolgirls, 70 per cent of (liberals), and 56 per cent of conservatives, thought it was safe to do so.

Kahan then attributed the arguments to fictional experts described so as to make them appear (appropriately) either liberal or conservative. (This) drove the two camps a little further apart. But, crucially, swapping the messengers around had a dramatic effect: 58 per cent of liberals and 61 per cent of conservatives rated the vaccine as safe.

These findings suggest that one way to change people’s minds is to find someone they identify with to argue the case. Climate scientists have almost certainly been badly served by allowing former Democratic vice-president Al Gore to become the dominant voice on the issue. His advocacy will have convinced liberals, but is bound to have contributed to the rejection of mainstream climate science by many conservatives.

MMT and MS need someone of high stature to present the facts, which alone cannot penetrate. And this may be particularly true with someone from “the other side.” President Nixon was able to open trade with China, because he was known as a hard liner. A “soft” Democrat probably couldn’t have done it.

How a message is framed in relation to the cultural biases of the intended recipients is crucial to its persuasiveness. Opponents of evolution have learned this lesson well. After failing to get biblical creationism taught in science classes, they came back with the “scientific” concept of intelligent design, and two key talking points: “evolution is just a theory” and “teach the controversy”.

Not only were these frames attractive to the religious right, they were also difficult for scientists to counter without seeming to endorse censorship.

For MMT and MS the framing might be love of country and/or love of our children. The nation and our children would have a brighter future if our leaders understood these factual descriptions of economics.

Two different ways of presenting the same information about temperature records (were tested on ) people who identified themselves as “strong Republicans” sceptical about human-caused climate change. One was in the form of a line graph, the other plain text.

The text had little effect, but the graph made the strong Republicans more likely to acknowledge that global warming is both real and a consequence of human activities.

Taken together, studies of communication provide a recipe to allow science to better inform US political debate: find frames that work with broad sections of the population and stick closely to those narratives; seek allies from across the political spectrum who can reach out to diverse audiences; and remember that a graph can be worth a thousand words

MMT and MS should find frames (patriotism and/or love of children??), allies (especially someone who heretofore has been known to be strongly anti-debt) and simple graphs to illustrate facts.

I welcome your suggestions.

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

MONETARY SOVEREIGNTY

–Remember Europe? Once important; soon austere.

As we watch in sorrow and amazement, the great European nations slowly fade into a distant memory, hung on their own petard, the euro. All those once-viable, once-powerful nations, melting, melting like the Wicked Witch of the West.

There is Greece:

Greece: Austerity Bill Passed, Despite Protests
Huff Post, Nicholas Paphitis and Derek Gatopoulos 10/20/11

ATHENS, Greece — Greek lawmakers passed a deeply resented new austerity bill Thursday, caving in to the demands of international creditors in order to avoid a national bankruptcy, as a second day of riots left one protester dead and more than 100 people wounded.

The austerity measures won 154-144 in the 300-member parliament despite dissent from a prominent Socialist lawmaker who voted against a key article of the bill. The vote was expected to pave the way for a vital euro8 billion ($11 billion) payout from creditors within weeks so Greece can stay solvent.

And Italy:

Uncertainty over Italy’s future slams markets
Markets’ Berlusconi rally proves short-lived as Italian borrowing rates again spike higher
Pan Pylas, AP Business Writer, On Wednesday November 9, 2011

LONDON (AP) — Uncertainty over who will lead Italy through the debt crisis once Premier Silvio Berlusconi resigns slammed European stocks and bonds on Wednesday, pushing Rome’s borrowing rates to worrying new highs.

Tuesday’s news that Berlusconi had finally bowed to pressure and would resign once new austerity measures are passed had helped markets in the U.S. and Asia higher. Berlusconi had been perceived as part of the problem in the political deadlock gripping Italy.

And Spain.

Spain and the euro crisis
A great burden for Zapatero to bear
The Spanish prime minister has become a reluctant convert to reform—but maybe too little, too late
Jan 20th 2011 | MADRID | The Economist

José Luis Rodríguez Zapatero, the Spanish prime minister . . . said,“There is something worse than the lack of a broad consensus about how to implement reforms and that is, especially at this moment in time, a lack of reform.”
[…]
Spain’s road to recovery is still fraught with dangers. […] The need for reform and austerity is urgent. As Portugal teeters on the verge of a bail-out, Spain yo-yos anxiously. It has just had to pay a steep 5.5% on a €6 billion ($8 billion) syndicated bond. Spain’s fellow euro members are looking for broader solutions to their sovereign-debt crisis, in which Spain (by virtue of its size) is by far the biggest risk.
[…]
Elena Salgado, the finance minister, trimmed the budget deficit from 11.1% of GDP in 2009 to under 9.3% in 2010. She aims to get it to 6% this year. Spain’s national debt is below the euro-zone average and less than America’s and Britain’s.
[…]
The government has dragged its feet on reform in the past. A so-called sustainable economy law, which Mr Zapatero announced in May 2009, is still stuck in parliament.

And Portugal.

Financial Times, October 13, 2011
Portugal announces more austerity measures
By Peter Wise in Lisbon
Portuguese employees will have to work longer, lose bank holidays and forfeit more than a month’s wages in holiday bonuses to combat pressures to leave the euro, the prime minister announced on Thursday night.

In a televised address to the nation, Pedro Passos Coelho outlined the country’s toughest austerity package to date in an effort to avert what he described as a “national emergency”.

And Ireland.

Ireland Plans 12.4 Billion Euros of Austerity Through 2015
Bloomberg, By Finbarr Flynn and Joe Brennan – Nov 4, 2011 11:51 AM CT

Ireland plans 12.4 billion euros ($17.1 billion) of austerity measures over the next four years as it pushes on with a fiscal program to reduce the deficit and insulate it from the crisis in Greece.

There is “no easy path forward,” Finance Minister Michael Noonan said in Dublin today as he published the government’s Medium-Term Fiscal Statement. He is planning a 3.8 billion-euro adjustment in 2012 after a 6 billion-euro budget in 2011. The government also cut its 2012 growth forecast to 1.6 percent from 2.5 percent.

A quote, variously attributed to Albert Einstein, Rita Mae Brown or Narcotics Anonymous, is apt here: “Insanity is doing the same thing over and over again but expecting different results.” Every euro nation believes its salvation comes from reduced government spending combined with increased government taxes, in short, reduced deficits – in short, austerity.

That fact that a reduced deficit – austerity — never has saved an economy, cannot save an economy and always will lead to economic disaster, does not seem to trouble the economists who preach it again and again.

Austerity is ignorance. Austerity is poverty. Austerity is a depression. Austerity is misery for a nation’s citizens, their children and their grandchildren, far into the future. Austerity is a trip to third-world status, or worse. Austerity is bleeding a patient to cure his anemia.

Deficit reduction cannot save Europe. Even were deficits reduced to zero, the euro’s fundamental weakness would continue: Monetarily non-sovereign nations, being unable to create unlimited money, cannot survive long-term without money coming in from outside their borders. This is an absolute law in economics.

There is no magical, long-term solution. No amount of deficit reduction, no amount of austerity will save monetarily non-sovereign nations. Austerity is insanity and death.

And austerity is the goal of America’s Congress and President and the special committee to reduce the deficit.

Remember Europe?

Remember America?

I award 5 dunce caps to all those who believe reduced government deficits will stimulate economic growth, reduce unemployment and save a country from recession.

(I now am running a 1070 dunce cap deficit. Yet I feel no need for austerity. Fear not. I have plenty of dunce caps I can award to politicians, media, economists and the Tea Party.)

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

MONETARY SOVEREIGNTY

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