Years ago, I took over a commodity brokerage with an employee who recently had won a chartist competition. A chartist is a securities researcher or trader who analyzes investments based on past market prices and technical indicators.
He had endless historical data and formulas for that data, and based on all that, he predicted the markets.
Despite winning a national competition, his trading proved to be a spectacular failure. While past data told him what had happened, He had no idea why it happened, so his predictions were worthless.
He didn’t understand cause and effect.
In this vein, an article claims to explain the cause of inflation to the last decimal point. Do you believe it?
Increased federal spending helped the economy bounce back during the pandemic, but it also caused a surge in inflation, research reveals. Inflation is difficult to control. Its cause is often even harder to pinpoint.
Yes, if all you have is formulas and you don’t understand how an economy works, the cause is hard to pinpoint. But that doesn’t stop technicians from trying to identify it.
In attempting to understand the 2022 spike in inflation that followed the pandemic, some policymakers — up to and including President Joe Biden — blamed shortages in the supply chain. But a new study shows that federal spending was the cause — significantly so.
“Our research shows mathematically that the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain,” said Mark Kritzman, a senior lecturer at MIT Sloan.
Fascinating that Mr. Kritzman should conclude inflation was caused by spending.
If he were correct, net spending, i.e., the difference between taxes and gross spending, would cause inflation. That is what puts spending dollars into consumers’ pockets.
Net spending, or deficit spending, tells us how much money the federal government adds to the economy after taxes are subtracted.
Here is some data Mr. Kritzman may have overlooked:
No relationship exists between increases and decreases in federal net spending (red) vs. inflation (blue).
Not only does Mr. Kritzman overlook the data showing no correlation between netgovernment spending and inflation, he tries to put mathematical measures on how much total federal spending (ignoring taxes) affects inflation.
In writing “The Determinants of Inflation,” Kritzman and colleagues from State Street developed a new methodology that revealed how certain drivers of inflation changed in importance over time from 1960 to 2022.
In doing so, they found that federal spending was two to three times more important than any other factor causing inflation during 2022.
Specifically, their results showed that:
42% of inflation could be attributed to government spending.
17% could be attributed to inflation expectations — that is, the rate at which consumers expect prices to continue to increase.
14% could be blamed on high interest rates.
When you see those kinds of specific percentages, you should be doubtful, and when you see them attributed to something like “inflation expectations,” you should be incredulous. Does Mr. Kritzman believe he can measure consumer expectations and include that in an equation? Really?
You might have noticed that his results totaled 73%, leaving only 27% for oil shortages—the real cause of inflation.
Oil price changes (green) are closely related to inflation (blue).
The graph shows the essentially parallel tracks of oil prices and inflation. This is no coincidence; oil costs are part of virtually every product and service. In April 2020, OPEC agreed to a historic cut in oil production by 9.7 million barrels per day starting in May 2020.
Despite massive federal net spending after 2015, inflation (blue) remained relatively low until COVID hit in 2020. Then, we had a recession (vertical gray bar), cured by increased federal net spending.
Inflation didn’t begin until April 2020, when OPEC cut oil supplies to raise prices. This reduction in supply led to inflation (green) that is only now being cured as oil prices drop.
Here is a closer look at inflation and oil during COVID:
Crude oil prices rose due to OPEC price control. This caused inflation to increase. Then OPEC lowered prices and inflation followed down.
Kritzman said that using government stimulus money to help the economy rebound during the pandemic made sense, given the unprecedented circumstances. “People really didn’t know if we were going to have a 1930s-type depression, so the government erred on the side of more stimulus than less stimulus,” he said.
“I don’t judge that to be a bad thing to have done, but it did cause this big spike in inflation,” Kritzman said. “What was surprising is not just that [the driver] was federal spending but that it was so overwhelmingly federal spending.”
Wrong. It was overwhelmingly OPEC oil shortages, along with other COVID-related scarcities of food, shipping, metals, lumber, computer chips, labor, and other scarcities, that caused inflation.
Here is how they came to their conclusion:
The authors arrived at their conclusion by using the Mahalanobis distance statistic, which has been used in a range of projects, from measuring turbulence in the financial markets to detecting anomalies in self-driving vehicles.
In their paper, researchers first used a hidden Markov model to identify four regimes of shifting inflation: stable, rising steady, rising volatile, and disinflation.
Then they used the Mahalanobis distance to figure out how eight different economic variables caused the economy to shift between those regimes. The economic variables the authors looked at were producer prices, wages/salaries, personal consumption, inflation expectations, interest rates, the yield curve, the money supply, and federal spending.
Finally, by applying an algorithm to the data from 1960 to 2022, they were able to see how inflation drivers had changed in importance over time. This enabled them to predict the likely path of future inflation — a capability that could potentially be of help to policymakers and investors alike.
The results dispel the notion that the supply chain could be blamed for the 2022 spike in inflation, Kritzman said.
The results may or may not dispel that notion, but they don’t deal with the fact that inflation is caused by shortages of critical goods and services, usually oil and/or food, not federal spending.
Here is their explanatory graph. As you will see, federal deficit spending is not even shown on their graph. Could it be because even they don’t believe it’s a relevant factor?
Examine their graph, and you’ll see a few peculiarities.
The first is that they mix cause and effect: Causes would be Personal Consumption, Interest Rates, Yield Curve, Money Supply, and Federal Spending.
The effects would be Producer Prices, Wages, and Salaries. It’s not clear how one can claim that producer prices cause inflation when they are caused by inflation.
2. If Personal Consumption is only 6.2% at fault, how is Federal Spending given 41% blame for inflation? Was all that inflation caused strictly by the government’s purchases, not by consumer purchases? Unlikely.
3. And if federal deficit spending flooded the economy with money, how did the money supply only increase by 2.9%?
4. Finally, there’s that amorphous “expectations” thing. How was that translated into dollars to reach the precise number 16.9%? If you had inflation expectations, how would you put a number on that?
How would you determine it was 13.9% responsible for changing your consumer buying or business selling prices?
The numbers in the above graph are what I like to call WAGs (Wild Ass Guesses), made to look scientific by applying fake mathematics.
“The narrative at the time was that the cause of inflation was interruptions to the supply chain because of COVID-19,” Kritzman said. “But that didn’t show up in producer prices
In other words, if supplies became scarce, then the prices of those supplies would go up, which we don’t see in our results at that point in time.”
The narrative should have been that all prices went up because of the scarcity of oil, food, shipping, metals, lumber, computer chips, labor, etc. That is the whole point:
We had inflation, not because of “excessive federal spending” but because of COVID-related scarcities.
Guidance for policymakers
The researchers’ findings indicate that the government and the Fed sometimes operate at cross purposes, Kritzman said. When the federal government overstimulates the economy, the Federal Reserve has to delay lowering interest rates.
The data refute the “overstimulates” notion. There was no historical relationship between federal spending and inflation.
“The more overstimulation there is, the more hawkish the Fed has to be to keep inflation under control,” Kritzman said.
Keeping inflation under control is not the Fed’s job. The Fed doesn’t have the tools. It’s Congress’s and the President’s job to prevent and cure the shortages of goods and services that cause inflation.
Taking the same approach that the researchers did, the Federal Reserve might be able to gain a deeper look at “the dynamics that are going on” — not just that inflation is up or down, he said. Instead, it offers insight into how the drivers of inflation change in importance through time.
Yes, sometimes a shortage of oil drives inflation. Other times, it’s a shortage of food, labor, or other production factors.
“I think that the Fed would be well advised to take this methodology and make it operational in how they monitor inflation and other things that they’re interested in,” Kritzman said.
No, Congress and the President should stop avoiding their responsibilities. They should assume control over inflation by preventing and curing shortages.
For example, encouraging and aiding oil drillers and refiners and releasing oil from the Strategic Petroleum Reserve were primary factors in ending the most recent inflation.
The same encouragement and aid should be given to all products and services, the shortages of which cause inflation.
The Wall Street Journal is owned by Rupert Murdoch, who supports 32 times convicted felon Donald Trump. Murdoch also owns extreme right-wing Fox News, which paid an $800 million fine for lying.
Need I say more?
Here are excerpts from an article that appeared in the WSJ. Comments are noted.
Federal Debt Is Soaring. Here’s Why Trump and Harris Aren’t Talking About It. Story by Richard Rubin, richard.rubin@wsj.com
The U.S. isn’t fighting a war, a crisis or a recession. Yet the federal government is borrowing as if it were.
The U.S. federal government is Monetarily Sovereign. It has the unlimited ability to create U.S. dollars:
Alan Greenspan:“There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
If you owned a money-printing machine and had the unlimited, legal ability to create as many $100 bills as you wanted — at no cost to you — would you ever borrow dollars? Think about it.
The government has that “money-printing machine” and the legal right to create dollars. Why on earth would the government ever borrow dollars? Answer: The U.S. government never borrows dollars. Not ever.
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 confusion is semantic. In the private sector, the words “bills,” “notes,” and “bonds” denote debt. “Bills” are what you owe in your daily life. Corporate “notes” and “bonds” are evidence of corporate debt.
By contrast, Treasury bills, notes, and bonds have nothing to do with government borrowing. They are deposits into Treasury Security accounts. Depositors, like China, the UK, and private citizens like you, own the money in these accounts; the federal government doesn’t.
The federal government never accesses those dollars for federal spending. It creates new dollars to pay all its bills.
To pay a creditor, the federal government creates instructions in the form of checks or wires. The instructions tell the creditor’s bank to increase the balance in the creditor’s checking account by a certain amount.
At the moment the bank obeys those instructions, new dollars are created and added to the M2 money supply measure.
To pay off the so-called “debt,” the federal government merely returns the depositors’ dollars that already reside in their T-security accounts. (Think of a safe deposit box in which depositors place valuables. The bank doesn’t use those valuables and returns them upon request by the depositors.)
Returning existing dollars is not a financial burden on the government or on federal taxpayers.
The confusion is not only semantic but also arises from the fact that the total of deposits equals the total of federal deficits. This is an anachronism from when the federal government was not wholly sovereign over the dollar and tied itself to silver and gold.
In short, federal “debt” is nothing like personal debt. The federal government is not “in debt.” It pays all its bills timely and in full, and can continue doing so.
Since dollars are a creation of laws, so long as the federal government has the ability to pass laws, it has the ability create dollars.
This year’s budget deficit is on track to top $1.9 trillion, or more than 6% of economic output, a threshold reached only around World War II, the 2008 financial crisis and the Covid-19 pandemic.
Publicly held federal debt—the sum of all deficits—just passed $28 trillion or almost 100% of GDP.
The “debt”/GDP ratio is meaningless. It says nothing about the federal government’s ability to pay. Debt nuts often quote this number to scare you, but it has absolutely no relevance to the federal government’s ability to pay its bills.
If Congress does nothing, the total debt will climb by another $22 trillion through 2034. Interest costs alone are poised to exceed annual defense spending.
These are big numbers but completely meaningless concerning the federal government’s solvency. The misnamed “debt” could be ten times or a hundred times as large, and the federal government easily could continue to pay all its bills.
Even if the government didn’t collect a single penny in taxes and the “debt” was a hundred times larger, it still could continue to pay its bills in full and in a timely manner.
Federal taxes are different from state and local taxes. State and local governments are monetarily non-sovereign. They do not have the unlimited ability to create dollars. They use tax receipts and borrowing to pay their financial obligations.
By contrast, the U.S. federal government does not use tax dollars or borrowing to pay its bills. The purposes of federal taxes are:
To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward.
To assure demand for the U.S. dollar by required taxes to be paid in dollars.
Economists and policymakers already worry that the growing debt pile could put upward pressure on interest rates, restraining economic growth, crowding out other priorities and potentially impairing Washington’s ability to borrow in case of a war or another crisis.
In one sentence, the author, Mr. Rubin, has articulated the four common lies about the so-called federal debt (that neither is federal nor debt).
The U.S. Federal Reserve sets interest rates at its whim in an effort to control inflation. This has nothing to do with the size of the federal “debt” as shown by the following graph:
There is no relationship between changes in federal “debt” (bleu) and interest rates (red).
There have been scattered warning signs already, including downgrades to the U.S. credit rating and lackluster demand for Treasury debt at some auctions.
Interest rates also are set to attract depositors, an exercise that became obsolete in 1971, when the government no longer required itself to match income with outflow.
2. Credit agencies set ratings based on the debtor’s ability and likelihood of paying promptly and in full. The federal government always pays timely and in full, so why would the rating ever go down?
Answer: This is not because of the size of the “debt” but because of Congress’s political gamesmanship. The party out of power limits the party in power’s ability to pay. It uses one of the more ridiculous laws, the so-called “debt limit” (which doesn’t limit the non-existent “debt.” It limits the government’s ability to pay its daily bills).
While the federal “debt” has grown from $400 billion to $33 trillion in just 80 years, “debt” downgrades have been few and sporadic, and related only to the fear that the debt nuts will prevent the government from paying, not to the size of the “debt.”
3. Federal deficits are necessary to grow the economy. It is mathematically impossible for the U.S. economy to grow unless the federal government pumps more money into the private sector (aka, the economy) than it takes out.
4. Federal deficit spending does not “crowd out” anything. It adds lending dollars to the economy.
With more dollars on deposit, the banks can lend more easily, and when the economy has more money, it is more likely to expand by borrowing. Nothing impairs Washington’s ability to borrow; the federal government never borrows.
5. “Lackluster demand” for T-securities is not a problem for the federal government. Selling T-securities doesn’t benefit the federal government. T-securities benefit buyers looking for a safe place to store unused dollars. That is why China buys them.T-securities are more secure than any bank China could find.
T-securities have two purposes, neither of which is to provide spending funds to the U.S. government:
— To help stabilize the dollar by providing safe storage for unused dollars
— To help the Fed control interest rates.
Both Harris and Trump have promised to protect the biggest drivers of rising spending—Social Security and Medicare. And both want to extend trillions of dollars in tax cuts set to lapse at the end of 2025, amid bipartisan agreement that federal income taxes shouldn’t rise for at least 97% of households.
Those are good political promises that would benefit the economy. Of course, the reality is that debt nuts will prevail because of voter ignorance. Thus, you can expect the same strong support for cutting benefits to the middle- and lower-income groups as we have seen in the past. The eligibility age for Social Security will continue to go up, and benefits will be taxed further.
Trump has promised to exempt tips from taxation, end income taxes on Social Security benefits, eliminate taxes on overtime pay, lower tax rates for companies that manufacture in the U.S., and create a new deduction for new parents’ expenses, offering more than $2 trillion in tax cuts atop $4 trillion to extend his first-term tax cuts.
These are good ideas, but as has been typical of Trump’s promises, they’re all verbal tooth-fairy stuff. It’ll happen only in your dreams.
Harris matched Trump’s tips idea and called for an expanded child care tax credit, including $6,000 for parents of newborns.
If the Republican House allows an expanded child care tax credit and $6,000 for newborns — which it won’t.
How did the U.S. fiscal path simultaneously become economically more alarming yet politically less relevant? Federal debt and deficits have blown past various imagined red lines and feared consequences have not materialized.
Keep that phrase in mind: “Feared consequences have not materialized.” The reason: The feared consequences were based on lies. There are no adverse consequences for federal deficits.The consequences are for not running deficits or even for deficits that are too low.
Interest rates, at least until 2022, stayed low. The dollar remains the world’s reserve currency, giving the U.S. far more running room than other major countries. The U.S. of 2024 is not Greece of 2007. There is risk, but there is no fiscal crisis.
There has been no financial crisis simply because federal “debt” is not a financial crisis. The whole thing is a giant lie spun by the rich to prevent the rest of us from receiving benefits.
The tax on Social Security benefits is ludicrous. Why would any sane government tax the benefits it provides?
The fact that the U.S. dollar is the world’s most common reserve currency does not give the U.S. “more running room” (whatever that is). It merely means that the world’s banks carry more U.S. dollars in reserve to facilitate international trade.
It does not protect us from financial difficulties; Monetary Sovereignty protects us from financial difficulties.
And yes, the U.S. is not Greece (or France, Germany, or Spain), none of which is Monetarily Sovereign. Those nations are more like Illinois, New York, and Wisconsin. They cannot create the money they use. The European Union (EU) is like the U.S. federal government in that itis Monetarily Sovereign and has the unlimited ability to create euros.
“We’ve learned we borrowed more than we realized we could,” said Jason Furman, a Harvard economist who was a top aide to President Barack Obama. “And we’ve actually borrowed more than we expected.”
Actually, Mr. Harvard economist, we haven’t borrowed at all. You’re surprised because the economy has grown due to increased federal deficit spending.
You simply can’t figure out why deficit spending seems to grow the economy while insufficient deficit spending leads to recessions (which are cured by more deficit spending).
Why it’s a mystery to you is the real mystery.
When deficit growth declines, we have recessions (vertical gray bars), which are cured by deficit increases.
Sadly, this simple graph shows that declines in deficit growth repeatedly lead to recessions, which are cured by increasesin deficit growth.
Yet economically ignorant pundits continue to rail against deficit growth.
If anything, borrowing kept the economy afloat during the 2007-09 financial crisisand pandemic, and lawmakers were rewarded for it. Polls show the public is concerned about the deficit, but they also prefer politicians who dangle tax cuts, stimulus checks and money for the military.
If you believe borrowing “kept the economy afloat,” why do you oppose it?
At any rate, there was no borrowing. There was money creation, which the federal government can do in any amount, at will. The financial crisis was caused by excessive private-sector borrowing, not by non-existent federal borrowing.
The author demonstrates a failure to understand the difference between private sector and federal finances.
“No president in history, Republican or Democrat, gets a gold star or a Nobel Prize for reining in spending, the deficits and our debt,” said Rep. Jodey Arrington (R., Texas), chairman of the House Budget Committee. “Nobody gets the golden meat cleaver award.”
Thank heaven for that, because the “golden meat cleaver” cuts the legs off economic growth. (See: Ignorance is hard to conquer if the ignorant want to remain that way.)
Whoever wins in November will soon face two big fiscal tests. One is the need to raise the federal debt limit, likely in mid-2025.
No, the test will be to eliminate, not raise, the ridiculous “debt limit,” a law based on the rich’s desire to widen the income/wealth/power Gapbetween them and the rest. It is the Gap that makes them rich. Without the Gap, no one would be rich; we all would be the same. And the wider the Gap, the richer they are.
The two ways for the rich to become richer are: Gain more for themselves and/or make sure those below them have less. That is why cutting your benefits makes the rich richer.
In both 2011 and 2023, the threat of default without a debt-limit increase led to compromises that reduced red ink.
Any default would be caused by the idiotic, unnecessary “debt ceiling.” Compromises are political theatre based on lies.
The other trigger is the looming expiration of much of the 2017 tax law.
That is the tax law Trump passed to help the rich widen the income/wealth/power Gap between the rich and the rest.
It was a tax law that If Congress doesn’t act by the end of 2025, taxes would rise on most households, a path to deficit reduction that both parties say they don’t want.
Imagine that. Congress wants to keep taxes low, but not increase the deficit. Anyone have a magic wand to make that happen?
In the early 1990s, when deficits were much smaller, deficit hawks were powerful enough in both parties to produce bipartisan deals that raised taxes and lowered spending. Those agreements helped drive the budget into balance in the late 1990s. Federal debt fell to about one-third of GDP.
And that budget balancing is what led to the recession of 2001, which was cured by federal deficits.
As deficit growth fell, we had a recession, which was cured when deficit growth resumed. This has happened repeatedly in U.S. history, yet debt nuts still call for deficit reduction.
When he first ran for president in 2016, Donald Trump said he would pay off the national debt within eight years. He went in the opposite direction: Debt rose from less than $15 trillion to more than $21 trillion by the time he left office.
What?? Donald Trump lied? Hard to believe. But good thing he did. The rise in “debt” fueled economic growth.
Trump made two major decisions that broke with Republicans in Congress and drove up federal borrowing.
Republicans had long advocated making Social Security and Medicare less generousand more fiscally sustainable. To appeal to middle-class voters, Trump embraced what had long been a Democratic position and shut down discussion of broad benefit cuts.
As always, Republicans wanted to cut benefits for those who are not rich. Trump saw that the voters would not buy into the lie, so he wisely increased the “debt.”
And to call Social Security and Medicare “generous” is laughable. No one can live on Social Security benefits, and Medicare covers, at best, only 80% of costs. Still, the right-wing can hardly wait to cut, cut, cut.
Then in 2017, when House Republicans sought to cut tax rates, Trump resisted their attempts to offset the full cost. The Tax Cuts and Jobs Act Trump eventually signed into law was projected then to increase deficits by $1.5 trillion over a decade.
And it helped make the rich richer.
Once the pandemic started, Trump joined the broad economic consensus that the U.S. needed to pour money into the economy, eventually adding more than $3 trillion to the debt to provide stimulus checks, enhanced jobless benefits and other relief.
O.K., debt nuts, why does pouring money into the economy grow the economy, but only is a good thing when the economy is in trouble? It makes no sense.
President Biden and Harris expanded on Trump’s pandemic spending with the $1.9 trillion American Rescue Plan, which included another round of stimulus checks and aid to state and local governments.
The stimulus checks were a toe-in-the-water introduction of Social Security for All, which America should have. It worked as desired, which is why Congress didn’t repeat them.
Biden, with Harris’s strong backing, canceled student debt in a series of executive orders that could cost the government more than $1 trillion, according to the Committee for a Responsible Federal Budget. The plan is now stuck in litigation as (right-wing) courts have curtailed Biden’s authority to cancel debt.
“I don’t think we’ve seen a president spend nearly as much without Congress as Biden,” said Marc Goldwein, the CRFB’s senior vice president.
Biden took over where the Republican Congress played politics with the economy. Putting students into debt is as stupid as it gets for a nation that claims it needs an educated population to compete on the world stage.
What happens if Trump wins depends on Congress. If Republicans also control the House and Senate, his next term could look a lot like his first—occasional talk about debt and deficits paired with tax cuts that expand both.
“Paired with tax cuts” for the rich along with deportations of much of our workforce (which would destroy the economy), the promised firing of millions of government workers (which would destroy our government), and the hiring of Trump’s incompetent friends and relatives (which would make Trump a dictator).
In his acceptance speech at the Republican National Convention, Trump said, “We’ll start paying off debt and start lowering taxes even further.”
Nonpartisan experts say there’s virtually no chance of that. Paying off debt would require the U.S. to shift from massive deficits to surpluses.
Tax cuts would work in the opposite direction. Low tax rates can encourage growth and generate some revenue, but not enough to offset the loss of revenue, economists in both parties acknowledge.
Federal surpluses take dollars out of the economy. How this is supposed to cause economic growth is a mystery never explained by the debt nuts.
Every federal surplus in history has caused a depression, but one, the 1997 recession “only” caused a recession.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.
The reason for the above is no mystery. GDP = Federal Spending + Nonfederal Spending + Net Exports. Reduce federal deficits, and you will reduce both federal spending and nonfederal spending. Simple algebra.
Trump has indicated that he wants to extend the pieces of his 2017 tax law that expire after 2025 and lower the 21% corporate tax rate to 20%, and 15% for some companies. His recent proposals—eliminating taxes on workers’ tips, overtime pay and retirees’ Social Security benefits—dig a deeper hole.
He’s also made other proposals that would entail significant new spending, including a mass deportation program and a domestic missile-defense system.
These are good proposals except for his deportation crime. This would destroy lives, destroy the economy of America and the world, and destroy America ‘s reputation. We would forever be stamped as a vicious, mean-spirited banana-republic dictatorship.
Trump has touted several ideas that could reduce deficits. One is impoundment, in which the president refuses to spend money Congress has appropriated. That’s legally and constitutionally dubious.
And economically suicidal.
The other is tariffs. Trump wants to impose a tariff of 10% to 20% on all imported goods and even higher on Chinese products. That could raise about $2.8 trillion over a decade, according to the Tax Policy Center.
That $2,8 trillion would come from the pockets of American consumersand the economy. It’s incredibly ignorant, which is why debt nuts will love it.
House Republicans have proposed capping federal spending growth at a level lower than inflation, though the party is split and some want significant increases in the defense budget.
Capping spending will cause a recession or depression, as it always has. Sadly, the American voter is ignorant about federal finances, so will vote for a damaging and unnecessary cap.
Arrington, who is helping cobble together Republicans’ agenda if they have full control of Congress, said they need to tackle spending and entitlement programs and hopes Trump, despite his statements to the contrary, could be open to that.
“We have an opportunity to live up to what we claim we believe when we campaign and why almost every Republican member was sent here to Congress by their constituents,” he said.
Arrington claims Republican constituents want Congress to cut Social Security and Medicare. That’s what his voters want? Really?
First, while the budget would raise taxes on the rich and corporations, the revenue isn’t enough to deliver the claimed deficit reduction, pay for Harris’ child tax credit and home-buyer subsidy proposals, and cover the Biden-Harris proposals to extend expiring cuts to prevent tax increases on households earning less than $400,000.
Second, the chances Congress would agree to such a plan are slim, even in the unlikely event Democrats control both the House and Senate. Biden couldn’t get centrist Democratic senators to pass his tax increases in 2022. Harris could face similar opposition and already dialed back Biden’s proposed capital-gains tax increase.
All of the above nonsense is due to one thing: The Big Lie that federal taxes fund federal spending. Let’s clarify this as simply as possible.
Federal taxes do not fund anything.
Even if the government collected $0, it could continue spending forever.
The government pays for everything by creating new dollars ad hoc.
Biden officials see next year’s tax debate as a crucial pivot point, and the White House has said any extension of expiring tax cuts should be paired with tax increases.
Ridiculous. Federal taxes pay for nothing. They are a useless drain on the economy.
Biden has proposed some Medicare savings through prescription drug pricing and has called for shoring up Social Security, which is paying out more in benefits than it collects in taxes.
Federal payment of more benefits than it collects in taxes grows the economy (aka the private sector).
But the parties are at odds over whether Social Security taxes and benefits should increase, and that gridlock means the program likely won’t be addressed for about a decade, when its trust fund is projected to be exhausted, triggering benefit cuts.
The federal government should simply pay for Social Security and Medicare to “shore up” them.
Not including interest, the U.S. government will spend $1.21 for every $1.00 it collects in revenue this year. Add interest and that climbs to $1.39.
Mathematically, that $.21 (or $.39) difference will grow the economy. Growing the economy is impossible if the federal government runs a surplus.
Voters often support balanced budgets in theory, but they also like the low taxes and higher spending of the past few decades.
Wanting federal balance budgets merely indicates that the public, having been fed the Big Lie so often, has become ignorant about federal finances.
“It’s really the combination of high deficits, high debt level, high interest burden,” said Richard Francis, the lead U.S. analyst for Fitch Ratings, one of those companies. “And we didn’t see any willingness to tackle the big issues.”
Total BS. Since 1940, the U.S. government has had high deficits, a high “debt level,” and often high interest rates, but it has never been downgraded. Why? Because Congressional infighting has become so fierce that the rating agencies were afraid the government would refuse to pay its bills out of spite toward the other side.
At some point, maybe, the U.S. will find it difficult to borrow.
The U.S. government never borrows.
At some point, interest costs may constrain policymakers.
The U.S. government has the infinite ability to pay interest.
At some point, bond investors may look at the U.S. political system and decide there’s a real risk they won’t get paid back—then begin demanding higher interest rates.
That only could happen if we continue with the astoundingly stupid, totally unnecessary, absolutely harmful “debt ceiling.”
“It’s going to be a 2029, 2030 exercise,” said Schneider of Piper Sandler.
Write to Richard Rubin at richard.rubin@wsj.com
It will be worse if publications like the Wall Street Journal continue printing lies, politicians continue speaking lies, and economists continue teaching lies to fool the public.
Ignorance has its costs. If you don’t understand Monetary Sovereignty and the federal government’s infinite ability to pay for anything, you pay the price. Here is one of many examples.
Nutrition programs for older adults facing service cutsJessie Hellmann, CQ-Roll Call
WASHINGTON — Programs that feed older, homebound adults are instituting waiting lists amid budget crunches, rising costs of food, growing demand for their services and funding cuts from the government.
There is no financial reason for “funding cuts from the federal government.” It has the infinite ability to create dollars. The following is a disgrace, akin to a billionaire walking blithely past a starving family, ignoring their plight.
Combined with the end of COVID-19 era aid, local groups are finding that they can no longer serve the same number of people, resulting in difficult decisions about next steps.
“This is a huge challenge for our network,” said Josh Protas, chief advocacy and policy officer at Meals on Wheels America, a national organization that supports local organizations delivering meals to homebound individuals, mainly older adults.
The Federal Government says, “YOU CAN’T HAVE ANY. WE’RE ALL OUT.”
Meals on Wheels is among the groups pushing for funding increases through the appropriations process for programs funded under the Older Americans Act, a decades-old law first signed by President Lyndon Johnson to support adults as they age in their communities.
One in three Meals on Wheels programs has a wait list, with an average wait time of three months.
“The vast majority of them recognize that there are more seniors in need in their communities that they’re not able to serve, in large part because of a lack of adequate federal funding,” Protas said.
Why is there a lack of federal funding?
Higher demandThe population is getting older. Over the next decade, people 65 and older will represent 22 percent of the population, compared to 17 percent in 2022.
They are at a unique risk for going hungry because of fixed incomes, social isolation, lack of access to transportation and health conditions that make it difficult to cook or shop for groceries.
Almost 7 million seniors were “food insecure” — or didn’t have enough to eat — in 2022, and more than 9 million could be by 2050, according to Feeding America.
Meals on Wheels or similar programs are almost ubiquitous. Many have been around for more than 50 years, providing a source of nutrition and social contact to people who can’t leave their homes and helping them age in place. Programs served 206 million home-delivered meals and 55 million congregate meals in fiscal 2021.
But the demand has outpaced the ability of programs to serve people in their communities.
“We have 12,000 people every day who are turning 60, and as a society, we haven’t really reckoned with the changes that are necessary to address those needs,” Protas said.
Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
The Federal Government says, “YES, WE HAVE INFINITE MONEY, BUT WE DON’T FEED THE STARVING. INSTEAD, WE PAY CONGRESS, SCOTUS, AND THE WHITE HOUSE.
Current legislationCongress has recognized the need for more funding for the programs. But budget pressures have made that difficult.
The Senate Health, Education, Labor and Pensions Committee — on a bipartisan basis — approved in July a reauthorization of the Older Americans Act, recommending to appropriators an increase of 20 percent each for the home-delivered and congregate meal programs.
Still, the Senate Labor-HHS funding bill, advanced by the Senate Appropriations Committee in August, would level-fund those programs in fiscal 2025. Meanwhile, the House appropriations bill would cut the nutrition programs by 1.6 percent.
Former Federal Reserve Chairman 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 Older Americans Act funds several different programs intended to help older adults age in place, but its most well-known ones are related to food services: one for home-delivered meals, another for meals served in congregate settings, like senior centers, and the Nutrition Services Incentive Program, which allows programs to purchase fresh, local produce, dairy or proteins for meals.
Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
While home-delivered meals and congregate settings received increases in fiscal 2024, the nutrition services incentive program received a cut, surprising advocates.
The program is intended to incentivize states to serve more meals because the amount of money it gets is based on how many meals it served the previous year.
“If you’re discouraging incentives, you’re actually lowering meal counts at the end of the day,” said Robert Blancato, president of the National Association of Nutrition and Aging Services Programs.
Overall, funding to the nutrition programs was cut by 0.8 percent in fiscal 2024and states received about $10 million less in appropriations from the federal government in fiscal 2024 than in fiscal 2023.
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
That cut, plus growing demand for services, cuts to state budgets, the end of COVID-19 aid and inflation has put pressure on local service providers and the people who count on them.
The 2021 COVID-19 rescue package alone nearly doubled the amount the government typically spends on home and congregate meals, allowing organizations to reach people they couldn’t before.
The 2021 COVID-19 rescue package demonstrates what the government can do merely by voting. There are no limits.
Local programsNow that the money is gone, groups have to make difficult decisions about who to remove from their programs or dropping the number of meals people receive per day, or creating wait lists.
The Federal Government says, “WE CAN FEED ONLY ONE OF YOU. WHO WILL IT BE?”
“During the pandemic, the demand definitely shot up, and so did government funding… but then that funding went away, and the demand didn’t,” said Adam Porter, director of Sound Generations Meals on Wheels based in Seattle.
The organization has had a wait list since February 2023. It currently has 1,423 people on it, more than the number receiving meals through the program.
Food costs have also increased by 25 percent from 2018 to 2023, according to the Bureau of Labor Statistics.
“It continues to go up and funding isn’t, so we’re reducing the number of meals we can serve,” Porter said.
Federal Reserve Chairman Jerome Powell stated: As a central bank, we have the ability to create money digitally.
In Pennsylvania, the Monroe County Area Agency on Aging, which is responsible for doling out Older Americans Act funding to local partners, has had a freeze on new clients entering the program since July 2023.
Its primary partner — Monroe County Meals on Wheels — had to seek out a grant to avoid instituting a waitlist after the state passed flat funding for senior services programs.
The organization enrolled people on the waiting list into its private pay program, which is based on a sliding fee scale, to ensure people weren’t going without needed meals. It received a grant to cover the costs of the meals for people who can’t afford it.
“We’ve been dependent on community support and grant funding to try to fill that gap because the alternative is a waiting list of our own,” Alyssa Koeck, executive director of Monroe County Meals on Wheels in Pennsylvania.
“We’re working very, very hard to make sure that we do our best to prevent that from happening because we know, especially with the cost of living, that having nutritious, affordable meals is so critical to our clients.”
So, it’s a rather easy question. Should the federal government, which has the infinite ability to create dollars, adequately fund efforts to feed the hungry? And if not, why not? Ask your Senator and Congressperson. (And no, it won’t cause inflation or raise your taxes).
I’ve researched the question, “What are the reasons against Universal Basic Income (UBI).” I call it “Social Security for All.”
Here is a summary of the anti-UBI claims:
1. Cost and Feasibility: One of the primary concerns is the high cost of UBI. For example, in the United States, a UBI of $12,000 per year for every adult would cost over $3 trillion annually/
2. Inflation: UBI could lead to inflation. If everyone has more money to spend, demand for goods and services might increase, driving up prices and potentially negating the benefits of the additional income.
3. Work Incentive: UBI might reduce the incentive to work. If people receive a guaranteed income regardless of employment, some may choose not to work, potentially leading to a decrease in the labor force and economic productivity.
4. Misuse of Funds: Recipients might misuse the funds, spending them on non-essential items rather than necessities. This could undermine the goal of reducing poverty and improving living standards.
5. Impact on Existing Welfare Programs: Implementing UBI might require cutting or restructuring existing welfare programs. This could harm those who rely on targeted support for specific needs, such as healthcare or housing.
6. Political and Social Challenges: Gaining political and public support for UBI can be difficult. Many people are skeptical of unconditional transfer programs and prefer welfare systems tied to employment or specific conditions.
Before I address #s 1 through 6, I’ll give you the real one:
7. It would narrow the income/wealth/power Gap between the rich and the rest. The Gap is what makes the rich rich. Without the Gap no one would be rich; we all would be the same.
The wider the Gap, the richer are the rich. The easiest way for the rich to remain rich is to make sure the Gap doesn’t narrow, so using their political and informational power, the rich invent and promulgate false reasons why UBI won’t work.
Now, let us address each of the reasons given for objecting to UBI.
1. Cost and Feasibility:
We already have a form of UBI, except it isn’t “U” (Universal). We call it “Social Security,” and it covers old and/or disabled people. All the ideas opposing UBI were put forth in the 1930s when Social Security first was proposed.
Contrary to popular myth, Social Security (as well as Medicare, the military, SCOTUS salaries, White House salaries, Congress’s salaries, and every other federal expenditure) are not funded by FICA or any other federal taxes.
A. When any federal government agency approves an invoice for payment, it sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. The instructions are in the form of a check or a wire.
B. When the bank does as instructed ( by pressing a few computer keys), dollars are created by being added to the creditor’s checking account and to the money supply measure known as “M2.”
C. The bank then balances its books by clearing the payment through the Federal Reserve, which has the infinite power to approve all federal checks and wires.
So long as the federal government has the infinite power to pass laws and to issue instructions, it has the infinite power to pay any invoices it receives. The U.S. federal government, being the original creator of dollars from thin air, never unintentionally can run short of dollars.
You often have been told that Medicare, Social Security and/or their trust funds are running out of money. It is a false claim. Unlike state/local governments, the U.S. government is Monetarily Sovereign. With the infinite ability to create dollars, it could create the above-mentioned $3 trillion at the touch of a computer key.
The sole purpose of federal taxes (unlike state/local taxes) is notto provide the government with spending money. The dual purposes are to:
Control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward and
Assure demand for the dollar by requiring taxes to be paid in dollars.
Even if the federal government didn’t collect a single dollar in taxes, it could continue spending, forever.
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
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. It’s not tax money… We simply use the computer to mark up the size of the account.”
Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
Mario Draghi, President of the Monetarily Sovereign European Central Bank: “We cannot run out of money.”
Further, UBI would grow the economy. It’s a mathematical certainty because the size of the economy is determined by this formula:
Gross Domestic Product (GDP) = Federal Spending + Nonfederal Spending + Net Exports.
By simple algebra, UBI would grow the economy because it would increase Federal Spending and, as a result, increase Nonfederal Spending, too.
When faced with the undeniable facts that UBI is affordable for the federal government and would grow the economy, those influenced by wealthy propaganda resort to excuse #2.;
2. Inflation: The common yet erroneous belief is that “excessive” fedeal spending causes inflation. This belief is wrong on several fronts.
First, no one knows what “excessive” means. The rich always claim federal spending is excessive (see: Historical claims the Federal Debt is a “ticking time bomb.” From Sept. 26, 1940, to July 22, 2024) because most federal spending goes to the poor. It narrows the Gap, a situation the rich despise.
By contrast, the rich favor tax deductions for the wealthy, which are not part of “spending” but widen the Gap just as federal spending does.
Economics is a pseudoscience loaded with hypotheses and flush with data— and ne’er the twain shall meet.
Some economists make this arguement based on intuition, but not on fact: They claim that people earn income by selling their labor on the labor market as a contribution to the production of goods and services for the economy. Income increases that aren’t directly related to correlating increases in production tend to result in higher prices.
It’s nonsense.
Which of these can claim their income is “directly related to correlatingincreases in production?” Taxi driver? School teacher? Musician? Flight attendant? Doctor? How about Elon Musk? If he made “just $100 million instead of a few billion, would that “directly relate to a correlating decrease in production”?
Pay has little to do with production and more with labor scarcity, politics, heredity, and other social factors. Queen Elizabeth’s pay had little to do with her output. I am retired, and my income has nothing to do with my production. Raising hotel workers’ skimpy pay or decreasing mortgage brokers’ high pay would not “directly relate to their production.”
The hypothesis is something that only an economics professor in a well-endowed think tank could dream up.
Inflation is not caused by federal spending. Inflation is caused by scarcities,most often scarcities of oil and food:
The peaks and valleys of inflation(red) do not match up with the peaks and valleys of federal spending (blue).
The peaks and valleys of inflation do match up with the peaks and valleys of oil prices, which are dictated by oil supply and demand.
Today, the federal government is spending more than ever, yet inflation is drifting down. The most recent inflation was COVID-related, not spending-related.It was caused by shortages of oil, food, computer chips, metal, lumber, shipping, and labor.
Raising everyone’s income by giving them money would not cause inflation. Scarcities of crucial items cause inflation.
Federal spending to cure scarcities cures inflation. The “federal spending causes inflation” meme is a fever dream promulgated by the rich to maintain the income/wealth/power Gap.
3. Work Incentive: Critics argue that UBI might reduce the incentive to work, decreasing the labor force and economic productivity. This is a favorite of the rich, who love to portray lower-income people as lazy slugs who, if given money, will simply loll about doing nothing.
The truth is that poor labor is harder than rich labor unless one considers costly vacations, country clubs, and having servants do one’s work to be “labor.” Virtually everyone wants a better life, and that includes the poor. Given a stipend by the government, they will work to increase their standard of living, just as the rich do.
Similarly, the vast majority of the rich want to be richer. Almost no one is satisfied, and it is certainly not a low-income family that receives Social Security.
I trust this isn’t just a projection on my part, but I began collecting Social Security at age 65. I continued to work for a living until I was 73, not because I loved work, but because I wanted more money to feel secure. I had what some may consider a lot, but I still wanted more.
That said, what is wrong with a decrease in the labor force? What is wrong with a four-day work week or a five-hour day? Work usually is not a purpose unto itself. The primary purpose of most work is to improve one’s life, however one defines “improve.”
For households in every quintile of the income distribution, the share of income required to pay for their 2019 consumption decreased, on average, because income grew faster than prices did over that four-year period.
Households in the top income quintile had the largest decline, on average, in the share of income required to pay for their 2019 consumption.
Translation: The rich kept earning more spending money than the rest of us did. Even though they had plenty of money, they wanted more, and worked for it. Why would the average and below-average income people be less motivated? They wouldn’t, but that is what the rich claim.
Artificial intelligence (AI) and automation are making it more possible to do less and accomplish more. A solution to the possible unemployment caused by AI may be UBI.
4. Misuse of Funds: Some argue that recipients might misuse the funds, spending them on non-essential items rather than necessities. This is another one the rich love — the notion that the poor are ignorant money managers and that if you give them money they’ll waste it on drugs and lottery tickets.
The reality is quite the opposite. By necessity, the poor have learned to be good money managers. In any event, it is none of the government’s business whether or not someone “misuses” their income. The idea the the government knows better is repulsive and bigoted.
5. Impact on Existing Welfare Programs: Implementing UBI might require cutting or restructuring existing welfare programs. Critics worry that this could harm those who rely on targeted support for specific needs, such as healthcare or housing.
This is easily prevented. Just don’t do it. Don’t include UBI income as part of any welfare criterion.
The current system — requiring someone to be poor to receive financial aid — is self-defeating. It encourages the very thing the rich claim to fear: people not working. It also leads to dishonesty and to gaming the system by mischaracterizing income.
6. Political and Social Challenges: Gaining political and public support for UBI can be difficult. Many people are skeptical of unconditional transfer programs and prefer welfare systems tied to employment or specific conditions.
This is the old “If I had to work for my money, why should he get money for doing nothing?” The solution would be to give every man, woman and child in America the same amounts regardless of their other income or wealth.
The money would mean little to the rich and much to the poor, but it would overcome the resistance of those who hate to see others receive something.
7. It would narrow the Gap between the rich and the rest. The Gap is what makes the rich rich. Without the Gap no one would be rich; we all would be the same.
The wider the Gap, the richer are the rich. The easiest way for the rich to remain rich is to make sure the Gap doesn’t narrow, so using their political and informational power, the rich invent and promulgate false reasons why UBI won’t work.
This is the single biggest hurdle to cross. The first six objections easily are overcome and/or are based on incomplete information. This one is based on the intense emotions of America’s most influential people.
A rich man might be generous about charity for the poor, but he doesn’t want poverty to be eliminated altogether. He needs the poor. Having a mansion is not as attractive if everyone else has a mansion. It’s the Gap that makes him rich, and narrowing the Gap makes him less rich, an unappealing prospect.
If a neighbor wins the lottery or even gets a more lucrative job, how does the rest of the neighborhood feel? What does Mark Zuckerberg think about Elon Musk having more money?
The majority of us suffers from Gap Psychology, the desire to distance ourselves from those below us on the income/wealth/power scale and to come closer to those above us. The conflict arises because those above us don’t want us closer and those below us want us closer.
SUMMARY
There are no good reasons not to begin a UBI program and plenty of reasons to start.
I suggest the following monthly payments:
$1,000 to every adult (18+)
$500 to every child
Include undocumented adults and children.
Assume:
258 million adult (citizens) + 31 million adult (non-citizens) = 289 million total adults; Annual Cost: $289 billion * 12 = $3.468 trillion
73 million children (citizens) + 14 million children(non-citizens) = 87 million children; Annual Cost: $43.5 billion * 12 = $522 billion
Combined Annual Cost: $3.468 trillion (adults) + $522 billion (children) = $3.99 trillion per year
This compares to the most recent (2023) federal expenditure of about $6.3 trillion.
Poverty generally is worse in the states that tend to vote Republican, the party that wrongly opposes social benefits, saying they are “unaffordable” and “socialism” — which they are not.
(Socialism is government control of industry, not just government funding. All governments fund things, but relatively few of those things can be called “socialism.”)
Government spending has a multiplier effect on GDP. The multiplier effect measures how much economic activity is generated by an initial amount of the expenditure. Estimates for the fiscal multiplier vary, but a typical range is between 0.5 and 2.0.
With a conservative multiplier of 1.5, GDP would grow about $6 trillion on top of the most recent 28.65 trillion for a new value of $34.65 trillion.
Improve the infrastructure and help cut global warming
And improve the entire American nation’s quality of life by using the brainpower now hampered by a lack of funding
Do all this at no cost to anyone.
Think of it. The United States of America has the power to be the first large nation on earth to eliminate poverty. Millions of men, women, and children could begin to contribute to America’s success.
Too good to be true? No, too good only for those who don’t understand the power of human thought and desire, when funded by Monetary Sovereignty.
#Monetary Sovereignty - Mitchell 