–Here is the financial solution for your state, county and city

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

Illinois is broke. Your state either is, or soon will be, broke, too. Illinois’s 13 million population owes $13 billion. Like all states, counties and cities, Illinois is not monetarily sovereign, so unlike the federal government, which is monetarily sovereign, states cannot create money to pay their bills. Illinois is far behind on payments to the many vendors who supply services to its citizens. The state has no hope of continuing its “borrow now, pay later” system.

Yes, Illinois may be the most dishonest state in America. Several of its recent governors have gone to jail, and the government is run by swindlers. Although the reprehensible head of the Democratic party in this traditionally Democratic state, Mike Madigan, can be blamed for much of the financial chaos, there is plenty of blame spread around.

We can begin with the voters, who inexplicably continue to vote solid Democratic, despite the astounding record for corruption this party has amassed. Not only is Illinois thoroughly crooked, but so is Cook County and Chicago, also Democratic strongholds. Chicago aldermen traditionally go to jail after a few years in office, and Mayor Daley is the classic Sgt. Schultz, the guy who repeatedly said, “I know nothing, I see nothing.”

Daley sold income-earning city assets, then spent the money, putting Chicago ever deeper in the hole. (Pity the next mayor). And don’t ask about Cook County Board President Todd Stroger, who was appointed by his father after his father died (really), and instituted a “friends and family” system of patronage hiring. With all this, voters march to the polls, like little automatons, pull the Democratic lever, and march back out to complain. (In all fairness, Illinois has had its share of venal Republican governors, too, though these guys were mere minnows in a sea of sharks.)

Nevertheless, though the state, its largest county and its largest city all are run by criminals, even a theoretically honest state cannot survive on tax receipts alone. Because monetarily non-sovereign governments cannot create money, inflation forces them all to obtain money from outside their borders.

“Outside” earnings can come exports of goods and services. Example: Salaries earned by Evanston, Illinois residents, paid by Chicago firms. Or outside earnings can come from government support. Example: Illinois pays some Chicago Transportation Authority expenses. And this later approach demonstrates the only way to save Illinois and all the other states.

If the U.S. federal government would give Illinois just $1,000 for each resident, the state debt would disappear. And if the federal government continued to give Illinois an ongoing $500 for each resident, Illinois could pay its cities and counties enough to achieve better schools, better roads, better transportation and other improvements in human benefits, while reducing the onerous property, income and sales taxes, that hurt Illinois’s economy.

Yes, Illinois’s crooked politicians will continue to steal, and Illinois voters will continue to elect them, but state poverty hasn’t stopped the politicians, anyway. And though Illinois politicians uniformly promise to reduce the debt, this requires self destructive taxes and spending cuts. Austerity is a path to disaster. So, the sole financial solution for Illinois and for all states, a solution that will improve the lives of its residents and of all America’s residents, a solution easily affordable by the federal government, is per capita support for all states.

Without increased support to states, America’s quality of life will decline, as schools, roads, health care, nursing homes, housing, courts, police and fire protection, parks and businesses all disintegrate. There is no other solution. Mathematically, America’s states, counties and cities cannot do it themselves. The federal government must do it.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–England is doomed; it doesn’t know it is monetarily sovereign

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

Back in 2005, I said, “The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.” I said that because the euro, or specifically the rules surrounding the euro, transformed a group of monetarily sovereign nations into helpless, monetarily non-sovereign nations.

These were nations that thirty years earlier had rejected the straightjacket of the gold standard, only to adopt the straightjacket of the euro standard. One EU nation, England, was wise enough to reject the euro. It still uses the pound sterling. So England is the only monetarily sovereign EU nation.

Alas, England has forgotten why it rejected the euro, and now has begun to act as though it were monetarily non-sovereign. Here is the headline for today’s article in the Washington Post, by Rebecca Omonira-Oyekanmi: “British budget cuts to include nearly 500K job losses”

The article says, “The measures announced by Chancellor of the Exchequer George Osborne will span four years and include an average cut of 19 percent in central government departments’ budgets, an $11 billion reduction in welfare spending and an increase in the pension-eligibility age to 66. The government acknowledged that 490,000 public-sector jobs would be lost over the four years as result of the cuts.”

Osborne went on to say, “The cuts deal decisively with the largest budget deficit this House of Commons has ever had to face outside of wartime.”

Isn’t austerity wonderful? What a clever way to cure the recession: Destroy 500K jobs. But what choice do they have? As long as they mistakenly believe they are not monetarily sovereign, and so cannot afford budget deficits, they are required to cut spending and/or to raise taxes, both of which will send the English economy into a tailspin.

So England is doomed, because the debt-hawks have taken over.

In a similar vein, the debt-hawk Committee for a Responsible Federal Budget (what an ironic name), has posted a questionnaire titled “In Search of Fiscal Responsibility: Ten Questions to Ask the Candidates.” The ten questions boil down to one: Would you rather have a tax increase or have certain federal programs cut? I urge you to go to their site and see what your answers would be.

Of course, the questionnaire is based on their false premise that cutting the deficit will benefit the economy. If you write to their president, Maya MacGuineas, as I have many times, and ask, “What evidence do you have that the federal deficit is unsustainable, and the budget should be cut?, you either will receive no answer (likely) or you will be given non-sequitur answers like, “The deficit is a high percentage of GDP.” Try it yourself. Her Email is:crfb@newamerica.net

Meanwhile, watch England fall – unless it comes to its senses.

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

–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.
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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.
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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.
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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.
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Support Education

I will pay all students a salary for the job of attending school. (See: Salary 1 and Salary 2 and Salary 3 ).
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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.
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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.

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So that’s a good start for my first year in office. What do you think? Do I have your vote?

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

No nation can tax itself into prosperity

–Do you know what you want? Deficits vs. exports vs. stronger dollar vs. inflation

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

Actually, it’s not so “little” a test. Many lay people, including most politicians and media people, would check all four. But you, being smarter, realize that #2 and #3 are incompatible. A stronger dollar makes our exports more expensive, while making imports cheaper. So to achieve increased exports or even a positive balance of trade, the dollar must weaken. This comes as a great disappointment to those who equate “stronger” with better. Sorry.

Now we get to the tricky pair: #1, reduced federal deficits vs. #2, increased exports. Who doesn’t want those?

Federal deficit spending increases the number of dollars in the economy, which many people reject because of fears about inflation. Ironically, these same people want increased exports – a positive balance of trade – which also increases the number of dollars in the economy. In short, federal deficit spending and exporting essentially are identical.

In the first case, the federal government buys, and pays with dollars, for goods and services. It is the customer. In the second case, foreigners buy, and pay with dollars, for goods and services. Foreigners are the customers. In both cases, dollars are added to the U.S.economy.

Admittedly, there is are differences. First, unlike exports, federal deficit spending adds to the federal debt, which most people mistakenly believe adds to our tax burden. However, because spending by a monetarily sovereign nation is not constrained by taxes, or any other income, there has been no historical relationship between tax collections and deficits, no will there be. See: Summary, numbers 9 and 9a. Your grandchildren will not, and actually cannot, pay for deficits. So this supposed “difference” amounts to a non-difference.

Second, while federal deficit spending adds to the world’s supply of dollars, our positive balance of trade does not. So, which is better? A growing economy requires a growing supply of money. So, any amount of inflation, plus population growth requires increases in the nominal supply of currency, just for GDP to remain level, let alone grow. Because the dollar is the world’s reserve currency, world GDP growth requires ongoing growth in the world’s supply of dollars. So, on balance, federal deficit spending is more beneficial to America and to the world, than is U.S. exporting.

Returning to the four questions, above, I suggest that this would be the ideal mix for America and the world:

1. Increased federal deficits, for world economic growth
2. Reduced exports (negative balance of trade), to supply the world with dollars.
3. Stronger dollar, for more imports, providing us with better goods and services at lower prices
4. Modest inflation, to stimulate present demand for goods and services.

Sadly, the U.S. federal government wants to do the opposite –reduce deficits, increase exports and reduce the value of the dollar — and that is just a sampling of reasons why we fall into a recession, on average, every five years. With a record like that, why do Americans believe what their leaders tell them?

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

No nation can tax itself into prosperity

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