Tag: taxpayers money

–What should the U.S. do next? Hunt like a lion

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.

A reader, KK Tipton, asked what I suggest our government actually do, since being monetarily sovereign, it has the unlimited power to create money, without support from taxes or borrowing. First a little background:

Yes, the spending by a monetarily sovereign government is constrained neither by tax receipts nor by borrowing. So with no financial constraints, it could, as KK humorously suggests, build “ . . .two walls of aircraft carriers, end to end tomorrow, to protect our shores. Why not?”

Well, the “why not?” has to do with the only constraint on federal spending: Inflation. There is a point at which federal spending could become so massive as to cause inflation. Pump $100 trillion into the economy next month and I can guarantee a great big inflation.

However, we are nowhere near that point, and have been nowhere near that point since 1971, the year in which the U.S. federal government became monetarily sovereign. Even the inflation of 1979 was not caused by federal deficit spending, but rather by oil prices.

Graph 1

The above graph shows that inflation (red line) generally reached its peak at a time when federal deficit spending (blue line) was reaching a trough, and that inflation peaks correlated most closely with peaks in energy prices (green line).

Because federal deficits stimulate the economy and are constrained only by inflation, the goal is to maximize stimulation while keeping inflation at an acceptable level, perhaps 2% – 3%. Modern Monetary Theory (MMT) holds that inflation can be cured by increasing taxes. This is true, but it’s like preventing facial acne by cutting off your head. Increasing taxes removes money from the economy, which is anti-growth, causing recessions and depressions. (See: A quick summary of the facts )

I prefer to prevent and cure inflation by increasing interest rates, which increases the reward for owning money. This increases the demand for money and makes money more valuable. MMT followers say high interest rates increase business costs, thereby actually causing inflation. Nice theory, but not in accord with the facts. Contrary to popular wisdom, there is no relationship between high rates and slow growth, or low rates and fast growth. See: Interest Rates . Both Chairmen Greenspan and Bernanke may have learned this after 20 rate reductions accomplished nothing.

Given all of the above as a background, here’s what I suggest we do:

1. Eliminate T-securities. A monetarily sovereign nation does not need to borrow the money it created earlier – money it can create without limit. This would end all federal debt along with the misguided concerns about federal debt – concerns that have helped destroy our economy..

[All of the next suggested activities would be done incrementally, the way a lion stalks its prey. Make a small move, then stop to see what happens, then make another move, always getting closer and closer to your goal of maximum growth with acceptable inflation.]

2. Eliminate the FICA tax. This is a tax collected weekly or monthly, so it neatly allows for the “lion stalking” approach. A more complete discussion is at Ten reasons to eliminate FICA, but briefly, this would put about $1 trillion (See: Budget of the United States Government 2011) into the economy next year, exactly where it is needed most: Half in the hands of business; half in the hands of employees.

3. Eliminate taxes on business. These are projected to be about $300 billion next year, less than 12% of total federal projected receipts of $2.6 trillion. Business is the engine of our economy. Pulling money out of the engine is the worst way to grow an economy.

4. Gradually reduce personal income tax collections, which are projected to be $1.1 trillion next year, by increasing the standard deduction. We could begin by freeing from taxes, anyone earning less than $50,000 a year. Then we could incrementally raise the amount, until the last people in America paying personal income tax would be Bill Gates and Warren Buffet. (Of course, we would have to find jobs for all those accountants, tax lawyers, IRS employees, prosecutors and federal prison guards, whose livelihoods depend wholly or partly on income taxes. But a healthy growing economy should take care of that.)

As you can see, I would begin by slowly but persistently eliminating taxes, and putting the money back in the hands of the people. After the tax situation was resolved, I would begin to increase spending, on humanitarian things like Social Security, universal health care insurance and unemployment insurance. I would fund the states by providing a per-capita allowance. Being monetarily non-sovereign, they cannot create money, and so require outside support (See: “–Here is the financial solution for your state, county and city”).

So there you have a quick summary. Like a lion, creeping up on a covey of ignorant debt hawks, I first would reduce/eliminate taxes, then increase federal spending.

What are your thoughts?

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

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

–Letter sent to National Public Radio re: “The U.S. is broke”

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Yesterday (11/9/10), I sent the following letter to the people at National Public Radio. I’ll let you know in the unlikely event they respond. Even this self-styled, independent, “open-minded” medium, funded primarily by private donation, simply cannot bring itself to consider the possibility that the federal debt is not too high, and in fact, is necessary for economic growth. If NPR can’t handle the facts, what hope is there the for-profit media, which solely are interested in ad dollars fueled by popular wisdom, will understand?

You pride yourself on balance, but there is one area in which you are completely out of balance. Day after day I hear your interviewers talking to people who claim the U.S. is “broke,” and the federal debt is “unsustainable” and needs to be reduced. Entire radio programs are devoted to debating about which spending initiative should be cut. Interviewees tell us whether payments to doctors should be reduced. Or Social Security cut. Or can we afford health care?

Day after day your programs tell listeners the government can’t afford this and can’t afford that. Today, on one of your programs, I heard someone say the federal budget for Public Radio should be eliminated — a delicious irony, since you helped bring this on yourself by never presenting the other side of the story.

In 1971, the end of the gold standard, the federal government became monetarily sovereign. This changed everything in economics. Suddenly, the federal government had the unlimited ability to create money and to service any size debt. It is 100% impossible for any monetarily sovereign nation to be “broke.” There is nothing the government cannot afford.

Additionally, in a monetarily sovereign nation, federal spending is not constrained by taxes or borrowing. If taxes and borrowing both fell to $0, this would not change by even one penny, the federal government’s ability to spend any amount on any initiative.

The only thing that constrains federal spending is inflation, and as you can see, we are nowhere near inflation; in fact, deflation is the current worry. Meanwhile, millions of Americans suffer for lack of federal spending on health care, Medicare, Social Security, roads, bridges, poverty, affordable housing, education, etc. — all because of the incorrect belief the government is “broke.”

I would be glad to present the other side of the story. It’s time your audience heard a balanced presentation of this critical issue. If it’s a debate, my first question will be, “If America is broke, as you say, exactly when did it become broke? After that, my questions will become harder.

It’s time for a little balance

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

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

–Ultimate irony: The debt-hawks create “death panels”

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.

The debt-hawks are the right wing, “cut-federal-spending” folks, who also tended to be the people complaining about so-called “death panels” mentioned by Sarah Palin. Yet, these same people actually favor death panels:

By Rob Stein, Washington Post Staff Writer, Monday, November 8, 2010; 7:52 AM

“Federal officials are conducting an unusual review to determine whether the government should pay for an expensive new vaccine for treating prostate cancer, rekindling debate over whether some therapies are too costly.

“The Centers for Medicare & Medicaid Services, which dictate what treatments the massive federal health-insurance program for the elderly will cover, is running a ‘national coverage analysis’ of Provenge, the first vaccine approved for treating any cancer. The treatment costs $93,000 a patient and has been shown to extend patients’ lives by about four months.

“Although Medicare is not supposed to take cost into consideration when making such rulings,the decision to launch a formal examination has raised concerns among cancer experts, drug companies, lawmakers, prostate cancer patients and advocacy groups.

“Provenge, which was approved for advanced prostate cancer in April, is the latest in a series of new high-priced cancer treatments that appear to eke out only a few more months of life, prompting alarm about their cost.

“This absolutely is the opening salvo in the drive to save money in the health-care system,” said Skip Lockwood, who heads Zero – the Project to End Prostate Cancer, a Washington-based lobbying group. ‘If the cost wasn’t a consideration, this wouldn’t even be under discussion.’”

So there you have it. Sarah, speaking for the right-wing debt-hawks, complained mightily about “death panels.” Now we have a move toward death panels – by the Palinesque debt-hawks. The article goes on to say:

”Medicare officials, who are convening a panel of outside advisers to vet the issue at a public hearing Nov. 17, say Provenge’s price tag isn’t an issue. But Berwick and other officials declined to discuss the rationale for the review.
[. . . ]
“The review comes as the Food and Drug Administration considers withdrawing an approval for another expensive cancer treatment- Avastin for metastatic breast cancer – which triggered a similar debate even though the FDA too is not supposed to factor costs into its analyses.>/span>

[ . . . ]
“Some fear the move will discourage pharmaceutical companies from developing new cancer drugs.

“’It is extremely chilling if, after spending a huge sum of money, time and effort to get a drug through FDA approval, you’ll then have to go through it all again to see if CMS will pay for it,’ said Allen S. Lichter, head of the American Society of Clinical Oncology. “Firing a shot across the bow like this is not the way to have an intelligent and meaningful discussion about how we start to address the complex issue of drug costs.”

Then we have the non-economists telling us what America can and cannot afford:

“To charge $90,000 for four months, which comes out to $270,00 for a year of life, I think that’s too expensive,” said Tito Fojo of the National Cancer Institute. “A lot of people will say, ‘It’s my $100,000, and it’s my four months.’ Absolutely: A day is worth $1 million to some people. Unfortunately, we can’t afford it as a society.”

[ . . .]

“‘I’d like to think cost doesn’t need to come up when it’s a slam dunk,’ said H. Gilbert Welch of the Dartmouth Institute for Health Policy and Clinical Practice. ‘But when it’s a close call like this, it certainly has to be a factor. That’s $100,000 Medicare can’t spend elsewhere.'”

Clearly, Fojo and Welch have no idea how a monetarily sovereign nation works. They either believe FICA pays for Medicare or that the federal government’s ability to pay for Medicare is limited – both wrong. Sadly, even a man who claims to be an economist doesn’t get it:

“’At some point, if we keep paying these very high prices for treatments that provide very limited benefit, we’re going to reach the point where we can no longer afford health care,’ said Alan Garber, a professor of medicine and economist at Stanford University. ‘Some say we’re living through that right now.’”

So in addition to denying America a recovery from the recession and so many of the other benefits of federal spending, the debt-hawks create the Palin death panels, and deny us health care – and all from ignorance.

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

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

–1937 Redux: How our leaders have learned nothing from history

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.

For those of you who don’t remember the Great Depression (almost everyone, now), it began in 1929, after several years of federal surpluses ( Item 3.), but by the early-1930’s we already were on our way to recovery – something like today. Then, the government decided to reduce the federal deficit with increased taxes and reduced spending — something like today. So we had four more years of depression (something like tomorrow?)

According to Wikipedia: “The Recession of 1937–1938, sometimes called the Roosevelt Recession, was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States. Economists disagree about the causes of this downturn. Keynesian economists tend to assign blame to cuts in Federal spending and increases in taxes at the insistence of the US Treasury, while monetarists, most notably Milton Friedman tended to assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.”.

Hmmm. Let’s think about that. “Cuts in federal spending . . . and increases in taxes” = federal deficit reduction. “Tightening of the money supply . . .” also = federal deficit reduction. So here you had two different schools of thought, both saying essentially the same thing. The 1937 recession was caused by what we today refer to as “austerity.”

So what do our political leaders favor, now that we are creeping out of the latest recession. Yes, that same austerity. Republicans hate federal spending. They stand ready with dozens of proposals to slash the federal budget. Reportedly, they want to cut $260 billion (25%) from the federal budget. Now that should be stimulative.

Republicans also do not believe their proposed cuts in education, Medicare, unemployment compensation and many other worthy federal projects will hurt anything or anyone.

The Democrats are no smarter. They have to be dragged kicking and screaming, to retain (not even cut, just retain) the Bush era tax levels. They do not believe taxes, which remove money from the economy, slow the recovery. They want to tax the “wealthy,” because . . . well, because that is what Democrats, with their eternal class warfare strategy, do.

Then we have the media. My hometown newspaper, the Chicago Tribune repeatedly rails against the federal debt. They never explain why. They don’t provide data. They just don’t like it. The Tribune is typical of the media, which almost universally hate the debt, and almost universally don’t provide data supporting their position.

And then there is Fed Chairman Bernanke, who feels we must “act to bring down long-term fiscal deficits.” He too, has no clue about why and never gives a coherent reason.

Finally, we have the mainstream economists – all those Nobel winners – none of whom seem to understand monetary sovereignty, and all of whom call for less deficit spending.

Put them all together and things look very bad for this fragile economy. With leaders like these, who needs enemies?

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

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