Maya MacGuineas is President of the Committee for a Responsible Federal Budget (CRFB). This is the right-wing organization that pretends federal taxes grow the economy because the economy has too much money.
Yes, that is what they really believe. They want taxes increased and/or federal spending decreased, both of which remove dollars from the economy.
It’s nuts, I know, but the CRFB has a big following among the politicians and other mentally and morally challenged.
MacGuineas is forever being invited to speak to such people, and her articles are widely published, apparently because people love Stephen King, Edgar Allen Poe, and other writers of horror fiction.
Unlike them, she is not a particularly good writer. For instance, consider the opening paragraph of her September 10, 2017, Washington Post article, titled “Don’t Get Rid of the Debt Ceiling. Reform It.”
As has happened more than 100 times before, Congress just raised the debt ceiling, the legal amount our government can borrow.
In the past, this act has occurred smoothly, and on many occasions, it has been used productively to spur fiscal efforts from budget deals to process reforms to the creation of a fiscal commission.
The first paragraph tacitly admits that the debt ceiling is useless.
It is based on “total debt,” of which about 25% is money the federal government owes to itself, i.e. one federal agency owes another federal agency.
More importantly, it does not do what it purports to do, i.e. limit federal spending. Congress and the President not only determine federal spending, but they set the debt ceiling.
It’s a process identical with you buying a $20,000 car and then, after the papers have been signed and you have driven off, you decide how much you will pay. That is the nonsensical debt ceiling.
And then there is the second paragraph, replete with five prepositional clauses and two infinities, all of which mean . . . what? What is Maya trying to say with that garbled mess?
Does she mean the purpose of the debt ceiling is to create a “fiscal commission,” whatever that may be? Or is the purpose to create “budget deals,” which Congress does without debt ceilings, every day it is in session?
If she means that in the past the debt ceiling was good and now it’s bad, she is wrong. It never was good.
But in recent years, the debt-ceiling-as-leverage strategy has been taken too far with absurd and damaging threats to actually allow a default.
Yes, these threats are “absurd and damaging,” but they are the inevitable result of a ridiculous rule that tells Congress to limit what can be paid for what Congress already has purchased.
Debt remains a huge problem and is itself a threat to the economy, slowing growth and creating new risks.
That is a perfect, succinct statement of “The Big Lie,” the lie that somehow the U.S. government can be unable to pay its bills.
The “huge problem” never has happened, never will not happen, and never can happen, but that fact does not deter MacGuineas from setting her pants on fire.
Federal deficit spending, by federal law, creates the so-called “debt.” And federal deficit spending adds dollars to the economy. So Maya effectively claims that adding dollars to the economy is a “threat to the economy and slows growth.”
But if adding dollars to the economy “slows growth,” how would MacGuineas explain the fundamental formula for Gross Domestic Product?
GDP = Federal Spending + Nonfederal Spending + Net Exports
If she understands simple algebra, she can see that Federal Spending, Nonfederal Spending, and Net Exports each adds dollars to the economy. This demonstrates why adding dollars to the economy increases GDP.
Similarly, taxes, which take dollars out of the economy reduce GDP. So the entire notion that debt and/or deficits harm the economy is rank nonsense.
But amazingly, her article gets even worse:
Given that the debt ceiling is the only real check on borrowing, tossing it out without any plan for restraint would continue the fiscal free fall we are already in.
So instead of repealing the debt ceiling, we should reform it.
First, the debt ceiling is not “the only real check on borrowing.”
- It doesn’t prevent borrowing. It prevents paying for what already is owed.
- Because deficit spending adds dollars to the economy, the resultant “borrowing” grows the economy.
- So-called “borrowing” actually is the sale of T-securities, which are very much like deposits in bank savings accounts. They are no burden on the federal government or on taxpayers. They are paid off by transferring existing dollars from the T-security accounts back to the holders’ checking accounts.
- The only “real check on borrowing” (in the unlikely event we will need a check on federal deficit spending) is the Congressional budgeting process. The less deficit spending Congress creates, the less “borrowing.”
And what is the “fiscal free fall” MacGuineas claims we are in? The economy and the “debt” have grown every year since the 2008 recession. “Fiscal free fall”?
No, Maya, the sky is not falling.
Then, temporarily, Maya seems to come to her senses:
One main problem with the debt ceiling is that it gets raised long after the tax and spending decisions that add to the debt are made, allowing policymakers to support adding to the debt while opposing the debt increase itself.
You don’t rein in your family budget by going on a spending spree and then refusing to pay the bill. The restraint has to come earlier in the process.
Well, yes. That isn’t “one main” problem; that is the problem.
And now for her solution, an obfuscating, convoluted plan to save a useless — no, harmful — program:
To address this, Congress could tie the debt ceiling to budget resolutions or any major legislation that adds to the debt.
Thus, Congress would have to vote in favor of lifting the debt ceiling when supporting the policy that necessitates it, which might give legislators more pause before adding to the debt.
Get it? Instead of Congress simply voting on a budget, MacGuineas would have Congress vote on a budget and a corresponding debt ceiling. Two votes.
So, for instance, if Congress voted for a billion dollar budget, it simultaneously would vote for a billion dollar debt ceiling, and thereafter, every time it raised the budget, it would raise the debt ceiling — again, two votes instead of one, and both votes for the same amount.
If that makes financial sense to you, kindly post your bank account numbers and your Social Security number on line for all to see. That would make equal sense.
A second problem is that the height of the debt ceiling is quite arbitrary.
Some level of debt is perfectly fine and, in fact, desirable for a country to have. And the amount of debt we can support depends on the size of the economy.
“Quite arbitrary” means Congress arbitrarily decides on it, which is exactly what the Constitution says Congress does for everything, including budgets. Perhaps Maya wishes to tell Congress what to do, rather than having them do it “arbitrarily.”
And “‘some‘ level (what level?) is . . . desirable” (why?) But she thinks the “amount of debt we can support depends on the size of the economy.” Complete nonsense.
You and I “support” our debts, but the United States government does not “support” the thing that is misnamed, “debt.” It merely accepts deposits in T-security accounts. It can accept any amount it wishes, and pay back any amount it wishes.
And this has nothing whatsoever to do with the size of the economy. GDP is not the collateral for the federal debt, nor does GDP pay the federal debt. Whether the federal debt was 10% of GDP, or GDP was 10% of the federal debt, would make no difference in the U.S. ability to “support” the debt.
Accordingly, it would make sense to shift measuring the debt ceiling from a specific dollar figure, as we currently measure it, to a share of the economy.
More utter nonsense.
Consider this scenario: We enter a depression, and GDP falls. Curing the depression requires an increase in federal deficit spending, but because the government is limited to a share of a declining GDP, it must cut, rather than increase, deficits.
This leads to further declines in GDP in a never-ending downward economic helix. That is what MacGuineas suggests.
Policymakers could set a glide path to reduce the debt-to-gross-domestic-product ratio from today’s postwar-era high; the debt ceiling would only apply when our debt load breaches a set percentage of the economy.
Such a reform would give Congress an incentive to enact fiscally responsible policies to avoid a politically difficult vote to increase the debt ceiling.
To give you a feeling about the idiocy of her comments, here are a few of 2016 Debt/GDP ratios from around the world (Source: tradingeconomics.com).
- Japan: 250%
- Greece: 179%
- U.S.: 106%
- France: 96%
- United Kingdom: 89%
- Germany: 68%
- Israel: 61%
- Mexico: 48%
- Australia: 41%
- Russia: 17%
Based on the above ratios, which nations are most, and least, “fiscally responsible“?
Right. There is no relationship between Debt/GDP and “fiscal responsibility.”
Yet another problem with the debt ceiling is that the hammer, in this case, is just too dangerous. Given our past flirtations with the nuclear option of default, it needs to come with an escape valve.
That could take the form of allowing the president to lift the debt ceiling while automatic tax and spending adjustments went into effect until Congress put together its own plan. Or it could take the form of a softer trigger in which the president and Congress submit plans to make improvements to the debt.
The “hammer is too dangerous,” because telling the U.S. not to pay its bills when they are due, is the height of recklessness.
And a final recommendation for Congress and the president: Stop adding more to the debt.
Increases in the debt ceiling are always accompanied by rhetoric decrying the growing level of debt, even though politicians keep voting for more deficit-increasing policies.
The rhetoric comes from but two sources: Those who are ignorant about federal financing or those who are lying about federal financing.
If we ever stop adding to the debt, we will have a depression that makes the Great Depression of 1929 look like a garden party. Want some evidence?
U.S. depressions tend to come on the heels of federal surpluses:
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.
U.S. recessions tend to come on the heels of debt growth reductions, and are cured by debt growth increases:
With our national debt so high, we need a multitrillion-dollar debt-reduction plan that phases in savings from revenue and entitlement reforms.
Wrong. Debt growth (actually, deficit growth) is required for economic growth.
However, in today’s hyperpartisan environment, where politicians assume our fiscal policies come with free lunches, a serious debt deal seems pretty far off.
In fact, federal finances are a perfect example of a “free lunch.” (See: “I just thought you should know, lunch really can be free.“) Clearly, MacGuineas is ignorant or lying about how dollars are created.
Clearly, MacGuineas is one of those who is ignorant or lying about how dollars are created.
In the meantime, we can and should at the very least agree not to adopt new policies that add to the debt. It will require the old-fashioned notion of paying for things.
The federal government has been “paying for things” since its beginnings and never has defaulted. We have grown to 330 million people and $14 Trillion in debt, and we still are “paying for things.”
Maya wants you to believe federal financing is like personal financing, but the two could not be more different. You and I can run short of dollars. The federal government cannot.
Tax reform should be deficit-neutral. Spending plans should be fully paid for. And yes, even emergency spending, which should be passed swiftly, should be paired with plans to cover the costs.
And there, sneaked into the end of her article, MacGuineas reveals what this is all about. “Paired with plans to cover the costs” really means “Cut social spending.”
Macguineas’s salary is paid by rich people, the .1%, who want nothing more than to widen the Gap between the rich and the rest, by cutting benefits to the 99%.
When claiming federal spending should be reduced, the bribed-by-the-rich pols try to do one of the things: Cut social benefits for the 99%, or ask for tax increases on the 99%.
Politicians need to stop claiming that their policies are too important to pay for or that they will magically pay for themselves; instead, our lawmakers should start identifying real solutions to offset new costs.
News flash for Maya and her co-conspirators: The federal government always has paid for its policies — never has bounced a check. For 240 years it has been creating dollars, ad hoc, to pay for its spending.
It’s not broken. Don’t “fix” it.
We shouldn’t depend on a debt ceiling in any form to replace politicians doing their jobs. They need to determine what spending is worthwhile — and then figure out how to pay for it.
Right. Get rid of the debt ceiling. Congress already knows how to pay for its spending.
Rodger Malcolm Mitchell
Monetary Sovereignty
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P.S.: As we said earlier, the only people who agree with MacGuineas fall into two groups: The people who are ignorant about federal financing or the people who are lying on behalf of the rich.
Here is a list of CRFB Board Members. You will recognize some of these names as people who absolutely are not ignorant about federal financing, which will put them in the “other” category:
Mitch Daniels, Leon Panetta, Timothy Penny, Barry Anderson, Erskine Bowles, Charles Bowsher, Kent Conrad, Dan Crippen, Vic Fazio, Bill Gradison, Jr., William Hoagland, James Jones, Lou Kerr, Jim Kolbe, Dave McCurdy, James T. McIntyre, Jr., David Minge, June O’Neill, Paul O’Neill, Marne Obernauer, Jr., Robert Packwood, Rudolph Penner, Peter G. Peterson, Robert Reischauer, Alice Rivlin, Charles Robb, Alan K. Simpson, John Spratt, Charlie Stenholm, Eugene Steuerle, David Stockman, John Tanner, Tom Tauke, Paul Volcker, Carol Cox Wait, Joseph R. Wright, Jr., Maya MacGuineas
Thirty-seven directors, four of whom are women, all of whom are white and all of whom hobnob with the rich and powerful.
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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 