Tag: Wall Street Journal editors

–What the Wall Street Journal editors want

An alternative to popular faith

Today (6/26/10), in an editorial titled, “The Keynesian Dead End,” the Wall Street Journal editors said, “. . .$1 in (federal) spending has to come from somewhere, which means in taxes or borrowing from productive parts of the private economy.”

Wrong, wrong and wrong. Federal spending relies neither on taxes nor on borrowing. For today’s monetarily sovereign nations, federal spending neither is constrained nor facilitated by any form of income, either from taxes or borrowing. Federal spending is accommodated by the simple device of crediting bank accounts, which the government can do endlessly. If taxes and borrowing were reduced to $0, this would not affect by even one penny, the federal government’s ability to spend.

Further, “. . . borrowing from the productive parts of the private economy” implies that T-bill purchases somehow remove money from the private economy. In fact, T-bill purchases merely are an exchange of money within the private economy. When you buy a T-bill, your checking account at your local bank is debited and your savings account at the Federal Reserve Bank is credited. (Yes, by virtue of your T-bill purchase, you have a savings account at the Fed.)

No money is lost. It merely is moved from your checking to your savings account. Actually, money is gained, because when the T-bill matures, the money will be moved back to your checking account, plus interest.

The Journal editors also said, “Now the political and fiscal bills are coming due even as the U.S. and European economies are merely muddling along,” as a prelude to several references equating the U.S. with the EU. The editors do not know something so basic as the difference between monetarily sovereign nations and nations not monetarily sovereign. Without this knowledge, any understanding of economics is impossible.

The WSJ editors claim to favor lower taxes, less spending and lower deficits. At various times, the editors also have preached in favor of a stronger army, better schools, federal supervision of banks and other financial firms, better roads, defense of our borders, defense against terrorism, safer food, better retirement, better unemployment insurance, police, health care, rescue from hurricanes, oil spills and other disasters, more jobs, a better environment and a long list of other benefits. (One is reminded of the confused Tea Party platform).

The WSJ editors are like the person who says, I want to eat more, exercise less and lose weight. Let’s be clear. Under the current system, if you cut taxes you increase the deficit, unless you cut spending even more, which means you can’t have the stronger army, better roads et al. Of course, there is one solution, which the editors don’t even consider. If you eliminate borrowing, you can cut taxes without increasing the deficit. Without borrowing, there is no debt or deficit, and as we’ve shown many times previously, government spending does not require government income.

Finally, the WSJ editors said, “The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money.” Spending restraint?? Have the editors forgotten how Reagan began the largest debt growth in post WWII history, and how Clinton’s surplus introduced the 2001 recession?

I should commend the WSJ editors for one statement: “ . . . much of the U.S. stimulus went for transfer payments such as Medicaid and unemployment insurance . . . “ True, and a perfect reason why taxes ostensibly “for” Medicaid and unemployment insurance should be eliminated. Federal taxes do not pay for federal spending.

The balance of the editorial contained the usual fulmination about the size of the federal debt and deficits, with also, as usual, no facts showing how debt and deficits harm the economy. They end their editorial this way: “With the economy in recession in 2008 and 2009, we argued that some stimulus was justified and an increase in the deficit was understandable and inevitable.”

So, to summarize the WSJ position: Deficits were justified when times were bad; they are not justified when times are good. Today, times are bad and deficits are not justified.

Do you wonder why our politicians are confused?

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

No nation can tax itself into prosperity

–Europe and the welfare-entitlement state

An alternative to popular faith

Today, the Wall Street Journal’s editors managed to pack one sentence with more misleading inferences than I thought possible. The sentence was: “Greece’s problems are familiar across Europe: a welfare-entitlement state that is unaffordable given the country’s anemic economic growth.”

First, Greece’s economic problems are familiar across Europe, because most of Europe is in the European Union, an ill-conceived, economically doomed arrangement. These nations have essentially the same problem, and it has nothing to do with a welfare-entitlement state. It has to do with each EU nation’s inability to control its own money supply — a charter requirement for belonging to the EU. So when one nation encounters its individual economic crisis, it is prohibited from creating the money necessary to save and rebuild its economy.

The EU nations are on a “euro standard,” similar to a gold standard, in that the supply of their money is controlled by the EU. In this, the EU nations resemble California, Illinois, Cook County and Chicago, which are on a “dollar standard.” None can create the money needed to rebuild its economy.

Because a political entity on a “standard” cannot arbitrarily create money, it eventually will need to receive money from outside, either in the form of export payments, or payments from the owner of the money. For Greece, the owner is the EU. For California et al, the owner is the U.S. government.

For Greece to survive, it must receive money from the EU. It cannot survive on taxes alone, because taxing does not add money to the state. California, to survive, must receive money from the federal government.

The so called “welfare-entitlement” state merely is description of what every nation is and must be: A source of funds for the common good. Since all countries are “welfare-entitlement states, to greater or lesser degree, at what point does the state offer too much welfare?

–When the government pays for its army?
–When the government pays for roads, bridges, levees and docks?
–When the government pays for police and fire protection?
–When the government pays unemployment benefits? Food stamps? Medicaid? Housing?
–When the government pays for primary education? Secondary education? Advanced education?
–When the government pays to rebuild parts of a city that has flooded or hit by a hurricane or volcano?
–When the government provides FDIC insurance?
–When Social Security and Medicare benefits are provided to people over the age of 95? 55? 35? 10? All?
–When the government pays for vaccines? Inspects food? Supervises investments? Makes medical expenses tax deductible? Creates and enforces laws?

Where should a welfare entitlement state begin and end? I’d guess the WSJ editors, who criticize the “welfare-entitlement” state, have no idea. But, the term makes for a handy whipping boy, like “socialism” and “bailouts” and “big government” and “activist judges,” that everyone dislikes in general, but wants in the specific.

Finally, the “welfare-entitlement” state is not unaffordable because of the nation’s anemic economic growth. The government doesn’t pay its bills with Gross Domestic Product. Of course, some argue that increased GDP growth begets increased taxes, making government spending more affordable. But high taxes cause anemic economic growth, so in essence you have a circular argument and a self-fulfilling prophesy.

What makes EU governments’ spending unaffordable is the EU system, which prevents unilateral money creation. By contrast, no amount of U.S. spending is unaffordable for the U.S. government.

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


No nation can tax itself into prosperity