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Deficit spending builds surplus misconceptions
Quote from a Chicago Tribune editorial dated Jan. 13: “For the government to finance infrastructure spending or tax cuts, it has to borrow money. The money is thus unavailable for private investment and consumption.”
This common misunderstanding is based on the false belief there is a fixed amount of U.S. money in the world, and when our government borrows some, this money disappears from the economy.
In truth, when the government borrows, it actually creates money and makes more available for private investment and consumption..
The government does not borrow the way you and I do. The process is this: The government creates Treasury securities (T-bills, notes and bonds) out of thin air, sells these securities, then sends the money received back into the economy.
Treasury securities themselves are money, the most common form of which are the dollar bills you carry in your wallet. Thus, when the government “borrows” $1,000, it actually creates an additional $1,000 and sends $2,000 back into the economy.
Visualize instead of creating T-securities out of thin air and selling them, the government created dollars out of thin air and sent them into the economy. The result would be exactly the same. Money would be added to the economy.
Every dollar of U.S. money has been created by the U.S. government by borrowing. If federal debt were eliminated, there would be no U.S. money. The government has the unlimited ability to create money; when it deficit-spends, it creates dollars.
The editorial then quotes eminent professors who claim economic stimuli don’t work. Perhaps these professors are too young to remember what finally extracted us from the Great Depression: deficit spending for social programs (Works Progress Administration et al.), followed by deficit spending for World War II.
These professors may also not realize that of the eight officially recognized recessions in the past 50 years, all eight were cured with deficit spending. This includes the recession that immediately followed, and was caused by, the Clinton surpluses.
Finally, the editorial says, “The danger though, is that we may inflict on future taxpayers the better part of a trillion dollars” – yet another common misunderstanding.
Taxpayers pay taxes. Taxpayers do not pay for deficit spending. That’s what makes it deficit spending. Since 1980, the federal debt has increased $10 trillion, and taxpayers have not paid one cent of this debt.
Because the government can create Treasury securities out of thin air and sell them (i.e. create money), there is no reason for the government ever to ask taxpayers to fund its debt.
Federal deficits do not cause inflation, recession or any other negative economic measure. Federal debt literally can, and should, grow forever.
Rodger Malcolm Mitchell
Wilmette, Ill.
Academic collapse largely unnoticed
Top Democratic economists are all short, have Ph.D.s and facial hair. They have included, Robert B. Reich, Paul Krugman and Laura de Andrea de Tyson. They also have goofy ideas.
During the first Clinton campaign, Reich, in an NPR radio editorial, put forth we would not have a national debt if rich people were properly taxed saying, “They would not have enough money to buy T-bonds. It would be in the Treasury.” No major media criticized this concept.
Recently, Reich put forth the idea, “economic stimulus money should not go to experienced construction workers, but to those who have not been able to get jobs for lack of training, experience and skill.” Now there is a bridge that I want to cross; one built by incompetents. No major media has, or will ever, criticize this concept.
During the Clinton years, de Tyson appeared on national television saying, “The economy cannot afford a tax cut.”
She was never challenged that leaving money in the private sector would help growth while taxes impede it as overwhelming evidence shows. When the Republican-controlled Congress passed tax cuts and President Clinton signed them, de Tyson headed for London and an academic post while the economy bloomed!
Krugman, the diminutive economist-hatchet man who chopped George W. Bush for eight years running, was rewarded by the international socialist Nobel Prize Committee for his 16-page 4,000-word study based on nothing but finding that Swedish people bought foreign cars because they liked them.
If this is the standard of scholarship required to win a $1 million Nobel, we have suffered an academic collapse unnoticed.
The history of the New Deal shows it was a disaster: Read any indicator – gross domestic product, percentage unemployed or any other measure – and it is clear Franklin D. Roosevelt had no clue. He was 100 percent socialist, which has never worked from the Mayflower to Russia and our Indian reservations.
If you want to see your future, stop by an Indian reservation.
Adrian Vance
Lakeport, Calif.