Friday, April 20, 2012
More ignorant than a bunch of monkeys!
Critics say tax cuts for companies with fewer than 500 employees would add $46 billion to the deficit and do little to create jobs.
That sentence sums up a confluence of ignorance and sophistry not seen since the Scopes "monkey" trial. How is this nonsense? Let us count the ways.
First off, how can one be a critic, by spouting total nonsense not backed by any logic whatsoever? These supposed critics cannot even DEFINE THE TERMS they are using in their supposed critiques! Just call "Bullshit!" and cancel your subscription if you're paying to receive such nonsense.
Second, why do newspaper journalists & editors take nonsensical "critics" as credible sources? What happened to checking logic, not just statements?
Third, what is a federal "deficit" for a government issuing a sovereign currency that is fiat, non-convertible upon demand to any reference commodity at any fixed rate, and whose exchange rate (Fx) with other currencies also floats? Answer: a fiat currency "deficit" is defined as a growing population with steadily increasing transaction rates using more currency this year than last year. Does anyone care if we use more fiat this year than last? Do any of these "Deficit" terrorists even know how a fiat currency-supply has been regulated, ever since 1933, or even before that?
Here's how fiat currency works.
An elected Congress sets public policy, then appropriates or gives permission to spend new, net currency into existance, through federal government spending. [The currency supply is not "backed" by anything except public initiative of the USA.]
That $US currency filters through the economy, through increasingly complex transaction chains. Much of the currency supply is pre-dedicated to ongoing commitments, and is in constant motion. Whatever isn't, is credited to private individuals as financial assets, call them "private reserves".
To place some tolerance limits on what people may do with too many financial assets (e.g. sex, drugs, rock&roll), local/state/federal elected officials enact a taxation policy, to scavenge some proportion of $US private savings back, and thereby keep pressure on citizens to make carefully selected spending strategies, vs cavalier ones (which "might" trigger inflation).
The Federal Reserve tries to maintain a semblence of double-entry accounting accuracy, by matching currency creation with parallel "banking reserves" in the accounts which licensed banks are required to hold at the Fed (ps: note that "banking reserves" mean something entirely different than "private reserves" or savings, and cannot readily enter the real economy). The Fed then requires banks to compete for access to those unique, "bank reserves" [created mostly by Gov spending] by allowing them to charge inter-bank interest rates for distributing "bank reserves." Post 1933, the Fed had a dual problem, to manage upper & lower bounds on that inter-bank interest rate, which requires somehow draining the constantly-accumulating "bank-reserves" in it's own accounts [all while still holding to double-entry accounting notation]. To solve those two tasks, our policy was to have the US Treasury sell "Treasury Bonds" at chosen volumes and rates, in order to both drain banking-reserves and set a floor on inter-bank interest rates. If the US Treasury stopped selling T-bonds, and used some other method to dictate interest rates & drain banking-reserves, absolutely nothing would change in the real economy, no one would notice, and our fictitious "fiat deficit" would be revealed for what it is, a deficit in fiat (i.e., total nonsense).
Fiat currency creation is NOT debt (unless we accept semantics saying "more fiat" = "fiat deficit" and "fiat debt"), fiat taxes do NOT fund fiat currency creation, but there is a need to put a floor on minimal fiscal spending. Fiat fiscal policy should automatically adjust to keep our Output Gap low & our unemployment rate low, so that the USA can be all that it can be.
All this was fairly described by Ben Franklin, in 1727, again by Abe Lincoln in 1861, yet again by Marriner Eccles in 1933 & later, and most recently reviewed in exquisite depth by Warren Mosler. How is it that our current electorate and politicians - not to mention our embarrasingly inept "expert" press & critics - do not KNOW these simple facts?
Fourth, what DOES create jobs? Ask any businessperson, and they'll answer "if I get more customers who buy things, I'll hire extra help." Who buys things? People with income. Who has more income? People who are taxed less, and retain more of their currency earnings. What would create more jobs? Lowering personal taxes on consumers, so they can express choices, select products, and drive markets. Does lowering Federal taxes on small businesses also help? A little, since those business owners will have more income to make purchases with, and they may even increase salaries for existing workers, or hire one more person. You'd better hope, however, that a small decrease in Federal tax on small business isn't immediately more than offset by increases in local & state income taxes, since our current policies are also starving those institutions of access to adequate amounts of fiat currency.
Conclusion: Lower taxes for small firms is completely irrelevant to any discussion of our currency supply, and it can help boost employment. The article doesn't even discuss how much tax relief, where, would trigger a statistically significant increase in employment, or how soon.