There is No Such Thing as Perfect in Economics

By: Allan Wallace

Recently I had a Facebook conversation with a woman I will refer to as Kathleen. Answering a post about how wonderful Bernie Sanders is on economics, I stated that even taxing the wealthy at 100% and doubling taxes on everyone else would not pay for what Sanders proposes. Also, the continued deficit spending would further add to the national debt until our economy collapses under the crushing weight of all that debt.

Another commenter gushed about how flawed Free Market Capitalism is and my response set off Kathleen:  It may not be perfect; no Economic system is! But Free Market Capitalism is the least flawed system by far compared to all others and has brought more people out of poverty than any other economic system ever tried before. We in the USA are heading toward an ever-more Communist/Keynesian economic system with out-of-control deficit spending and an ever-mounting national debt, driving us toward a fall.

What follows is a composite of all Kathleen’s comments, and then is my responding comments: (Please note that I did not edit her remarks. I have preserved her grammar, punctuation, phrasing, and typos.)

Kathleen:  Allan, actually no when federal govt spends money it creates money, when it taxes it away it deletes money it previously created. Federal deficit is our surplus that is because when the congress spends money it can only end up in two places: foreign sector and private sector, so that 23T, that is all the money fed gov created to date minus what it took out in taxes. It is our cumulative savings, so it makes me both cry and laugh when I hear people talking about how we need to reduce the deficit or we are all gonna die. The fed gov has to create money all the time, it alone can do this, I want it to spend it in things like healthcare, education because it can and tjese are public goods, benefit the society as a whole. Dont worry that money will end up in private market the moment it spends it.

The whole idea of “tax-payer money” that is the biggest scam dividing us and holding our society back. People seem to also confuse wealth with money. You’re not wealthy if you have no clean drinking water, minerals, time, labor, space, air, health, know how…. wealth lies in the resources, not in the money. US is a big country, varied landscape, much inside it, it is wealthy. A healthy, educated, well fed, happy society is a wealthy one.

(It is interesting to note that Kathleen’s profile says that she is an Attorney. I can only hope that she has an Executive Assistant who edits everything she writes in the execution of her duties and that she knows much more about the Law than she does about Economics.)

My Response:  Kathleen, your responses were confusing and illogical, but they are enough like Keynesian economics that I understand what you meant. Keynesianism, the economics of Socialism, the failed economics of the former USSR and Venezuela, mirrors economic reality exactly to mean the exact opposite, like “deficit spending and increasing the nation’s debt leads to long-term economic health and stability.” This is a pretty lie told to justify government financial malfeasance. And yet, this lie was a part of grand theory espoused by a dead mathematics major, John Maynard Keynes, who read Marx and Lenin, and was vain enough to believe that he invented an economic theory that would make socialist and communist governments work efficiently.

You said, “when federal govt spends money it creates money, when it taxes it away it deletes money it previously created.”
This statement is entirely illogical. You seem to have a lot of confusion around the fact that money and the value it is based on already exists and that it already flows through the economy in exchange for other things of value. The government increases the money supply beyond the rate of growth (the very definition of inflation), only at considerable risk to economic stability. When it does, the government gets to use the extra money it creates at the pre-inflation value, then as that extra money enters the economy, it devalues each Dollar in circulation, causing prices to rise.

Kathleen, you are correct that people express “wealth” in more than just money. But what you mentioned are natural resources and are not esoteric “wealth” at all. So, the question becomes, who manages a natural resource? Whenever the government tries to manage a natural resource, failure and corruption always follow, often with a threat to life and health. Such as in Flint, Michigan, where the government mismanaged their water supplies and failed to fix the problems they caused even after they found out the extent of the issues they created, and still was ineffective in solving the problem, and even after the story broke in the press. Economic “wealth” always means the accumulation of Value, which money contains, as does property, precious stones, metals and other natural resources among other things. Every kind of wealth, apart from the most esoteric types, is always expressed in a dollar value because money is a universal medium of exchange.

About Kathleen’s other statements:

The “govt spends money it creates.”
No, beyond tax receipts, it BORROWS the money it spends. Not only must the government pay that money back, but it must also pay the interest on the borrowed money as it accrues. When a politician speaks of maintaining the mountain of loans created by yearly deficit spending, they mean that government is paying the interest only on all those loans to keep the lenders from calling due the principal amounts.

Let me put this in terms that are easy to understand. If even a quarter of our national debt lenders called their loans due and payable immediately, the US Federal Government would be Bankrupt. Bankruptcy means government workers (including Congress-critters) would not receive their pay. Welfare, Disability, and Social Security checks would not go out. The SNAP and other aid programs would cease.

The “Federal deficit is our surplus.”
Yes, the government gives out the money it Borrows, which spurs economic activity for a brief time, but the borrowing weakens the economy overall so that when the money stops flowing, the economy will at least suffer a down-turn or possibly a Recession. That is why the government continues its deficit spending and borrowing to maintain the illusion of a healthy economy. All the while, the national debt acts as a growing cancer in the body of our nation, the effects are felt keenly at this stage, but without mitigation, it will grow and metastasize until it irreparably harms us all and destroys our children’s and grandchildren’s futures.

The National Debt “is our cumulative savings.”
Debt and Savings are opposites, not the same thing. The only way that might make sense is if every wage earner/tax-payer loaned money to the government (above taxes paid) to finance all its deficit spending, as they tried to do by selling bonds during WWII, but the yearly domestic sales of all government securities these days are only a tiny part of our total borrowing. Even if each of “the People” owned a portion of the entire national debt, it still would not be the same as every person having a savings account, because it would not be liquid, available for their immediate use, as neither of the two old dinosaur parties has any plan to reduce the national debt.

“The whole idea of ‘tax-payer money’ that is the biggest scam.”
The government can only spend what it taxes from its citizens, what it borrows from foreign and domestic sources, or what it creates by increasing the money supply. And every one of those things has its own set of consequences, most of which are very harmful and get progressively worse the more of that activity the government does. Many people say that our government IS the People and therefore a tax is money we give to ourselves. This fiction is told with pretty language but is simply untrue. But, even if it were true, the source is still tax-payer money. The “scam” is telling people that this money once collected, suddenly and magically belongs to the individuals and bureaucrats who “need” it, as defined and determined by government politicians and bureaucrats.

Kathleen paints for herself a beautiful and idyllic picture of life if, in fact, the government controlled everything. And she tells herself tall tales to back it up. Just remember that Keynesian Idealism and Socialism always lead to the same end-result, Communism, and eventually to ruin, the larger the country, the shorter the path to ruin. And any country that follows that path will inevitably end up in the same place as the old Union of Soviet Socialists Republic (USSR) and, more recently Venezuela, dead, killed by an economic system that is vastly more flawed than Free Market Capitalism.

Just remember that in economics, there is no such thing as perfect or beautiful.

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