Bad ideas lead to bad results

A decision based on a false belief, will probably be a bad decision.

Rep. Jay Obernolte (R., Calif.), a Budget Committee member, said the Republican plan would unquestionably put the country on a stronger fiscal footing. “If you have to pick between a higher-tax, higher-spending regime and a lower-tax, lower-spending regime, the latter is always better for economic growth,” he said.

That belief may be common, but it is not supported by fact. Using it as a basis for Trump’s “big, beautiful” tax cut for the rich adds greater falsity.

1. Obernolte’s statement conveniently omits the questions, “Lower tax for whom?” and “Lower spending for whom?” 

In the case of Trump’s tax cut, the answers are: “Lower tax for the rich” and “lower spending for the rest of America.” As is usual for the right wing, the tax cut makes the rich richer and the rest poorer.

2. Because the U.S. government is Monetarily Sovereign, we never “have to pick between a higher-tax, higher-spending regime and a lower-tax, lower-spending regime.” We can and should have a lower tax (especially for the poorer), higher spending regime.

3. Federal debt and deficits are not a burden on the federal government or on taxpayers. Being Monetarily Sovereign, the federal government has infinite dollars to fund any debt

4. The so-called “federal debt”  is neither “federal” nor “debt.” It is the total of dollars deposited into Treasury Security accounts, wholly owned by depositors and held for safekeeping by the government (Think: Safe deposit boxes).

5, The “debt” is not a burden on taxpayers. Tax rates have nothing to do with the “debt.” Federal tax rates are arbitrarily chosen by the Fed for political reasons, not to fund spending. (By contrast, state and local taxes do fund monetarily non-sovereign state and local spending.)

6. The purposes of federal taxes are:

A. To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward 

B. To assure demand for the U.S. dollar by requiring taxes to be paid in dollars.

7. Federal deficit spending does not cause inflation. See: “At long last, let’s put this inflation question to bed.”  Inflations, i.e, general increases in prices, are based on shortages of crucial goods and services. Federal deficit spending does not create those shortages.

Even during wars, it’s not the federal spending that causes shortages; it’s the war needs. If during a war, federal spending was lower, inflation would be worse, as there would be even fewer consumer goods.

In fact, federal deficit spending can cure inflation when the spending supports the availability of scarce goods and services.

Example: The notorious Zimbabwe inflation was caused by a food shortage. It could have been cured by government spending to aid farming and imports of food. Instead, the government simply printed currency, which created the illusion that the currency creation caused the inflation.

The most recent inflation was caused by COVID-related shortages of oil, food, metals, paper, lumber, shipping, labor and other needs.  Government spending has helped reduce those shortages and inflation.

8. Just as federal deficit spending does not cause inflation, it also does not force interest rates up. 

A. Interest rate increases add to business costs, which result in higher, not lower prices. 

B. Interest rate increases are an arbitrary option of the Federal Reserve because of the mistaken belief that they cure inflation. The Fed also raises rates to encourage the purchase of Treasury Securities. This takes spending dollars from the economy, and therefore is recessive.

The federal government does not need to sell Treasury securities to pay its bills. It pays all its bills with newly created dollars, not by so-called borrowing.

Because inflation is supply-based, not demand-based, recessions do not cure inflation. In fact, we can have both simultaneously. It is called “stagflation.”

There are those of a Libertarian bent who simply do not like government (except when they receive such benefits as Medicare, Medicaid, Social Security, highways, military defense, police defense, schools, parks, disaster relief, food and drug inspection, new drug R&D, FBI, CIA, etc.)

They invent false reasons why government spending should be cut (except for programs that benefit them).

Federal deficit spending is necessary for economic growth. It is part of the formula for Gross Domestic Product:

GDP = Federal Spending + Non-federal Spending + Net Exports

As you can see from the following graph, relative declines in federal spending (green) precede recessions (vertical gray bars). Increases and decreases in federal deficit spending are generally associated with increases and decreases in GDP.

Is anyone fooled by the pols who pretend outrage at the federal deficit and debt, and then pass legislation that widens the income/wealth/power Gap between the rich and the rest? 

Those folks simply are the greedy rich. I don’t know what to say about the media and economists who go along with that charade.

Bottom line: The economy always does better when the federal government spends more and taxes less. That’s simple algebra. Given the power, my first act would be to eliminate FICA, and give everyone Medicare.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

Source: https://mythfighter.com/2025/05/19/bad-ideas-lead-to-bad-results/