Re: Refuting supply-side economics

From: The Trucker (mikcob_at_verizon.net)
Date: 09/22/04 

Date: Tue, 21 Sep 2004 23:07:38 -0700

William F Hummel wrote:

> On Tue, 21 Sep 2004 22:09:54 -0400, "Mark Monson" <m_monson@ztech.com>
> wrote:
>>
>>"William F Hummel" <wfhummel@comcast.net> wrote in message
>>>
>>> Crowding out in financial terms is a myth. Treasury bond sales don't
>>> compete with investment in the private sector. The proceeds from the
>>> sales are immediately deposited in the Treasury's accounts in
>>> commercial bank where they count as reserves of the banking system,
>>> and available to back loans.
>>>
>>> Furthermore, the only reason the Treasury sells bonds is to recapture
>>> its deficit spending. This reciprocal flow of funds has no net effect
>>> on the aggregate bank deposits of the private sector.
>>>
>>> Crowding out only occurs in real terms, if the government preempts
>>> labor and materials in demand by the private sector. The last time
>>> there was any significant crowding out was in World War II when
>>> rationing was imposed on a number of strategic materials, and the
>>> civilian labor force was strained to the limit due to the needs of the
>>> military.
>>
>>It is a fundamental mistake to think that public debt has the same effect
>>on
>>distribution of wealth as debt free greenbacks. The interest paid to
>>treasury bond
>>holders is a dead loss to taxpayers. They receive nothing in return for
>>the
>>interest they pay to bond holders. The goods consumed purchase with bond
>>interest are goods that are lost to the producers.
>
> There is no such thing as "debt free greenbacks." Intrinsically
> worthless tokens such as greenbacks are necessarily a promise to
> redeem, meaning a debt of the issuer. The only form of debt free
> money is a valuable commodity, in which case the economy using that
> "money" cannot be distinguished from a barter economy. Such money
> could be "issued" by anyone who produces the commodity, and its value
> is simply what goods and services a unit of the commodity could be
> traded for.
>
> Surprise! All government spending represents a "dead loss" to those
> taxpayers who can't partake of the benefits of that spending. For
> example, spending on a US highway in Vermont doesn't do anything for
> those who never visit the state, which is probably over 95% of the
> total population. Taxes for farm subsidies are a double whammy
> because the consumer pays higher prices and gains nothing financially
> from the taxes paid. All government spending redistributes financial
> wealth. We accept the obvious inequities, hoping that it all balances
> out in the end -- which of course it doesn't.
>
> The unique thing about interest on the debt is that any taxpayer with
> savings to lend can do so and receive interest payments, independent
> of the political decisions in Congress. The benefits of all other
> government spending is subject to power politics, in which most
> taxpayers have no voice.

The preceding paragraph is an admission of guilt. It clearly states
that people who have money will benefit from the "interest" payments
that our Republican government loves to make us pay. The insinuation
that this is "independent of the political process" is nothing short
of willful ignorance or outright falsehood. The last sentence then
returns to truthfulness as it reminds us that the people of the
nation are no longer represented in the US government.

>>
>>You can say that taxpayers receive the use of borrowed funds that the
>>government spends but that begs the question of the necessity in the first
>>place of government debt.
>
> Government debt is implicit in any fiat money system. If you can't
> see that, you don't understand how a modern fiat money system works.

Nothing wrong with the debt, Hummel. It is the "interest" that is
in dispute.

>>The greenbacks experiment proved that government can regulate a base money
>>supply without incurring debt by simply spending money into circulation.
>
> Absurd. Simply spending intrinsically worthless fiat money into
> circulation, and never recapturing it through taxes and bond sales (if
> necessary) is a prescription for hyperinflation.

The same will result from bond sales. It just takes longer.

> The only exception
> would be an economy that grows fast enough to absorb all of the fiat
> money spent into circulation without price inflation. That implies a
> government that is far smaller far smaller than we have today, and
> certainly not one that supports a massive military/industrial complex.

The smallness of government is not at issue. The wastefulness of
government is the problem as the final clause illustrates. 

-- 
"I know no safe depository of the ultimate powers of society but
the people themselves; and if we think them not enlightened enough
to exercise their control with a wholesome discretion, the remedy
is not to take it from them, but to inform their discretion by
education." - Thomas Jefferson.  http://GreaterVoice.org

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