United Liberty

Chances are that you’ve never heard of chartalism (unless you arrived here because you Googled the word). I’ve been reading an increasing number of articles which argue certain points which are central to the economic theory of chartalism. This theory is centrally focused on characteristics of a fiat currency regime. The basic assumptions and conclusions are sounds although I have not studied it enough to have a fully informed opinion. Further, I disagree on principle with some conclusions on the surface level.

So what is it all about? Basically, the chartalists suggest that the state issues fiat currency via government spending and recoups (destroys) the money via taxation. Thus, fiat issue is no more than printing money and, if the government did not do so, there would be no money for citizens. This extends to a conclusion that the private sector cannot save money unless the government runs a deficit. This is further shown by using simple algebra with the formula for GDP. This reinforces the argument of the adherents.

I see a few basic flaws in this theory. First, if there were no fiat money, that would not destroy economic activity. There would be, at a minimum, barter activity. Second, it seems to ignore debt (or at least under-appreciate its role like most all schools of economic thought). Since private banks issue credit, the state is not the only entity which can issue currency (depending on one’s definition).

John Stossel explains the broken window fallacy:

Hoping to deflect accusations that he is a socialist, President Barack Obama told reporters that he believes in the free market:

Speaking to the Business Roundtable, which groups some of the country’s top chief executives, Obama called for support of his administration’s efforts to overhaul financial regulation and create jobs.

Obama’s remarks were set against a backdrop of unease in the business community about his economic and budget policies as well as his legislative drive for healthcare, energy and financial regulatory reform.

“Contrary to the claims of some of my critics, I am an ardent believer in the free market,” Obama said in prepared remarks.

Obama said his efforts to enact sweeping legislation to overhaul financial regulations and set caps on carbon emissions to fight climate change were not aimed at thwarting businesses.

“We have arrived at a juncture in our politics where reasonable efforts to update our regulations, or make basic investments in our future, are too often greeted with cries of ‘government takeover’ or even ‘socialism’,” Obama said.

A CBS News/New York Times poll released a few days ago, before the one-year anniversary of the passage of the so-called “stimulus” bill, shows that only 6 percent of repondents believe Keynesian-style spending has “created” jobs.

The public should be skeptical. Despite the Obama Administration’s claims that a drepression was averted, a ridiculous assertion, we were told that unemployment would remain around 8 percent. We were told that without this deficit spending, which has had no measurable impact on the economy, unemployment would surpass 9 percent. Unemployment surpassed 10 percent with stimulus spending.

Comparing this to some other polls, Rob at Say Anything points out that back in 2006 a third of respondents to a Scripps Howard believed that 9/11 was an inside job. On the 25th anniversary of Elvis Presley’s death, 7 percent of respondents to a CBS News poll believed he was still living.

Taxpayers aren’t buying it.

President Barack Obama says that economists from the left and the right agree that the “stimulus” bill has saved jobs. Jake Tapper from ABC News isn’t sure about that:

[C]learly other economists are much more skeptical, including Dan Mitchell at the libertarian Cato Institute, and J.D. Foster at The Heritage Foundation.

Some economists say the whole notion of counting “saved or created” jobs is impossible. Harvard University labor economist Lawrence Katz told ProPublica that trying to count how many jobs have been saved or created is “a silly exercise.”

And in fact, in December the Office of Management and Budget director Peter Orszag issued a directive scrapping the whole “saved or created” construct.

“Instead, recipients will more easily and objectively report on jobs funded with Recovery Act dollars,” Orszag wrote.

Correct me if I’m wrong, but weren’t we told that unemployment would not rise above 8% with the stimulus. Two hundred economists warned the president that he was making a mistake with the stimulus bill and that it would not create new jobs, pointing to lessons from the past. Now we’re over 10% unemployment and things don’t seem to be getting any better.

Once again, there is more common sense on Main Street than Pennsylvania Avenue:

While influential 20th Century economist John Maynard Keynes would say it’s best to increase deficit spending in tough economic times, only 11% of American adults agree and think the nation needs to increase its deficit spending at this time. A new Rasmussen Reports national telephone survey finds that 70% disagree and say it would be better to cut the deficit.

In fact, 59% think Keynes had it backwards and that increasing the deficit at this time would hurt the economy rather than help.

To help the economy, most Americans (56%) believe that cutting the deficit is the way to go.

Eighty-three percent (83%) of Americans, in fact, say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.

Now if we could only get some of that wisdom to Washington.

My apologies for posting so much about polls the last few days, but much of what is coming out is showing voters’ contempt for much of what has come out of since President Barack Obama took off last year.

Last year during the Obama Administration’s push for a Keynesian-style “stimulus” package, Americans were told that unemployment would not rise above 8% with the stimulus and would surpass 9% without it (see page 5 of the administration’s report, The Job Impact of the American Recovery and Reinvestment Program).

Unemployment is 10% today and jobs are still being lost, so it’s no wonder Americans believe the “stimulus” bill was a bad idea:

Fifty-six percent of people questioned in a CNN/Opinion Research Corporation survey released Sunday say they oppose the stimulus package, with 42 percent supporting it.

Last March, just weeks after the stimulus bill was signed into law by President Barack Obama, a CNN poll indicated that 54 percent of the public supported the program, with 44 percent opposed.

The program, formally known as the American Recovery and Reinvestment Act of 2009, attempts to stimulate the country’s economy by increasing federal government spending and cutting taxes at a total cost to the government of $787 billion. No Republicans in the House and only three in the Senate voted in favor of the bill.

Earlier this month the Associated Press reported that spending on transportation had no measurable impact on the economy, noting “spend a lot or spend nothing at all, it didn’t matter.”

Just after a budget deficit of $1.4 billion and starting off the new fiscal year $292 billion in the red, President Barack Obama is planning to spend more money with the false hope of pulling us out of the recession:

President Barack Obama outlined new multibillion-dollar stimulus and jobs proposals Tuesday, saying the nation must continue to “spend our way out of this recession” until more Americans are back at work.

Without giving a price tag, Obama proposed a package of new spending for highway, bridge and other infrastructure projects, deeper tax breaks for small businesses and tax incentives to encourage people to make their homes more energy efficient.
[…]
He called for more government spending on infrastructure projects such as roads, bridges and water projects and for new tax breaks for consumers who invest in energy-efficient retrofits in their homes. This could be what some administration officials have called a “Cash for Caulkers” program modeled on the now-expired Cash for Clunkers program of tax rebates for people who turned in old cars for more fuel-efficient models.

I was talking to a small business owner last night about. He said tax breaks for small business owners are a necessity. I tend to agree, however, any tax cuts for business need to be broad, not just directed at small business.

We all know the jobs “created or saved” by this Keynesian spending are bogus, but