Borrow and Spend: A pipedream!
According
to a commentary by Robert J. Samuelson (Washington Post, February 26, 2019)
entitled "Economic partisan pipedreams?,"
democratic contenders for the white house are proposing massive social programs
which could result in the largest expansion of government since Lyndon
Johnson's "Great Society."
A Guaranteed
job program is one of several proposals.
This program creates an "employer
of last resort" for persons seeking but failing to obtain employment. The program would initially hire 15 million
workers at $15 per hour + health insurance and retirement benefits at an
estimated annual cost of $300 billion.
It was not
that long ago it was proposed, as a solution of automation and loss of jobs,
that the government simply pay everyone a livable wage and those persons who
required more income could go to work. The
government would simply print more money which is then spent and eventually
collected by the government and re-distributed in an endless circle. This "Guaranteed job Program" might be
considered as a revised version of that concept. It should be noted that neither proposal
offers an opportunity to purchase a bridge to Brooklyn.
Under the
so-called "modern monetary theory" advanced by some Democrats: "deficits are not nearly as dangerous as
we've been led to believe."
Stephanie
Kelton, an economist at Stoney Brook University, was quoted: "The biggest mistake we make is thinking of
the federal government as a household that has to repay its debt." Ms. Kelton contends the United States won't
default on its governmental debts because it can always print more money
through the Federal Reserve; moreover, she doesn't believe that flooding the
market with more dollars contributes to inflation. Inflation is prevented, according to her
theory, by increasing interest rates and taxes.
Considering the
United States pays more than $523 billion in annual interest on a national debt
exceeding $22 Trillion and restraint of national spending is nowhere in sight,
it would appear this theory of Borrow & Spend is accepted by a surprising
number of our nation's leaders.
Ms. Kelton
contends that flooding the market with more money does not lead to inflation -
really? Possibly, a comparison with a
previous year - let's say 1955 - might reveal a different story.
1955: McDonald's
sold hamburgers for 15 cents, gasoline 20 cents/gallon, minimum wage
$1.00/hour, motel room $2.00/night, hospital room $15.00/day and a house could
be purchased for $14,000 or less. Of
some interest is that in 1955 college tuition cost $250 per semester and the
student could rent a room with kitchen privileges for $30 a month - so it was possible
for a young person to pay for a college education without borrowing money. Today it costs the average college student
between $60,000 and $100,000 for four years and the national student debt
exceeds $1.5 trillion. San Francisco
recently reported a one bedroom unit would rent for $3,000 per month.
In 1955 the
national debt was $35.6 billion and the gross national product (GNP) was $440
billion. Today the national debt of $22
trillion exceeds the $20 trillion GNP.
The current federal $7.25 minimum wage does not purchase anywhere near
what $1.00 did in 1955.
The mere
use of common sense reveals anytime money is borrowed, the pay back cost is two
or three times more expensive than paying cash.
The monthly principal and interest payment reduces the cash available in
a household budget or a governmental general fund which often leads to more
borrowing. Moreover, flooding the market
with borrowed funds amounting to $ trillions, reduces the value of the American
dollar. Raising the interest on these
loans or increasing taxes does not reduce inflation - it makes it worse!
A
"Pipedream" is defined in the Webster's New Collegiate Dictionary: "The fantasies brought about by the smoking
of opium; an illusory or fantastic plan, hope or story."
Thomas
Jefferson is reported to have said in 1802: "I believe that banking institutions
are more dangerous to our liberties than standing armies. If the American people ever allow private
banks (Federal Reserve established 1913) to control the issue of their
currency, first by inflation, then by deflation, the banks and corporations
that will grow up around the banks will deprive the people of all property
until their children wake-up homeless on the continent their fathers conquered"