And the winner of the nonsense contest: VERONIQUE DE RUGY

I’m going to assume that Veronique de Rugy is intelligent. I make that assumption as a courtesy because her writing doesn’t show it.

As is usual with Libertarians, she ignores the formula for Gross Domestic Product:

GDP = Federal Spending + NonFederal Spending + Net Exports

She insists that in some magical way cutting Federal Spending will grow GDP. I wonder where or if she learned algebra.

Do you enjoy claims having no facts to back them up? If so, you’ll love the excerpts from this article:

The Next President Needs To Cut Spending
At a minimum, the national debt should be smaller than the size of the economy. A committed president just might be able to deliver.
VERONIQUE DE RUGY | 6.29.2023 1:35 PM

Why should the national debt be smaller than the size of the economy? What are the data?

Let’s clear up a few terms.

First, she means “federal” rather than “national” debt, which would include all the debt in the nation — personal borrowing, business borrowing, and state/local government borrowing.

Second, it isn’t debt. The government didn’t borrow it.

It’s deposits into T-security accounts, the contents of which never are touched by federal agencies.

The dollars, which belong to depositors, are “paid off” by returning them, untouched, to their owners.

If the federal government chose to, it could simply pay off the “debt” (hat isn’t debt) tomorrow by returning those untouched dollars.

Debt comes from borrowing, and the federal government never borrows. It accepts deposits.

Being Monetarily Sovereign, the government has the infinite ability to create U.S. dollars.

It never unintentionally can run short of dollars to pay its bills.

So worry not that China suddenly will demand the return of its loans (that are not loans). A click of a computer key would debit their T-security accounts and credit their checking account (at the Federal Reserve Bank.)

“Debt” paid.

Third, what data tells her those deposits should be less than GDP? De Rugy never says. She just claims it’s her feeling, intuition, or something.

Having no data is what passes for data in the Libertarianverse.

Back to the article:

Election season is getting into gear, and that means politicians of all stripes making promises about what they’ll do for the American people if elected or reelected.

I’d like to hear promises to get government out of the way and allow entrepreneurship and market competition to spur genuine and sustainable economic growth, including in the energy and housing sectors.

Reminder: Economic growth is GDP growth. But given the mathematical formula for GDP, how does cutting Federal Spending increase GDP? It doesn’t.

Not only is Federal Spending one of the terms in the equation, but it also spurs increases in the other terms, Nonfederal Spending and Net Exports.

When the federal government spends, it becomes a customer of the private sector, which uses the dollars received for growth. In short, Federal Spending increases GDP directly and indirectly.

This may be what America needs most, but I will settle for a promise to ensure that the national debt stays smaller than the size of the economy. A committed president just might be able to deliver.

She may “settle” for such a promise, but why? To the penny, the national (federal) debt is precisely what the federal government wishes it to be, neither more nor less.

The government offers as much in T-securities as it wishes, merely as an accounting book-balancing method, not to obtain dollars. No more is offered than that, so no one can deposit more than offered.

But what happens when not enough people wish to make deposits? No problem. The Federal Reserve makes the necessary deposits. One branch of the government adds to the “debt” if the “debt” is not large enough to balance the other branch’s books.

Does the left-hand “lending” to the right sound like real debt to you?

I never thought I’d be happy with keeping the debt no higher than 100 percent of gross domestic product (GDP). I’m more of a “cut the hell out of all this everything” kind of girl.

Her “cut the hell out of everything” has been tried several times. Here is what it has accomplished:

All U.S. depressions have come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

President Clinton boasts about his cuts to federal spending. He was lucky. He only caused a recession. Had the cuts lasted longer, he wouldn’t have been so fortunate.

And by the way, Ms de Rugy, what does the government do to cure recessions? Right, it increases deficit spending. Have you ever stopped to think why?

Look at the graph and the table above it, and decide what will happen if Ms. de Rugy gets her “cut the hell out of everything” wish.

Compromise is particularly hard to swallow considering that way back in 2007, before the Great Recession and long before all the pandemic spending, the U.S. debt-to-GDP ratio was about 60 percent, and I thought that was too high.

Why did she “think” it was too high? She never says. It’s just her intuition.

However, age has taught me the value of perspective. At the end of 2022, the U.S. national debt stood at 97 percent of GDP.

Ms. de Rugy ignores the fact that during this 60% to 97% ratio increase, the economy grew massively:

Even if we allow for inflation and population growth, the economy still grew massively:

Ms. de Rugy continues to ignore facts in favor of her quasi-religious faith that somehow, in some way, reducing federal spending simply must be good.

Methinks she is hypnotized by the word “debt,” and confused by the difference between federal finances and personal finances. So between being hypnotized and confused, the poor thing is a mess.

Prior to that, it touched triple digits. In 10 years’ time, the number is expected to grow to 115 percent. The fiscal beast reaches 200 percent in 30 years.

The federal spending that grew the economy now has become a “beast”? Huh?

Even this projection is too optimistic since it assumes undisturbed prosperity, low interest rates, no new programs, no emergencies, and low inflation.

It also assumes that the Department of the Treasury will find buyers, at low interest rates, for $114 trillion in extra debt. Yeah, right.

None of those assumptions has been made. Just look at history. The real GDP has grown through all interest rate levels, new programs, emergencies, and even inflation.

And as stated earlier, if the Department of the Treasury can’t “find buyers” for its T-securities, it will raise interest rates, and/or the Federal Reserve will buy them, as it always has. No problem.

Keeping debt no higher than GDP is a better and more realistic objective than the usual Republican sound-bite promise of balancing the budget—not counting entitlement and defense spending—in 10 years.

Balancing the budget is neither more nor less ignorant than Ms. de Rugy’s magic “debt=100%- of-GDP “plan.” Both would lead to depressions.

These programs are called “austerity,” which has been the engine of destruction for the euro nations.

This would require the implementer to cut non-excluded appropriations by 15 percent, 20 percent, or 30 percent relatively quickly, a remarkably unrealistic idea considering most government programs are supported by powerful interest groups who fight tooth and nail against any proposed cuts.

Such political promises don’t end up happening.

Yes, thankfully, Ms. de Rugy’s plan is unlikely, though the ignorante in Congress no doubt will continue to promise austerity to those who don’t understand federal financing.

So here we are. I would be impressed if any politicians hitting the campaign trail promise what I’m asking for.

If absolute stupidity impresses you, Ms. de Rugy, you have my sympathy.

The Cato Institute’s Chris Edwards calculated that staying under a 100 percent debt-to-GDP ratio would require a $6 trillion reduction in spending over the coming decade, or about 8 percent of what’s projected.

Raise your hand if you can guess what a $6 trillion reduction in federal spending would cause. If you answered, “The damndest depression we ever had,” you get an A+ for the course.

While politicians will claim this will eviscerate the budget, in reality, it would merely slow the growth rate of federal outlays, which would still rise from $6.4 trillion this year to about $8.6 trillion in 2033.

As Edwards noted to me, “That would be an aggressive cut from an Establishment perspective, but a nice goal for congressional reformers.”

No, it’s a foolish, though typical, Libertarian goal for congressional simpletons.

The politics will be harder than the reductions. Think about the hardship it was for Republicans and Democrats to reach a debt ceiling deal that will, at best, reduce the growth trend of spending by around $2 trillion over ten years.

(That’s assuming the caps placed on spending hold and a spending-addicted Congress doesn’t abuse the emergency loophole built into the plan. I wouldn’t bet my house, or even my garden hose, on that.)

And by the way, Veronique, did I mention that GDP = Federal Spending + Nonfederal Spending + Net Exports?

Oh, I already did? But did you understand what that means? I guess not:

Democrats aren’t interested in fiscal discipline, while Republicans’ understanding of it mostly focuses on big tax cuts paid with public debt.

“Fiscal discipline” is not applying leeches to cure anemia, or withholding food to cure hunger. Fiscal disipline is spending more where it will benefit the people more and spending less where the only benefit comes to the very rich. That’s discipline.

The Republican tax cuts for the rich are not paid with “public” debt. (By “public debt,” she means “federal debt,” not state/local government debt, which unlike federal “debt” is real debt. But the explanation undoubtedly would be too much for her to comprehend.)

Anyway, federal “debt” pays for nothing. It’s just a book-balancing device. The government could stop collecting taxes and continue spending forever if it wished.

The sole purposes of federal taxes are:

1. To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to encourage.
2. To increase demand for the U.S. dollar by requiring taxes be paid in dollars.
3. To make the public believe dollars are scarce to the government, which if true, would make benefits unaffordable. This is to discourage the public from asking for benefits.

The literature on austerity reveals that the most effective way to reduce the debt-to-GDP ratio without affecting the economy too much or for longis to adopt fiscal adjustment packages that consist mostly of spending cuts.

Packages based on entitlement reforms are more politically challenging but also yield much better results. Considering that Medicaid, Medicare, and Social Security are the drivers of debt growth, reforming these programs must play a significant role.

She admits austerity affects the economy, but she doesn’t want to do it “too much or for too long.” She just wants to injurethe economy a little and for a short time — or something.

Veronique, the literature on austerity reveals it always, always, always causes economic hardship. Whether you do it with spending cuts or tax increases, the result always is terrible.

Ask the Euro nations how it has worked for them. Compare their economic growth with that of the U.S.

When Veronique tells you about “reforming” Medicaid, Medicare, and Social Security, understand that “reforming” is the liar’s word for cutting these benefits. The liars simply are too dishonest to say what they mean.

There are other ways, too. The Committee for a Responsible Budget, for instance, has a plan to stabilize the debt by cutting $7 trillion—including interest savings—over ten years.

Sixty percent of the reduction comes from the spending side, including entitlement reform, while the rest comes from revenue increases (including closing special interest tax breaks). Others will have more plans. It’s not my preferred path, but it’s a path.

The CRFB is a notorious organization supported by the rich to widen the income/wealth/power Gap between the rich and the rest. It has been spouting the same austerity nonsense since Hector was a pup (For you younguns, that’s a long time ago.)

Setting a debt level that doesn’t exceed GDP is a realistic and doable goal. That’s precisely what we should want from someone seeking to be our president.

It may be doable but foolish, precisely what we never should want from someone seeking to be our President.

By the way, Veronique, where are the data showing that austerity grows the economy, that the Debt/GDP ratio is too high, or that Medicaid, Medicare, and Social Security should be “reformed.”

Oh, you have none? None at all? Then kindly STFU.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY