Seven Deadly Innocent Frauds of Economic Policy

Seven Deadly Innocent Frauds of Economic Policy

• Deadly Innocent Fraud #1: The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.
  Fact: Federal government spending is in no case operationally constrained by revenues, meaning
  that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.
• Deadly Innocent Fraud #2: With government deficits, we are leaving our debt burden to our children.
  Fact: Collectively, in real terms, there is no such burden possible. Debt or no debt, our children get to consume whatever they can produce.
• Deadly Innocent Fraud #3: Federal Government budget deficits take away savings.
  Fact: Federal Government budget deficits ADD to savings.
• Deadly Innocent Fraud #4: Social Security is broken.
  Fact: Federal Government Checks Don’t Bounce.
• Deadly Innocent Fraud #5: The trade deficit is an unsustainable imbalance that takes away jobs and output.
  Facts: Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living. Jobs are lost because taxes are too high for a given level of government spending, not because of imports.
• Deadly Innocent Fraud #6:
  We need savings to provide the funds for investment.
  Fact: Investment adds to savings.
• Deadly Innocent Fraud #7:
  It’s a bad thing that higher deficits today mean higher taxes tomorrow.
  Fact:
  I agree - the innocent fraud is that it’s a bad thing, when in fact it’s a good thing!!!