Macroeconomic lessons for Tea Party members

An opinion

Everett Dembosky

Everett Dembosky

By Everett Dembosky

Because of low voter turnout in 2010, Tea Party candidates were elected to Congress.  Their positions are now secured by gerrymandering, a perversion of democracy whereby politicians now pick the voters instead of the voters picking the politicians.  The mainstream GOP has come to regret the albatross that is now around its neck.

Confusing microeconomics (the way individuals and businesses operate) with macroeconomics (the aggregate national economy), Tea Party congressmen and -women demonstrate ignorance in telling their constituents that the debt is going to drive the United States to bankruptcy.

Bankruptcy or insolvency is not an issue. The U.S. Treasury sells interest-paying investment “securities” to banks and countries, and this is what is called “borrowing.”  The total value of securities sold and interest owed is what is called “the national debt.”

In the case of countries like China, in order to get back what we owe them, China must buy something from us in goods or real estate from someone who wants dollars.  If they don’t buy from us, they don’t get paid.  The U.S. Treasury does not pay them in dollars, Chinese currency or gold.  It is trading of goods-for-goods in dollar value, as documented by economist and entrepreneur Warren Mosler in his 2010 book The Seven Deadly Innocent Frauds of Economic Policy.

Another “fraud” is that our grandchildren will be saddled with debt.  Our wealth is in the goods and services we produce in a year, plus all imports minus all exports.  Therefore, it is not possible to send goods and services (our wealth) back to pay a debt incurred in the past, any more than it is possible to save goods and services for our children in the future.

What we should do for our children is improve their education to include an understanding of how our economic system works, so that they can vote intelligently. Their education must also equip them with the skills and technologies to produce everything that they’ll need in their lives.

Mosler compares the economy to a big department store containing all the goods and services produced in a year.  An ideal economy has full employment with both people and the government purchasing from the store. Ideally, the store is empty at the end of the year, with everybody getting what they needed.

With even a minimal understanding of macroeconomics, Congressmen and -women would learn how to use government-spending, interest rates and taxes to achieve full employment  — the key to a booming economy.  Austerity kills jobs.

If Congress ever has the humility to educate itself about the frauds they have perpetuated, there are specific steps they could take to immediately boost the economy.  We need to increase spending either by the government or by increasing the buying power of people, preferably by both.    Infrastructure investment would put the unemployed (most of whom are young people) to work.  Congress doesn’t even have to raise tax dollars for infrastructure work, which is badly needed.  Ending corporate subsidies to oil companies, corporate farmers, etc., and a moratorium on pork-barrel spending would provide enough money for infrastructure and bring us closer to full employment by the ripple effect of jobs and increased spending power begetting more jobs.

At the same time, Congress should enforce the 2009 Lilly Ledbetter Fair Pay Act for women working in private companies:  equal pay for equal work.

Congress should also raise the minimum wage by $2 an hour every year for the next four years. We don’t have to raise taxes to do either of these suggestions, and they would raise the buying power of millions of Americans.

Of course, Republicans will cry that the sky will fall if we raise the minimum wage and will put businesses out of business.  The sky has never fallen in the past when the minimum wage was raised.  If you think through a simple example you may see what happens when the minimum wage is raised.

Say there are three pizza shops in town with two pizza-makers making minimum wages each.  All three have to raise hourly wages by $2. If one of the shop owners decides to go out of business, then the other shops will get his business.  With the other two shops getting more business, they can hire the two pizza-makers who lost their jobs.  Jobs lost will equal jobs gained, and people with increased buying power will further stimulate the economy in the ripple effect mentioned earlier.

These two simple changes would be a tremendous boost to job creation and the economy.  This beats borrowing or raising taxes.  This would also reduce the income inequality, which is greater now than what it was during the Great Depression, and would raise all wages that have been held down for the last 30 years by Republican efforts to kill unions. This would move people off food stamps and subsidized health care and onto the income tax rolls.  The standard of living of all would rise.

Everett Dembosky is a retired math teacher, high school administrator and businessman. He is a lifelong Indiana County resident. He enjoys traveling in the United States and abroad with his wife, Janice. They live in South Mahoning Township.

 

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One Response to Macroeconomic lessons for Tea Party members

  1. Brian Humek says:

    Because of low voter turnout in 2010. The 37.8% rate for the 2010 off year elections was the highest voter turnout in an off year election since 1994, but that was an outlier since they had the Contract with America. Before that, one must go back to 1982 to find a higher turnout in an off year election than in 2010. I just wanted to correct your statement in the first sentence before proceeding with the rest of the article. While the turnout was lower than in a presidential election, the reason why tea party candidates were elected may have more to do with it being a higher turnout than in regular off year elections.

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