Tax increase

When the government spends more that it takes in we have a deficit. To make up the deficit the government sells bonds. The accumulation of the bonds year over year is the national debt. These bonds are held in various accounts some personal, some in pensions and in other investment portfolios. So the national debt is the total of all these bonds which are held by various investors. If you ask a person would it be a good thing if we could get rid of the national debt they would say yes. This means that all of those investors would see their savings disappear overnight. If you look at the national debt clock as it moves above $29 trillion it is scary but if you call it the national saving account it doesn't look so bad. According to modern monetary theory (MMT) the deficit only becomes a problem when it causes inflation and at that point taxes are increase to counter inflation. Biden is proposing a massive spending plan for things like infrastructure which should spur economic growth but he is also proposing a tax increase which will slow the economy.

Infrastructure

Biden's infrastructure plan will spur economic development and create new high paying jobs and will use corporate taxes to help pay for it. According to the proponents of modern monetary theory (MMT) raising taxes is the wrong thing to do as that will take money out of the economy and slow growth. Political pressure based on the old economic methods forces the idea of paying for benefits and so the tax increase. The plan puts money in the hands of the private sector and the tax takes money out of the private sector. One force working against the other. Every time this has been done it was followed by recession. MMT teaches to expand government spending until full employment is reached and then increase taxes to slow inflation. MMT is not well known at this time so the old ways will prevail.

Windmills

Only one of the top ten wind mill manufacturers is in the United States and that is a GE plant in Boston. They produce 7.57 Gwts per year. Biden calls for 67 Gwts by 2023 which means that they will need to purchase from outside the country and mostly from China. In addition to the windmill proper the engine needs dysprosium, neodymium and praseodymium which are rare earth metals mined in China. The recently passed National Defense Authorization Act direct most Pentagon systems to use rare earth metals that have been mined and refined outside of China within five years. This does not apply to private companies like GE. The government is currently funding an Australian company to mine rare earths in Texas. How environmentalist react to this remains to be seen. The goal, based on Biden's buy America plan, is to manufacture and mine everything in the US.

Covid MMT

One of the lessons learned from Covid was the sending of government checks to people for whom the government told them not go to work. This made the idea of a government check more amenable to many saying it was not that people didn't want to work but that the government forbid them to work and thus it is OK to sent a government check. This came at a time when modern monetary theory (MMT) was just coming into the main stream of economic theory. The basis of MMT can best be understood with a simple example. There are two buckets, one is government and the other is all else. The government spends $100 so we remove $100 from the government bucket and add $100 to the all else bucket. The government then collects $90 in taxes and thus ends up with a $10 deficit. Under our normal way of looking at economics things end there but the all else bucket now has a $10 surplus and that belongs to us. The more the government goes into debt the more surplus the people have. If people are looking for jobs the government can supply those jobs and pay the people by going further in debt while adding more surplus to the peoples account. This works until full employment is reached at which time the government can no longer spend because it would cause wage/price inflation. Under normal economics the fed controls inflation by adjusting interest rates but MMT does so by adjusting government spending.

Flu

There are active discussions concerning the use of Covid safety procedures in future years. In the 2018/2019 flu season 34,000 died from the flu and this season fewer than 200 have died. Would the wearing of mask along with social distancing and frequent hand washing be too much of a sacrifice to save the lives of 30,000 people. Next season will lack the political controversy of this year and so the whole thing will likely be forgotten.

Taxes

When the government pays interest on the debt it is paying this to the people who own government bonds. Higher interest rates mean more money going into the economy to spur growth. To go to negative interest rates is a way to take money out of the economy and would be akin to a wealth tax. If you have a one percent negative interest rate the $100 you invested this year is worth $99 next year and if you have a one percent wealth tax your $100 becomes $99. The wealth tax like any tax takes money out of the economy and slows growth. MMT says to increase economic activity you reduce taxes to put more money in the hands of consumers but you must reduce taxes in the proper area. If you reduce tax on a millionaire he will not spend that much more but if you reduce tax on a working man he will spend. If you reduce taxes on small business the owners will invest in ways to grow their business. Lowering taxes on large corporations may increase growth but it is more likely to be spent on mergers and acquisition which do not expand growth. Tax reductions are best utilized if they are targeted to middle income workers and small businesses.

MMT

Stephanie Kelton is an economist and an advocate of modern monetary theory (MMT) and she was the economics adviser to Bernie Sanders. This is where he got his ideas about spending our way to prosperity. According to MMT experts, any country that prints its own money, as the US does, cannot run out of money and is only limited by inflation. This has been around for many years but not often said in public. In 2005 Alan Greenspan was asked if social security would run out of money and he replied: "I wouldn't say pay-as-you-go benefits are insecure in the sense that there's nothing to prevent the federal government creating as much money as it wants in payment to somebody." In 2009 Ben Bernanke was asked about financing the one trillion dollar bail out of the banks came from the taxpayers and he replied: "It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It's much more akin to printing money than it is to borrowing." The current GDP is $22 trillion and the current debt is $29 trillion and the ratio of GDP to debt is 131%. Japan has a GDP to debt ratio of 240% and their inflation rate is negative .3%. According to MMT the country can keep printing money until full employment and then, to stop inflation, it will increase taxes. MMT proposes no tax increases and zero interest government loans to banks to create money at very low interest rates to fire up the economy. This is about to happen and we shall see.