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John T. Harvey Contributor


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Why You Should Learn to Love the Deficit: Federal Budget Fallacies







POPULAR FALLACIES (in no particular order)


    Money Growth Does Not Cause Inflation

    And here:

    What Really Causes Inflation




    The Big Danger in Cutting the Deficit


    Obama + Ryan = Catastrophe

    A layperson’s guide to business cycle fluctuations:

    Practical Guide to the Business Cycle


    Who Should Really Be Downgraded: USA or S&P?

    Why the private sector needs government spending:

    Why the Private Sector Needs Government Spending


    How to Destroy the US Economy



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    • micaiah micaiah 3 years ago

      Here you are mistaken. And having the majority of economists agree with you is probably not a good thing. The majority of economists failed to even see the crisis coming or real estate collapse. They don’t have a clue how to fix it. QE 2 was supposed to, but it has done nothing. The people I listen to were talking about it in 2005 and 2006. The historical context is debt, public and private. The political context is the politicians destroying the country trying to fix a problem that they created. Our government is already as corrupt as that of Mugabe. The only difference is in the amount of capital they have had to destroy. None of the problems that created the problem have been resolve. They have only been made worse; more debt, more spending. And that will only continue until the current system collapses.

    • wh10 wh10 3 years ago

      I actually do not agree with the majority of economists on specific details, but that doesn’t mean I can’t align with them on some issues. The economists I mostly read were predicting this in the late 90s- some one upped you there (http://neweconomicperspectives.blogspot.com/2011/06/recent-usa-sectoral-balances-goldilocks.html). Agreed QE2 was pointless and harmful, but for different reasons. You’re still confusing the nature of different spending and debt.

      It ends here. That’s fine if you think we’re as corrupt as Mugabe. I disagree wholeheartedly. Let’s just have history play this one out, okay? When we don’t collapse in a couple years, I’ll come back and see if you are willing to open your mind.

    • micaiah micaiah 3 years ago

      Your article isn’t signed, though it seems to be by Randall Wray He claims 2002 not late 90′s. He claims Nouriel Roubini is picking up on his language, which is possible but not likely.

    • lougignac lougignac 3 years ago

      There are many false statements in the article that demand an answer. One of the worst assertations that the author made is about inflation. It is clear that he has never read anything by Tom Woods, Murray Rothbard, Ludwig von Mises, or F A Hayek. There is a complete disregard for history or any sense of monetary value. Those that fail to learn from history are forced to repeat it… and not just next semester.

      First, inflation is not an actual increase in prices, but instead a devaluation of the currency. Prices may fluctuate due to supply and demand issues. That has nothing to do with a loss of purchasing power of a monetary unit. In the USA, we do not use hard money but a “fiat” currency. The fact that paper notes have their value only by declaration of the government should be a dead giveaway that there is no intrinsic value and that the paper is worthless. the amount of money in circulation determines the value of the currency. This law is called “scarcity of resources.” The value of a work of art by da Vinci is based mostly on the fact that no new works will be produced and any copies will be just that… copies.

      When the world was still using sound money (gold and silver) the main way of devaluing currency was to cut the metal from around the edges. This was called coin clipping and the reason that many of our coins today have the ridges around the edge. As John Locke pointed out when the English government wanted to reduce the silver content in the coins but keep the same denominations stamped upon the coin, “It is the weight of the silver and not the denomination stamped upon it that gives it value.” Imagine ordering a 16 ounce porterhouse steak and getting a tiny little white castle slider size piece of meat. That would certainly qualify as devaluation instead of net weight before cooking.

      From the article: “And since the debt is owed in dollars, there is never any question that we have the ability to repay since we are allowed to issue brand new ones at any time. And since the debt is owed in dollars, there is never any question that we have the ability to repay since we are allowed to issue brand new ones at any time.”

      If the printing press is such a viable option, why don’t we just pay it off now and avoid the interest charges? If there was a truth in lending statement like we see in mortgages and car notes, we would know that the amount paid after finance charges will be triple the amount that we borrowed. Maybe even more if our government is just making the “minimum monthly payment.” Perhaps it is a “credit rebuilding” loan plan designed to boost our credit rating since many of the rating companies and investors have lowered the rating to negative (and even junk status.)

      In fact if the printing press is such a viable option, why did we borrow the money in the first place? The government could just as easily have printed enough prosperity for the economy to get back to a full steam ahead position like the “little train that could.” If enough money was printed off, they could declare “mission accomplished” in the war on poverty and bring everybody home. The poorest of our population could all be millionaires at the very least. Then there would be no more human suffering as our citizens could all retire and the poorer nations could boost their economy by simply catering to our every need, want, and desire. To keep the printers from being overwhelmed by all of the extra work, we could just repeal the laws prohibiting counterfeiting and let the citizens just print the money from their computers and printers at home. It is really unfortunate that Facebook does not have a special font to denote sarcasm but you don’t need a firm grip on the obvious to figure out that the contents of this paragraph were not just sarcastic but also contemptuous. There is a reason that counterfeiting a fiat currency is illegal to the citizens and only a monopoly privelege of the government. And here it is:

      Germany between WW1 and WW2: After the League of Nations handed down enormous sanctions against Germany for reparations, the Germans turned to the printing press to pay off their debt which was known as hyperinflation. It got so bad that: 1. The notes were only printed on one side ( the money was not worth the ink that was printed upon it.) 2. Workers were paid daily and eventually multiple times per day because the money would lose value in such a short matter of time. The men would slip the money to their wives through the fence so they could spend it before it lost even more value. 3: There was no savings of private individuals and therefore no economization of resources. 4. Because money was spent so quickly, the shelves were emptied as quickly as they were stocked thus causing shortages of supplies that people needed to live. 5: German Marks were used for burning in stoves because they were worth less than other non-currency paper. 6: People would have to carry thier money in wheelbarrows or baskets to have enough to purchase modest groceries. 7: If left unattended, a person could expect to come back and find a pile of money on the ground and the wheelbarrow or basket missing because that had real value for trade.

      This is nearly a century ago and could never happen later because the planners have abviously found a solution to prevent this from happening again…. Argentina in the late 1980′s and 90′s: Argentina started the 20th century as the 7th wealthiest nation in the world. This was after defaulting on the national debt twice in the 1800′s. The deficit spending got to the point where the couuntry became the degenerate borrower that people avoid and their credit was cut off. Sure enough the printing press kept a rollin’ all night long until hyperinflation set in and the Argentine currency became worthless. see attached article http://financialcrisisaftermath.com/the-instability-scenario/lessons-from-argentinas-hyperinflation/

      We can also point to countries like Mexico or Italy reissuing their currency with fewer zeroes after the previous notes ran out of room for the zeroes. It’s a good thing that they did not know about exponents. But that was in the last century… surely it must be a thing of the past as this is also a new millenium…

      Zimbabwe 2009: After the printing press did its job again… see the attached article about the $50 billion (Zimbabwean) dollar bill. http://articles.cnn.com/2009-01-10/world/zimbawe.currency_1_zimbabwe-dollar-mugabe-and-opposition-leader-president-robert-mugabe?_s=PM:WORLD

      Oops they did it again. Now foreign currency and gold or silver are used.

      But that could never happen here…

      Murray Rothbard wrote a book called, “What Has Government Done to Our Money?” Considering that the dollar of 1913 has less than a nickel of its purchasing power today, it would be fair to say that disintegration is the answer. As long as the printing press is an option to our wise overlords and they have a monopoly privelege over the issue of currency enforced by legal tender laws, we the people are screwed.

      To any of my economist friends, if I got anything wrong in this article (except from spelling and grammar as I wrote this off the top of my head while sleepy) please feel free to call me out on it. Given the examples listed above and supportive documentation, the only conclusion that can be reached is that this professor is poisoning the minds of the young and impressionable and the readers of his blog that do not take the time to think and ask a few simple questions. In short, he is a wrong.

      Somewhere out there is the dumbest economist in the world… and somebody in government will be reading his/her work. (paraphrased and changed from) Tom Woods

    • faithkills faithkills 3 years ago

      This article is a perfect example of the prodigious capacity for cognitive dissonance of disney economists.

      “When the government spends in deficit, that means I am being taxed more”.

      Blatant straw man. No one claims this, they do note that spending if not paid for equals tax of some sort whether it’s directly or inflation. And that is correct. This outstanding bill is one reason business doesn’t expand. They don’t know how much of it they will have to pay and thus their ability to predict, never perfect, is hamstrung.

      “Cutting the deficit by reducing spending puts money in my pocket”

      Another strawman that no one claims. However the previous analysis applies. Less spending means less taxation on the horizon, so business and consumers buy more and yes there is more money in peoples’ pockets.

      “You can’t spend your way out of a recession”

      And you can’t, FDR proved this wonderfully. Even if the government discovered a vast lode of gold under the white house and spent it, this would still not be true, and it’s certainly not true with fiat currency. The reason is government spending shifts resources from sustainable enterprise to unsustainable. Enterprise that was productive (produced a profit) is supplanted by unsustainable enterprise that can only exists so long as it is subsidized or protected. This destroys wealth creation. This is the last thing you need to do anytime, and especially in a recession. Generally speaking all modern recessions are _corrections_ to government caused misallocation of resources, which MUST OCCUR because supported enterprise IS by definition _unsustainable_.

      “Cutting government spending frees up resources for the private sector to grow”

      It is true, and It has nothing to do with employment, except negatively. Again government spending sacrifices sustainable enterprise at the expense of unsustainable. Similarly it sacrifices _prospective_ sustainable enterprise by sucking up available credit. Right now credit is cheap, but unavailable. This is simply because we effectively have price controls on credit. This of course is redistribution to the rich who are the ones who can get credit, and cheap. Restated, the jobs created by government spending do exist, but since they consume resources rather than produce them, the more you shift to public, the less overall employment can exist with the same net resources at any point in time, and _over_ time employment is reduced.

      “The debt has never been this large”

      Well it’s certainly true in absolute terms, but the fact is in WW2, it certainly WAS Armageddon, and also we had gold to (in theory) back up the debt. Now all we have is promises against the theoretical productivity of future Americans. Who by the way, cannot ever receive benefit of most of the previous spending and could not have voted for the debt they ‘own’

      “We have largest debt in the world”

      We do. Per capita we don’t (yet) but we certainly do.

      “The debt must be repaid”

      Straw man again. People are _obviously_ aware default is a possibility. But that will incur a foreign relations ‘debt’ which very well may mean more war and it’s certainly conceivable a quite real Armageddon. All you would need is a Mao or Hitler to come to power in China and inflame (justified) Chinese anger. Even barring that (hopefully) unlikely even the debt will be paid by tax or inflation (which is just a regressive tax on currency holders) or grow and be serviced at higher and higher amounts.

      “Deficit spending could create inflation”

      Well this is again correct, and everyone who claims this understand this will occur once the velocity of money picks up. It’s not a question of if but when. The real question is does the fed have a magic bullet that can vacuum out the currency to avoid HI without causing other bigger problems. If so it would be the first sign of competence we have seen.

      “Government surpluses help the economy grow”

      Another straw man, never have I heard this claim, but yet were it claimed it would be false. What is fascinating is that the OP understands that government could crowd out private enterprise when the sign is POSITIVE;) But go below zero and OMG all of the sudden crowding poofs!;)

      “The US could default”

      Claim is correct. OP is wrong. We could default. It’s unlikely though. The 14th Amendment would open a lot of court cases for debt holders to force the feds to service debt over any other claim.

      “Quantitative Easing represented government deficit spending”

      Well it certainly abets it, but it doesn’t represent it true. Interesting that the OP says it was a waste of time (it was worse than a waste of time) because that is a typical disney economics meme. Typically Disney economists latch onto Freidmans’s incorrect assertion that feds lack of easing worsened the great depression.

      “China controls our economy because we owe them so much money”

      Overstated but true. We certainly have to be careful as there have been pushes in China to get out of US debt. If that happens we have problems. The calculus is that so would they, and it’s true there would be short term pain. Although in the long run they would be better off to get out soon.

      On this topic we should relish their devalued currency and take advantage of it so long as they are willing to soak Chinese currency holders to make their good cheap. Because it won’t last.

    • [...] Why You Should Learn to Love the Deficit [...]

    • wlreed wlreed 3 years ago

      I signed up as a member of Forbes solely because I just had to comment about how goofy Mr. John T. Harvey is!
      It is very evident he is a very poor economist and he also knows nothing about history. We did not ‘spend’ our way out of the great depression… our country was still mired in depression almost ten years after FDR took office and started us on the big downhill slide of overspending and overspending. It took World War II, (and all the huge arms purchases and other war material by all the rest of the world), to finally get the U.S. out of the great depression. Mr. Harvey says overspending won’t hurt the U.S., but he does not take time to explain how Greece and other over-spend nations are facing dire staits.

    • i can see why having some deficit is good (like access to a mortage or car loan for instance) but at what point should i hate the deficit?

    • micaiah micaiah 3 years ago

      I don’t think I would say a deficit is good, but I would say that a starting point for making it less bad, is when you are spending your own money and you have the capacity to pay it back without stealing from other people. If you are using credit cards to buy groceries and pay the electric bill you have a problem.