To unsubscribe please send an email requesting removal at ModernPatriot@hotmail.com .

Invite your friends to receive the best political cyber-newsletter in Oklahoma. Tell them to subscribe by sending a subscription request to Cadman12@swbell.net or go to www.ModernPatriot.net and click on the email icon.
*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*
M odern P atriot C hronicles
An Eleventh Commandment Free Zone
Vol. 5, Issue 6
March 26, 2006
By Craig Dawkins

Five Common Myths

Copyright@2006, All Rights Reserved
*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*
POLLS! POLLS! POLLS! POLLS!

Does any Republican candidate for the 5th U.S. House District seat have coherent economic policy positions?

Bode - Calvey - Fallin - Morgan - I have no idea

Go to www.ModernPatriot.net and vote today!!!
*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*
Five Common Myths

I have read and heard the various economic policy positions of the Republican candidates for the 5th district congressional seat. So far all I have heard is either flatly incorrect or just complete pandering. So I thought I would take just five economic issues and address them.

Myth Number 1: "We need a balanced budget amendment."

In good times the Congress should appropriate a budget that is in surplus so that when bad economic times arrive, they can infuse dollars into the economy. Think about your own finances. You should always have 3 to 6 months of your earnings set aside in case of bad economic times. It is no different for the government.

The reason cited most often for the need of a balanced budget amendment is that Congress doesn't ever wish to create a balanced budget. I stipulate this point and further state that the Congress is being completely irresponsible in creating deficit budgets year after year. Their economic actions are harmful on several levels. But would a balanced budget amendment result in less harm? Absolutely not.

Imagine that a balanced budget amendment exists at the beginning of a prolonged economic slowdown. An economic slowdown is often a result of reduced consumption in goods and services. As goods and services produce slower sales and lower income, the government receives less tax dollars.

Faced with a choice of cutting unemployment benefits, Social Security payments, Medicare insurance, national defense, and other key services, a balanced budget amendment would likely cause an increase in taxes at the worst possible time. Some would argue that social services should be eliminated and given to private charities to manage. But this is as likely to happen as we are to return to the gold standard. (Ain't gonna happen.)

Absent a "rainy day" reserve and fiscally responsible law makers in Congress, issuing new debt creates less damage. Issuing new debt is irresponsible and literally passing the buck to future generations but it is less damaging than a balanced budget amendment.

Myth Number 2: "Trade deficits are a major problem."

Trade deficits are NOT a major problem. In fact, when the trade deficit is at its very worst (historically speaking), the unemployment rate has been at its lowest. And it makes perfect sense if you think about it.

What drives consumer spending in the United States is employment. The lower the unemployment rate, the higher the spending. The higher the spending rate, the higher the trade deficit. U.S. companies cannot produce everything that U.S. citizens wish to purchase. In otherwords, we enjoy more of everything and at lower prices due to the fact that we can buy imported goods. There's a debate about the fairness of trade agreements and how American workers are harmed. But there is no debate about the cost saving benefits to American consumers.

David T. Griswold who is the associate director of the Cato Institutes Center for Trade Policy Studies wrote:
"There is no connection between trade deficits and industrial decline. From 1992 and 1997, the U.S. trade deficit almost tripled, while at the same time U.S. industrial production increased by 24 percent and manufacturing output by 27 percent. Trade deficits do not cost jobs. In fact rising trade deficits correlate with falling unemployment rates. Far from being a drag on economic growth, the U.S. economy has actually grown faster in years in which the trade deficit has been rising than in years in which the deficit has shrunk. Trade deficits may even be good news for the economy because they signal global investor confidence in the United States and rising purchasing power among domestic consumers."
In fact when U.S. dollars go to places like China, Japan, Mexico or any other country, they have only two choices in spending those dollars. They can buy U.S. goods and services with those dollars or they can invest those dollars into the U.S. economy by buying bonds, real estate, corporate bonds or other investments. Of course they can also convert their U.S. dollars into domestic currency leaving the person obtaining the dollars with those same two choices.
This leads to myth number 3.
Myth Number 3: "The national debt is a major problem."
The U.S. national debt poses several threats to the U.S. economy. First, the U.S. private sector is threatened by government borrowing. As the government borrows larger and larger amounts of money, the available amount of money for the private sector is diminished. This is called the "crowding out" effect. The graph below illustrates exponential increases in government borrowing from 1940 through 2005.

So with the extremely large amounts of money borrowed in just the last several years, it would seem that the historically high debt would threaten the economy by dramatically increasing interest rates. While rates are rising slowly, the 30 year Treasury bond is currently at 4.75%. That's not very high. In Dec of 1990, the 30 year Treasury bond rate was at 8.26%.

Another way the debt can threaten the economy is by inducing the U.S. government to print money in order to meet its debt obligations. This would greatly impact the rate of inflation as each dollar printed by the Fed would reduce the purchasing power of dollars in the economy. Since 2000 the inflation rate has been roughly 3% per year. According to the Bureau of Labor Statistics, what cost $1000 in 2000 now costs $1153.89.

Another concern is that the debt of the U.S. government is being purchased by foreigners and international governments. Currently 26.7% of the U.S. debt is owned by foreigners and international governments. The international dollars being invested in U.S. government bonds are a result of global trade with the United States. These dollars help keep U.S. interest rates low. International investors could stop buying U.S. Treasury bonds and have been stung in recent years by the weakened exchange rate of the dollar.

The biggest problem with the debt is that it clearly demonstrates the lack of resolve in the Congress to limit the growth and scope of the federal government. Republicans have been the worst offenders. But as long as a strong majority of the U.S. debt is held by Americans, it's not a horrific concern. The biggest question is how high the debt can go before it does become a greater concern.

Myth Number 4: "A weak U.S. dollar is bad for our economy."
In the current economic environment, a weak dollar means that U.S. made goods and services are less expensive in foreign currencies and foreign made goods and services are more expensive in the United States. This is bad how?
This means that we will have a price advantage and more Americans will be working and producing goods that are in high demand across the globe. And those same Americans are more likely to purchase goods produced in the U.S. as well.
One negative aspect could be that foreign investors tire of getting burned do to an unfavorable exchange rate. But as foreign investors flee the U.S. financial markets, rates would surely increase and more Americans would be induced to save money and take advantage of higher earnings on bond rates.
That's a good thing.
Myth Number 5: "There are some jobs that Americans just won't do."
These words have been spoken by President Bush and many others. But this is just not correct. Intuitively you know it's not correct by observing who picks up our trash. Picking up trash is not generally a "high-status" occupation. Generally speaking it is hard working Americans who pick up our trash. So it's really just about how much money a job pays.
Some argue that we should outsource trash pick up to the private sector. I suppose this could be done at a lower cost with migrant workers picking up our trash. It would cost taxpayers less money and eliminate some municipal workers. Spending less on trash pick up would leave more money to spend in the U.S. economy. That's a good thing.
But Americans will work no matter the job, if the pay is adequate. That's why it is very important for Americans to obtain higher skills that are required in a knowledge based economy. Technological change will eventually make low cost migrant workers less and less necessary as robotics start replacing many of the low skill jobs.