Herman Cain comes a courtin’

Atlanta businessman and Republican freshman B team Presidential candidate Herman Cain will be in town On Friday. He’ll be headlining a breakfast at the Austin Economic Club where he’ll be discussing his career in the prepared foods industry as well as his brilliant turn as the CEO of Godfather’s Pizza, where he ran a company that sold what some have called third rate pizza. While there are some people who like to think there’s no such thing as bad pizza, I’d just suggest that they’ve not yet stumbled upon the gut wrenching mess that Godfather’s calls pizza.

Cain will also be discussing his rather ridiculous assertion that deficits cause inflation, thus continuing the Republican love affair with what I like to call Stupidnomics. He also apparently thinks that a return to the gold standard will somehow keep Congress from deficit spending, though he provides no clear and understandable mechanism which would enable that, nor does he bother to explain the deficit spending that occurred in the US WHEN it was on the gold standard.

I’ve been forced to assume Cain doesn’t understand the difference between fiscal policy and monetary policy. For those of you who may be a little foggy, FISCAL policy is the government spending money. MONETARY policy is what the Federal Reserve does. When the Fed raises overnight lending rates, it’s a change in monetary policy. Increasing prices are called inflation and are usually the result of (simplistically) too much money chasing too few goods and services. When Congress reduces taxes, yet again, on wealthy people like Herman Cain it’s a change in fiscal policy. Obviously, when Congress spends more than it takes in, it has to sell debt which is overwhelmingly purchased by investors and they give their dollars to Congress. How that process creates new dollars is a mystery that I’m sure Cain will be explaining to the AEC, probably using a PowerPoint presentation that would cause you and I to seriously consider self immolation.

There is, of course, one case where spending could result in an increase in money, when the Federal Reserve purchases debt from the US Treasury to finance Congressional spending. Technically, that is what the Fed is doing with QE2. However, it’s also keeping interest rates low and allowing every entity to deleverage by reducing their interest rate costs allowing them to retire debt faster (like you refinancing your house from 6% to 4%). Inflation is, on balance, being held in check by the fact that the Fed is paying interest to those who give money to them, commercial banks, effectively eliminating that money from circulation. This has been somewhat effective (an increase in fiscal spending would have been far better), save for the run up in commodities which is nothing more than rich people and investors (like Herman Cain) dumping money into a thin market, desperately searching for a return. Obviously, it’s going to drive up prices. What will kill that is increasing margin requirements (meaning that people will actually have to use more of their own money, not borrowed money, to buy commodities) in the short term and raising taxes on speculation and wealthy, absorbing some of that money (and it already is working). That will also help balance the Federal budget.

Herman Cain won’t be willing to recommend any of that, I’d bet. He’ll probably talk about cutting corporate taxes. Or some other stupid thing. Maybe he’ll talk about how this country desperately needs a ‘Businessman President’, maybe with an MBA. We should all remember the last one of those we had doubled the national debt in less than 8 years and left office after playing a big part in creating the worst economic crisis since the Great Depression.

What we need is much less deficit demagoguery and more economic reality. We need people who understand what’s really driving food and energy inflation and can fix it. We need people who understand that the best thing the government can do is borrow every dime it can to build roads and transit systems, schools, courthouses and help states fill the gaping holes in their budgets. We need people who understand that top end tax rates are too low and that the cap gains rate is about half of what it needs to be.

We need smart people who aren’t in love with ideology. I think Herman is neither smart nor capable of ignoring ideology masquerading as economic policy. I think he’s a successful businessman who has figured out a way to sell shitty pizza profitably. That doesn’t qualify him to be President.

But hey, Mr. Cain, welcome to Austin! Just don’t expect us to get all wet and moist. After all, we can get really good pizza any time we’d like.

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