The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
Robert J. Samuelson is a weekly columnist for The Washington Post, writing on political, economic and social issues. His column usually appears on Wednesdays. Add his name to the long list of economics writers who are ignorant of Monetary Sovereignty, the basis of all modern economics.
In a March 7, 2011 column titled, “Why Social Security is Welfare,” he makes the following comments:
Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts – as polls indicate many Americans prefer – would ordain massive deficits, huge tax increases or draconian reductions in other programs. That’s a disastrous formula for the future.
Yes, Robert, not cutting Social Security, Medicare and Medicaid would “ordain” (?) deficits. However, because the U.S. now is Monetarily Sovereign, there is zero connection between deficits and taxes. For your benefit, Robert, I’ll say again what you as an economics writer already should know: “Federal taxes do not pay for federal spending.”
And so far as those draconian reductions in other programs, why do you believe a nation with the unlimited ability to create dollars, needs to cut spending, when inflation is nowhere in sight?
Here is how I define a welfare program: First, it taxes one group to support another group. . .
Robert, now repeat after me until you get it: “Federal taxes do not pay for federal spending.” State taxes do pay for state spending, and city taxes do pay for city spending. The states and cities are not Monetarily Sovereign. But, federal taxes do not pay for federal spending. In fact, FICA could be eliminated, and this would not reduce by even one penny, the federal government’s ability to support this program – even were benefits doubled.
Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today’s workers.
Things have changed markedly since the 1940’s, and Robert has not kept up with the changes. In August, 1971, one of the biggest economic changes in our lives occurred. We became Monetarily Sovereign. At that instant, Social Security ceased being a “pay-as-you-go” program, because FICA no longer supported benefits. In a Monetarily Sovereign nation, tax dollars are destroyed upon receipt. They do not, and cannot, support federal spending.
Think about it, Robert. Why would a government with the unlimited ability to create dollars, need to use taxes to pay for anything? It makes absolutely no sense. Sadly, Robert still lives in a gold-standard (aka “flat-earth”) world.
Annual benefits already exceed payroll taxes. The gap will grow.
Yep, the difference between FICA collections and benefits will grow. More net money will be created. This will stimulate economic growth. So what is the problem?
No doubt people would be outraged (by benefit cuts). Having been misled, they’d feel cheated. They paid their taxes, why can’t they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.
No, shared sacrifice is meaningless if it is purposeless. There is absolutely, positively no reason to cause widespread human misery by cutting Social Security, Medicare and/or Medicaid benefits. Causing misery out of sheer ignorance is unforgivable.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth.