–With friends like these: How AARP’s misunderstanding of the facts hurts their members.

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

AARP’s writers don’t understand Monetary Sovereignty. They think Social Security is supported by FICA. This popular misconception hurts AARP members, because it supports three false notions about sustaining Social Security for future generations:

1. Social Security benefits must be reduced.
2. Social Security benefits should be taxed.
3. FICA must be increased.

Wrong, wrong and wrong. Those who understand Monetary Sovereignty know that in a Monetarily Sovereign nation, taxes do not pay for federal spending, and Social Security benefits could be expanded, even if FICA were zero ( which it should be ). Thus, AARP finds itself going along with popular myths, and opting for damaging “fixes,” instead of properly asking Congress to eliminate FICA, increase benefits and eliminate the tax on benefits.

AARP Home; Social Security: Fears vs. Facts
What Social Security critics keep getting wrong

by: Liz Weston | from: AARP The Magazine | July/August 2011 issue

I’ve been writing about Social Security for nearly two decades. But even I still have trouble wrapping my brain around some of the system’s complexities — from how benefits are calculated to how the trust fund works. So it’s not surprising that myths about Social Security persist, often fed by the program’s critics. With the debate about Social Security’s future once again heating up, these three myths need to be put to rest — so we can focus on the real issues.

Myth #1: By the time I retire, Social Security will be broke.

It’s true that Social Security’s finances need work, because over the long term there will not be enough money to fully cover promised benefits.

Absolutely, 100% false. The federal government, not FICA, pays for Social Security; the federal government never will run out of money. No tax supports federal spending in a Monetarily Sovereign nation (This is not true of the states, counties, cities and euro nations, all of which are monetarily non-sovereign, and do use taxes to support spending. It is vital to understand the difference.)

But radical changes aren’t needed. In 2010 a number of different proposals were put forward that, taken in combination, would put the program back on firm financial ground for the future, including changes such as raising the amount of wages subject to the payroll tax (now capped at $106,800) and benefit changes based on longer life expectancy.

Here was a perfect example of AARP acceding to Congress’s proposals, based on economic ignorance, that would harm AARP members. And this from a person who claims to have been writing about Social Security for “two decades.” Yikes!

Myth #2: The Social Security trust fund assets are worthless.

Any surplus payroll taxes not used for current benefits are used to purchase special-issue, interest-paying Treasury bonds. In other words, the surplus in the Social Security trust fund has been loaned to the federal government for its general use — the reserve of $2.6 trillion is not a heap of cash sitting in a vault.

These bonds are backed by the full faith and credit of the federal government, just as they are for other Treasury bondholders. However, Treasury will soon need to pay back these bonds. This will put pressure on the federal budget, according to Social Security’s board of trustees. Even without any changes, Social Security can continue paying full benefits through 2037. After that, the revenue from payroll taxes will still cover about 75 percent of promised benefits.

A mishmosh of partly true, almost true, once-but-no-longer-true statements. While government accounting seems to move money around, this is illusory. There may be pressure on the federal budget, but the budget is an artificial construct of pre-1971 accounting. There is no pressure on the federal government’s ability to pay.

The government has the power to credit and debit accounts at will, and none of this debiting and crediting affects one underlying truth: Payroll taxes do not pay for Social Security benefits. The government pays by instructing banks to mark up checking accounts, which it can do, endlessly.

The federal government never can run short of dollars. It never can be unable to pay its bills. It was monetarily non-sovereign when Social Security was invented, and the processes, though appropriate at the time, no longer are appropriate for a Monetarily Sovereign nation.

Myth #3: I could invest better on my own.

Maybe you could, and maybe you couldn’t. But the point of Social Security isn’t to maximize the return on the payroll taxes you’ve contributed. Social Security is designed to be the one guaranteed part of your retirement income that can’t be outlived or lost in the stock market. It’s a secure base of income throughout your working life and retirement. And for many, it’s a lifeline.

That one is correct. So two out of three isn’t bad.

As AARP The Magazine’s personal finance columnist, Liz Weston offers advice on everything from car loans to home sales.

Monetary Sovereignty is the basis for economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.

AARP has a powerful voice. By going along with the popular (false) beliefs about Social Security, AARP does great damage to America. If AARP would take the minimal effort needed to understand Monetary Sovereignty, they could be an effective force for saving the American economy, and Social Security along with it.

I award AARP three dunce caps for not understanding the fundamentals of a subject about which they should be expert.

This, by the way, puts no pressure on my ability to create more dunce caps.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports


2 thoughts on “–With friends like these: How AARP’s misunderstanding of the facts hurts their members.

  1. Rodger,

    Your Japanese post yesterday where it was revealed that constant deficit spending has actually “caused” deflation (instead of the feared inflation) should be all the proof needed that monetary sovereignty is a fact of economics. What is it going to take for American pols and economists to wake up?


  2. Rodger — When Social Security was started it was structured as an insurance plan just like defined benefit plans today. Somehow, in recent years this Public Insurance has become a “safety net” for those unable to take care of themselves. It has changed the nature of the conversation. Now we can justify cutting back because anyone worthwhile shouldn’t need a safety net. I see it as part of the move to demonize the less fortunate and make their lives harder.


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