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●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
Here is yet another “Save Social Security” interview of a mainstream economics professor — this time, a Nobel winner, no less: Peter Diamond, 73, who co-wrote “Social Security: A Balanced Approach,” proposing “fixes” for the program.
This interview appeared in the October 28, 2013 issue of Money Magazine.
Nobel winner Peter Diamond’s book title speaks of a “balanced” approach, and “fixes,” and the article title uses the word “save.” What could possibly be wrong with “balanced,” “fixes” and “save”?
Here are a few excerpts. You be the judge.
Can we save Social Security?
By Penelope Wang
[Peter Diamond, professor of economics, emeritus, Massachusetts Institute of Technology and recipient of the 2010 Nobel Prize in economics, answers the big question of how to fix Social Security.]
Wang: Can we save Social Security?
Diamond: Yes, Social Security can be fixed. There’s a long-term deficit problem, but it’s far from a crisis yet. Projections show the trust fund will run out of money by 2033. At that point everyone’s benefits would have to be cut by 25% if nothing is done.
According to Nobel winner Peter Diamond, there is no alternative but to increase trust fund taxes (FICA) or cut benefits. Nothing else is possible. He actually wants us to believe the federal government can run short of dollars.
Wang: So what fixes need to be made?
Diamond: We need to make Social Security financially sustainable. There’s a straightforward, nonradical way to do it.
In 2004 I proposed balancing modest and gradual reductions in benefits with a modest and gradual increase in the Social Security payroll tax.
Ah, “modest and gradual” and “nonradical.”
Who could complain about “modest and gradual” benefit reductions combined with “modest and gradual” tax increases, especially if they are “nonreadical? — except of course the middle- and lower classes, who have to pay the outrageously regressive FICA tax, and who rely most on the outrageously minuscule (and declining) Social Security benefits — which outrageously, are taxed!
(As an aside, has anyone ever wondered why Social Security benefits, which pretend to be annuity payments funded by taxes, are taxed again when received?)
The Nobel winning professor apparently feels the 99% pay too little in taxes and receive too much in benefits, so he wants to “fix” that problem, “modestly and gradually.”
And then there’s “financially sustainable,” another euphemism for: “The government is running short of dollars, and since you have plenty, please send us more or we’ll send you fewer.”
Wang: Your plan is nearly 10 years old. Would it still work?
Diamond: Yes, but the deficits have grown about 40% over the last decade, so fixes would have to be larger and kick in more quickly. [The Social Security Administration said this year that immediately raising the payroll tax 2.66 percentage points could repair the program.]
Note to Nobel winning professor: The U.S. government is Monetarily Sovereign, which means it has the unlimited ability to create its sovereign currency, the dollar.
That is why even during the Great Depression of 1929, and the Great Recession of 2008, the government never had any trouble paying its bills.
So professor, tell me again, why does Social Security need me to pay FICA in advance, and later, pay income tax on the benefits I supposedly paid for.
Diamond: We have a long-standing tradition that Social Security financing is not part of the regular budget process. Rather, as it is funded by dedicated tax revenue, changes to financing are made separately.
That way we have a secure system people can rely on for the long term.
Rely on? But professor, you just said that Social Security would not be financially sustainable unless FICA is increased and benefits are decreased. What kind of “secure system” changes the rules because it’s running short of money?
A secure system would be to have our Monetarily Sovereign government guarantee payments into perpetuity.
Wang: You’re very familiar with today’s political gridlock, which kept you off the Federal Reserve Board after your 2010 nomination. How might Washington reach a deal fixing Social Security?
Diamond: Right now it’s pretty hopeless. Obama faces difficult gridlock, so it wouldn’t be easy, but undertaking Social Security reform would be a great legacy — one that’s less controversial than health care.
Ah, now it’s “reform,” yet another euphemism for “stick it to the 99%.”
Wang: The President has proposed a cap on the total amount held in tax-advantaged retirement accounts. What’s your view?
Diamond: It’s clear that there can be gaming of the system; we’ve seen some of it in reports of hedge fund accumulations that are just enormous. A tax break that extends to too much savings is just a weakening of the taxation of capital income. So, yes, we want to limit the tax breaks.
Yes, Congress has been bribed to reduce taxes on the rich. But really, why does a Monetarily Sovereign government have to beg anyone for its sovereign currency?
Wang: What else can the government do to improve the retirement system?
Diamond: I look to the Thrift Savings Plan for federal civil servants as a model. The TSP doesn’t have many choices, but they’re great, and the costs are low. You can also easily turn your savings into income with an annuity.
The government could make the TSP available to everybody, or it could set up a parallel plan as an IRA or 401(k) option.
Or, the government simply could provide, fully paid, tax-free Social Security to everyone above an agreed-upon retirement age. If the government weren’t so busy collecting unnecessary taxes, there would be no need for IRAs or 401(k)s.
Nobel Professor, let’s get down the the bottom line. The government’s General Fund supports about 1000 federal agencies. Only Social Security and Medicare benefits are limited by tax collections. No other federal agencies are limited this way.
The military isn’t limited by tax collections. Payments for the Supreme Court aren’t limited by tax collections. Nor are payments for Congress, the White House, NASA, the FBI, the CIA, the NSA and the rest of the government.
Give me one good reason why Social Security and Medicare benefits are under constant pressure from those who quack about “sustainability,” “balanced approaches,” “fixes” and “reforms.”
Social Security, as it currently is handled, is a giant fraud. If you’re salaried — and only if your modestly salaried — you pay a high and unnecessary tax, and you receive low and declining benefits, upon which you pay yet another tax.
If you’re rich, don’t worry. None of this applies to you. The gap between you and the rest is intact.
Hey, you don’t bribe Congress to be “saved” by Nobel professors.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise.