Why do you believe what you believe? Wednesday, Jan 17 2018 

It takes only two things to keep people in chains:
.

The ignorance of the oppressed
and the treachery of their leaders.

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Why do you believe what you believe?

You believe a great deal. Some of what you believe is based on facts. Some is flat-out wrong. Some you have invented. Some exists because you want it to exist. Some comes from a trusted source.

Veronique de Rugy would be considered a “trusted source.” The Mercatus Center says:

She is a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.

De Rugy is the author of a weekly opinion column for the Creators Syndicate, writes regular columns for Reason magazine, and she blogs about economics at National Review Online’s the Corner.

Her charts, articles, and commentary have been featured in a wide range of media outlets, including the Reality Check segment on Bloomberg Television’s Street Smart, the New York Times’ Room for Debate, the Washington Post, the Wall Street Journal,CNN International, Stossel,20/20, C-SPAN’s Washington Journal, and Fox News.

In 2015, she was named in Politico Magazine’s Guide to the Top 50 thinkers, doers and visionaries transforming American Politics. 

Outstanding credentials. You can’t get much more trusted than that.

And yet . . . well, you decide. Here are excerpts from one article she wrote for Reason Magazine:

Start Saving Now, Because Social Security Is Screwed
If Congress doesn’t address its insolvency issues, payouts will need to be slashed by a quarter starting in fewer than 20 years.

The single largest government program in the United States will soon have an annual budget of $1 trillion a year. Yet even that amount isn’t sufficient to fulfill the promises it has made.

If Congress doesn’t address its insolvency issues, payouts will need to be slashed by a quarter starting in fewer than 20 years.

The program is Social Security, and our national pastime seems to be turning a blind eye to its dysfunctions.

The U.S. federal government (unlike you and me, and unlike state and local governments), is Monetarily Sovereign.  As such, it has the unlimited ability to create its own sovereign currency, the U.S. dollar.

It created the very first dollar 240 years ago, by creating laws from thin air, and since then these laws have created many billions of dollars, also from thin air. 

The federal government never, unintentionally, can run short of dollars.

For the same reason, no agency of the U.S. government can run short of dollars, unless Congress and the President want that to happen. Social Security is an agency of the U.S. government.

Congress has no “insolvency issues.” Even if all federal tax collections fell to $0, the federal government could continue spending unlimited amounts, forever.

So, even if the FICA tax were $0, the federal government could fund Social Security and Medicare, too, for every man, woman, and child in America — forever.

The article continues:

The problems with this entitlement aren’t unique. Obamacare is also a mess, while cumulative government spending on Medicare and Medicaid is growing at a faster rate than Social Security is, and eventually will consume a larger share of the economy.

Obamacare indeed is “a mess,” but not because it is short of money. It is a mess because it is based on the lie that it is limited by federal tax collections.

Obamacare (and Medicare and Medicaid and all other similar programs) should be replaced by a federally funded Medicare for every man, woman, and child in America.

Federal spending for Obamacare, Medicare, Medicaid, and any other program does not “consume” a share of the economy. Federal spending adds growth dollars to the economy.

Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports

The more the government spends, the more dollars become available to you, me, and the rest of the economy.

But that’s no reason to ignore the serious fiscal issues with America’s main retirement program. Since 2010, it has been running a cash-flow deficit—meaning that the Social Security payroll taxes the government collects aren’t enough to cover the benefits it’s obliged to pay out.

To get by, the program started tapping into the assets set aside beginning in the 1980s for rainy days.

Prior to 2010, the program collected more in payroll taxes than was needed to pay the benefits due at the time. The leftovers were “invested” into Treasury bonds through the so-called Old Age Trust Fund, which is now being drawn down.

Ms. de Rugy, seems not to understand the differences between a Monetarily Sovereign entity (the U.S. government) and a monetarily non-sovereign entity (you, me, businesses, cities, counties, states, euro nations.)

Payroll taxes do not “cover” benefits. Payroll taxes aren’t used for benefits. When your federal tax dollars reach the Treasury, they cease to be part of any money supply measure (M1, M2, M3, L, etc.)

In other words, your tax dollars are destroyed upon receipt.

To pay its financial obligations, the federal government creates brand new dollars, ad hoc. It sends instructions (not dollars) to each creditor’s bank, telling the bank to increase the creditors checking account numbers.

When the bank does as it is instructed, new dollars are added to the nation’s money supply. That is the method by which the federal government creates dollars.

In fact, the Treasury bonds are nothing but IOUs.

When you so-called “lend” to the federal government, you take dollars from your checking account and deposit them into your Treasury bond (or Treasury bill or Treasury note) account, which is quite similar to an interest-paying bank savings account.

There, your dollars remain, until the bond matures. Meanwhile, the dollars never are removed from your account to pay bills or for any other purpose. 

Upon maturity, the Treasury pays you back by transferring the dollars that still exist in your Treasury bond account back to your checking account. No new dollars required.

When it’s time to disburse benefits they can’t afford, Social Security administrators turn in those paper promises in exchange for hard cash from the Treasury Department.

Very few Treasury bonds are represented by paper, and there is no such thing, in all the world, as “hard cash.” A dollar bill is not cash.

A dollar is a balance sheet number, having no physical existence. A dollar bill is a title to a dollar, but in of itself is not a dollar, just as a car title is not a car and a house title is not a house.

The federal government can “afford” any payment, no matter how large.

But Treasury also doesn’t have the money: It has already spent it on wars, roads, education, domestic spying, and much more.

So when Social Security shows up with its IOUs, Treasury has to borrow to pay the bonds back. That adds to the debt that future generations will be on the hook for via higher taxes.

The federal government cannot run short of dollars, so the phrase “already spent it . . . ” makes no sense, whatsoever.

Further, the government has no need to borrow, and indeed, does not borrow. It simply accepts deposits, the purpose of which are not to fund government spending. (They help control inflation, provide a basis for safe worldwide investment, and secure the dollar’s position as a world reserve currency.)

 Past generations of workers paid extra payroll taxes to bulk up the Social Security system.

But the government spent that additional revenue on non-retirement activities, so now your children and grandchildren will also have to pay more in taxes to reimburse the program.

Totally false. Payroll taxes do not “bulk up” anything. They are destroyed upon receipt. The federal government never can run short of its own sovereign currency. That is what “sovereign” means. The federal government has infinite “bulk.”

The federal government does not spend tax dollars. It creates brand new dollars, ad hoc, every time it spends. So your children and grandchildren will not “reimburse” the program.

You may be tempted to wave away this problem. After all, there’s more than $2.3 trillion left in the trust fund.

The so-called “trust fund” is a fiction. Of what meaning is a “trust fund” for an entity that has the unlimited ability to create its sovereign currency? Answer: None.

The Social Security trustees have calculated that the cash-flow deficit over the next 80 years will amount to a staggering $44.2 trillion, and that’s after adjusting for inflation.

Under current projections, the make-believe assets in the fund will only be enough to pay full benefits until 2034.At that point, the system will have to revert to paying out only the amount taken in through annual taxes.

And that means benefit cuts across the board of 25 percent.

The federal government’s “deficit” is the economy’s income. The $44.2 trillion projected deficit (if correct) simply means $44.2 trillion in stimulus dollars added to the economy.

That is the way the economy grows. It’s a good thing, not a bad thing.

It will be especially hard on lower-income Americans, who are more likely to depend entirely on the program during their later years.

Yes, it will be hard on lower-income (and middle-income) Americans, and that is exactly what upper-income Americans, the rich who run America, want.

The goal of the rich is to become richer. This requires widening the Gap between the rich and the rest. Without the Gap, no one would be rich (We all would be the same.) And the wider the Gap, the richer they are.

To widen the Gap, the rich need to gain more for themselves and/or to take from the rest. Either will do.

That is the reason the rich employ people like Ms. de Rugy to spread the Big Lie, that the federal government needs tax dollars to pay its bills, and so can’t afford to support social programs.

Options for reform at that point will be limited. With the national debt projected to be 105 percent of GDP, or $39.1 trillion, in 2034—and with Medicare and Medicaid facing even bigger long-term problems—Congress will be too broke to restore full benefits for all.

The ratio of federal “debt” (i.e. deposits in T-security accounts) to Gross Domestic Product is meaningless. Contrary to popular myth, the ratio is supposed to indicate the “affordability” of debt. Utter nonsense.

The so-called “debt” is not paid off with Gross Domestic Product. Japan’s ratio is about 250%. Haiti’s is about 15%. Which economy would you prefer?

The most likely scenario is that higher-income earners will see their benefits disproportionately reduced, their taxes disproportionately hiked, or both. To them I have but one piece of advice: Start saving now.

No, the most likely scenario is that the Gap between the rich and the rest will widen, particularly with a conservative government.

Given this predicament, Congress should make it easier for all Americans to save. One way to do that is through the creation of Universal Savings Accounts, or vehicles that allow people to invest money without all the complicated rules that now apply to IRAs and 401(k)s.

In addition, Congress should boost the maximum contributions people can make to Health Savings Accounts, so that more Americans can afford the medical expenses most of us inevitably incur in our old age.

More broadly, Congress should shift away from Social Security into a “funded” system based on real savings, much as Australia and others have done. The libertarian economist Daniel J. Mitchell notes that, starting in the ’80s and ’90s, that country has required workers to put 9.5 percent of their income into a personal retirement account.

As a safety net—but not as a default—Australians with limited savings are guaranteed a basic pension.

Reason Magazine is Libertarian. Libertarians, who are kissing cousins to anarchists, have little credibility when discussing government spending. To libertarians, any government spending seems to be too much.

Congress should not ask people to pay for their health care, their retirement, their children’s education, etc., thus reducing what people have, today.

The federal government should do it, via the Ten Steps to Prosperity (below).

Summary: The title question, “Why do you believe what you believe?”  leaves open the question, why does “The Mercatus Center of George Mason University, promulgate such false information?”

We find it difficult to imagine that Ms. de Rugy really doesn’t understand the facts.  We are left only to speculate, and perhaps this article provides a clue:

George Mason Students Sue For Records On Koch Donations
By David Halperin

Today, students at George Mason University sued their school and a private foundation tied to the school in a Virginia state court, seeking records related to donations from the billionaire Koch brothers.

The students are concerned that Koch donations to GMU, a state university, come with inappropriate conditions; they launched their campaign on this issue in 2014 after learning that the Charles Koch Foundation, GMU’s biggest donor, had sought influence over faculty hiring and teaching curriculum, for example through a grant agreement with Florida State University.

Charles and David Koch, heirs to the $100 billion energy and chemicals corporation Koch Industries, have for decades sought to push a conservative agenda, seeking to influence politics but also investing heavily in academic programs that conform nicely with the brothers’ financial interests.

The rich want to widen the Gap by taking from the poor and middle classes and giving to themselves. They to promulgate the false notion of federal insolvency by:

  1. Bribing politicians via campaign contributions and promises of lucrative employment, later
  2. Bribing media via advertising dollars and media ownership
  3. Bribing university economists via donations to schools, and lucrative employment at think tanks.

Draw your own conclusions.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the latter having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

 

10 Responses to Why do you believe what you believe?

  1. ejhr2015 says:

    Have you tried writing to her to point out what’s wrong? you could add this article as a PS;
    http://www.realprogressivesusa.com/news/economic-issues/2017-06-29-the-operational-reason-why-federal-taxes-are-not-revenue-for-the-federal-government
    You would need to list what others are saying, like Stephanie Kelton, Bill Mitchell etc
    John

    Like

    • Yes, though I expect no answer. She is paid to write that drivel. Money “Trumps” facts. Look at how the GOP Congress now sucks up to a President they can’t stand.

      =========================================

      I’ve now read that article. I have one quibble. It includes this: “To cancel those liabilities, the currency must return to the federal government. How does the federal government ensure that the currency returns to the government so that it can cancel its liabilities? Federal taxation.”

      My quibble is: The federal government has no need to cancel any liabilities, and in fact, it currently has about $20 trillion in liabilities, or whatever the correct number is (It’s the total number of outstanding dollars.) If the federal government canceled all its liabilities, there would be no dollars in existence.

      Like

      • ejhr2015 says:

        That old truism rings true all the time; “You can’t change a person’s mind if his/her job depends on not changing it”
        Still it’s worth a shot. She may have a private opinion.
        It really astonishes to see the amount of lies told in all walks of life today.
        I actually think politicians are denying their oath of office, – to uphold the Constitution. We need to find out about it and get them barred. That would put a cat among the pigeons!

        Like

      • ejhr2015 says:

        Yes, I saw it too. But all but 6 cents in every dollar gets returned through constant tax bites. Depending on the velocity of money the government has to spend to stay ahead of this destruction. So it happens anyway, almost.

        Like

        • One of the many differences between MMT and MS, is the MMT belief that taxes are necessary to create demand for the dollar.

          I used to argue with Randy Wray about this. Remarkably, he has a form of money, at UMKC, called Roo Bucks, which is a discount credit card for students.

          No one collects Roo Buck taxes, yet they have value. Nevertheless, he still insisted taxes are necessary to give value to money.

          I wonder now whether bitcoin has changed his mind.

          Like

          • ejhr2015 says:

            Depends what “necessary” means. Obligatory to use for paying your taxes. So by extension it gives value to the currency. So I’m not sure what is your point.
            I don’t think Bitcoin has a future, it has no back up. At least the dollar is lawfully the currency of the State, with its full faith and credit status.

            Like

        • Todd says:

          Pretty sure MMT says taxes are sufficient to create demand for the dollar but not necessary.

          Like

          • Randy Wray used to tell me taxes are necessary to create demand for money. I see he has modified that slightly. In WHAT ARE TAXES FOR? THE MMT APPROACH, he says, “‘Well, why not just eliminate taxes altogether?’ There are several reasons. First—as we said last time–it is the tax that ‘drives’ the currency. If we eliminated the tax, people probably would not immediately abandon use of the currency, but the main driver for its use would be gone.”

            I disagree that taxes are the “main driver” (if that means the primary reason for demand) of a currency. Not only are there currencies not supported by any taxes, but the U.S. dollar is demanded by millions of people who pay no U.S. taxes at all.

            In my opinion, the primary reasons for demand of a currency are acceptance by others and by the full faith and credit of the issuer. Full faith and credit are described at: Understanding Federal Debt. Full Faith and Credit

            Like

  2. Bgray says:

    I think historically for governments (e.g. colonial America) introducing a new currency, taxes were necessary to drive demand, as there were often competing currencies in the market (e.g. British coin). Those taxes were typically asset/property based though, not income, as one could always request being paid in a competing currency or tangible goods to avoid the tax. With the U.S. dollar so firmly entrenched by law, trying to link federal income taxes today to currency demand is a pretty tenuous argument at best.

    Like

    • The demand for any currency is based on need and trust. “Need” refers to a legal requirement that the currency be used for some purpose, whether to pay taxes or to buy some commodity.

      “Trust” has to do with the full faith and credit of the issuer. Randy Wray’s Roo Bucks demand is, in part, facilitated by the students’ trust in the program. The demand for bitcoin is based, in part, on the belief bitcoin is safe and will continue to exist, and that other people will accept bitcoin in the future.

      Manufacturers’ coupons are another form of money, the demand for which is not based on taxes, but rather on the full faith and credit of the issuer (the manufacturer).

      Like

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