The Week Magazine published an excellent article titled, “Social Security’s looming crisis is political, not economic,” by Jeff Spross.
It begins by agreeing with much of what we have been saying for the past 20 years.
Here are excerpts:
There are few traditions in American politics as cherished as the semi-regular panic over Social Security. There are equally few that are such utter balderdash on the economic merits.
The latest example of this time-honored practice comes to us courtesy of The New York Times. “Social Security’s so-called trust funds are expected to be depleted within about 15 years,” the outlet warned this week.
“Benefit checks for retirees would be cut by about 20 percent across the board.” The cuts could potentially rise to 25 percent in later years.
The question is whether the cuts, at the basic structural level, are actually necessary at all.
It’s widely assumed the federal government is just like a private household or business; it can run out of money if it doesn’t manage its spending and revenue properly.
Indeed, Social Security’s trust funds are designed on this premise.
But that’s actually not how it works at all. The federal government can never “run out” of money, nor can it ever suffer an involuntary debt crisis.
The implications for Social Security should be obvious.
As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.
It can keep right on paying every last Social Security benefit it has promised in perpetuity.
Absolutely correct. So far, so good.
Unlike state and local governments, and unlike businesses, you and me, the federal government uniquely is Monetarily Sovereign.
It created the very first dollars at will –from thin air — and arbitrarily gave them a value.
Today continues to create dollars at will, from thin air, and still controls the value.
Even if the federal government didn’t collect a single dollar in taxes, it could continue spending, forever.
[There are two why the federal government levies taxes, and neither reason has anything to do with funding federal spending:
Reason 1. To control the economy be encouraging certain kinds of private spending and discouraging other kinds. (Tax breaks for home ownership are an example of the former. “Sin” taxes are examples of the latter.)
Reason 2. To create the illusion that the federal government’s spending ability is limited without sufficient taxes. (This is the method used by the government’s leaders — i.e. the rich — to justify cuts to benefits for the poor and middle classes and to increase their taxes.)]
The very first Social Security beneficiary, Ida May Fuller, got her initial benefits check in 1939, after paying into the system for just three years — hardly enough time to build up the necessary “savings” to fund her retirement.
The very fact that benefit cuts would reduce Social Security to a cashflow basis demonstrates that current workers finance the benefits for current retirees, as opposed to payroll taxes being stored up for the future retirement of the citizens who payed them.
Oops! Now, Mr. Spross begins to slide off the rails, a bit.
Current workers pay FICA, but FICA does not finance benefits. Federal taxes do not fund federal spending.
Remember, Spross said it himself:
“As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.
It can keep right on paying every last Social Security benefit it has promised in perpetuity.”
The actual function of the payroll taxes is to remove demand from the economy, thus making room for the demand that Social Security’s spending injects into the economy.
Which is what keeps inflation on an even keel.
The above is the old, “federal money printing causes inflation” myth.
Think about why the price of, say apples, would go up. Because people have too much money?
No, the price of apples or of any other products or services is caused by one thing: Shortages.
The price of apples goes up when there is an apple tree disease, or a drought, not because your salary went up and you have more money to spend.
The notion that money creation (erroneously called, “money printing”) causes inflation, may stem from a misreading of hyperinflation.
Governments often respond to hyperinflation by printing currency.
But all hyperinflations begin and continue with shortages — usually, shortages of food — and they end only when the shortages are alleviated.
In short: the system is fine.
Of course, Congress still faces the fact that it made a rule for itself that benefits must be cut when the trust funds run dry.
If it wants to maintain the fiction, Congress could do what previous reforms have done, and bring spending and revenue back into line through some combination of benefit cuts and payroll tax hikes.
The above is exactly what the rich want you to believe: The benefits for the poor and middle classes must be cut, while their taxes are increased.
At some point, however, you’d think the better move would be to acknowledge the trust funds are a political gimmick, and just spend whatever benefits our elected representatives deem appropriate.
Social Security may face a very interesting political crisis in the coming decade or two. But in hard economic terms, there is no crisis at all.
Amen, brother Spross. The invented danger that Social Security (and Medicare and all other federal programs) could run short of dollars is a myth.
Now, while we’re at it, let’s get rid of that inflation myth, too.
Rodger Malcolm Mitchell
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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.
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:
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.