Is poverty harmful, harmless, or a benefit?

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
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Evolution requires that for any physical feature to last a long time it either must be harmless or a benefit. Over the eons, harmful features tend to disappear.

Consider toenails. Once we came down from the trees, toenails were of no imaginable use, but they require so little energy to grow, they have not been an evolutionary inhibition. So we still have them.

Poverty too, has been with our species for thousands of years. But one is reluctant to say it is harmless. So that leaves the possibility that poverty is a benefit.

Or, because it is a social feature, rather than a physical feature, rather than a physical benefit, might it only be a perceived benefit?

Regarding perception, the Democrats are about to pass what can be one of the most meaningful bills in many years — meaningful because that one bill can change common economics perceptions.

Child tax credit expansion sets up showdown with GOP
By ALEXANDRA JAFFE and JOSH BOAK
March 8, 2021

WASHINGTON (AP) — The massive ($1.9 trillion) coronavirus relief plan making its way to President Joe Biden’s desk includes a plan to temporarily raise the child tax credit that could end up permanently changing the way the country deals with child poverty.

The American Rescue Plan, expected to receive final approval this week, temporarily raises the child tax credit, now at a maximum of $2,000, to as much as $3,600 per child annually.

The plan also expands the credit so it’s fully available to the poorest families, instead of restricting it based on the parents’ tax liability. And it will be paid out in monthly installments, to offer families struggling during the pandemic a more consistent lifeline.

If the Democrats are smart (big “if”), they will resist the calls to raise taxes to “pay for” the bill. The Democrats simply should allow the federal debt to rise significantly. Let debt fear-mongers wring their hands, and offer up dire predictions, none of which will occur.

The legislation gives families up to $3,600 annually for each child under age 6 and as much as $3,000 for those up to 17. 

The benefit is aimed at providing support to millions of families affected by the coronavirus pandemic. Democrats have embraced an analysis that found the proposal would cut child poverty 45%.

Republicans charge the move amounts to an expansion of the welfare state that will disincentivize parents from seeking work.

But Democrats hold out the proposal as a fundamental rethinking of the way the country approaches child poverty and an opportunity to address the income inequality that’s been exacerbated by the pandemic.

The old “disincentivize” myth simply means: “Give poor people some money, and they won’t work.” 

Thus poverty is wrongly portrayed as a benefit to the economy in that it supposedly stimulates labor. That false belief provides a ready excuse to widen the Gap between the rich and the rest.

It’s utter nonsense of course, as demonstrated by all the middle, upper-middle, and even rich people who have plenty of money yet still work. It’s the common “laziness” slur on the poor, most of whom actually labor much harder than do most of the rich.,

Connecticut Rep. Rosa DeLauro, a Democrat who has been advocating for an expansion of the credit since 2003, said in a statement that “this legislation forever changes the way that our nation supports both middle-class families and children in poverty.”

DeLauro and other Democrats on Capitol Hill see the current legislation as laying the groundwork for a permanent expansion of the credit.

Indeed, Biden himself told House Democrats during a private call last week that he supports legislation that would permanently increase the child tax credit to $3,000 per child.

While Republicans broadly support the idea of expanding benefits for children, some have opposed the Biden plan for its price tag, and others have criticized it for divorcing the benefit from any work requirement.

“Price tag” is an argument that takes several forms, among which are the false notions that:

1. Federal taxes fund federal spending. FALSE

The Federal government uniquely is Monetarily Sovereign. It never can run short of its own sovereign currency. Even if it collected $0 taxes, it could continue spending, forever.

Rather than using tax dollars, the federal government creates new dollars, ad hoc, each time it pays a creditor.

While state and local governments (which are monetarily non-sovereign) do use state and local taxes to fund spending, the federal government actually destroys federal taxes upon receipt.

That is why no one can answer the question, “How much money does the federal government have?” The best answer is, “Infinite.”

Tax dollars never become part of any money measure (i.e. M1, M2, M3, et al). They simply are destroyed

2. Federal deficit spending causes inflation. FALSE

All inflations are caused by scarcity, usually a shortage of food and/or energy.

Federal deficit spending actually can cure inflation, if the spending is directed toward reducing the scarcity (for instance, by buying overseas and distributing the scarce goods, or by supporting the manufacture of the scarce goods).

3. Federal deficit spending slows the economy. FALSE

The most common measure of the economy is Gross Domestic Product (GDP), the formula for which is:

GDP = Federal Spending + Non-federal Spending + Net Exports

Increases in federal deficit spending increase all three terms in the GDP formula.

4. Federal borrowing competes with private borrowing. FALSE

Though state and local governments do borrow, the U.S. federal government does not borrow. Federal financing is nothing like state and local government financing.

Banks and credit card companies, which do the vast majority of lending in America, do not lend to the federal government.

5. Future taxpayers will have to pay for the federal debt. FALSE

Because the federal government has the unlimited ability to create dollars, it does not borrow. Instead, it allows for deposits into T-security (T-bill, T-note, T-bond) accounts.

When you buy a T-security, you are not lending money to the federal government. You are making a deposit into your own T-security account, held at the Federal Reserve Bank. There your dollars remain, collecting interest until maturity, at which time the government returns your dollars.

The federal government does not use those dollars to pay its creditors or for any other purpose.

No borrowing or taxpayer money ever is involved in T-security transactions. All taxpayer dollars are destroyed upon receipt.

6. Federal interest payments crowd out other federal spending. FALSE

The federal government has the unlimited power to create dollars. It can pay an infinite amount of interest.

Scott Winship, director of poverty studies at the conservative American Enterprise Institute, said his concern is that a permanent child allowance might make parents less likely to work and reduce the number of two-parent households, since there would be a stream of income from the government.

He wants to reduce child poverty but is concerned that doing so this way might worsen factors such as unemployment and single-parenthood that contribute to policy.

“The feeling is we win the battle against child poverty but we lose the war in the long run because we’ve created incentives that make it tougher to reduce poverty,” Winship said.

The conservatives want you to believe that giving the impoverished money increases poverty. Remember that bit of nonsense, every time to make a contribution to charity. According to the conservatives, when you drop a dollar into the bell-ringer-Santa’s pail, you are worsening poverty!

“If pulling families out of poverty were as simple as handing moms and dads a check, we would have solved poverty a long time ago,” Sen. Marco Rubio wrote.

Pulling families out of poverty is as simple as handing moms and dads checks, but ignorant and/or dishonest politicians won’t admit it.

But the expanded benefits included in the coronavirus relief plan set up a precedent that could put Republicans on defense on the issue. Because the benefit currently expires after a year, the Biden plan essentially creates a potential fiscal cliff for child poverty.

This could set up a political showdown during an election year on whether voters believe it’s acceptable for millions of children to lose the added aid and become impoverished once again.

“When it’s up for renewal, Republicans will be in the awkward position of opposing payments to families delivered through a credit that they pioneered, and championed as recently as 2017,” said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center. 

“No Republican wants to run on taking money away from families of any income,” Hammond said.

The Republicans never have expressed sympathy for the less-than-rich families. They tend to blame the impoverished for their own poverty, rather than to admit that good or bad fortune are the primary determinants of wealth.

Looking toward the midterm elections, the attack ads aimed at Republicans would simply highlight the party’s votes for tax cuts during the Trump administration in contrast with their votes against the Biden plan.

“It’s as simple as, when it was a vote on tax cuts for billionaires, Republicans voted yes, and when it was a check for you, they voted no,” he said.

If the Democrats avoid the pressure from the economics-ignorant, unnecessarily to raise taxes, the results might at long last demonstrate the facts of Monetary Sovereignty, and maybe, just maybe, we wouldn’t be subjected to the following Big Lies from such as the Committee For A Responsible Federal Budget (CFRB):

How High Are Federal Interest Payments?
Mar 10, 2021

This year, the federal government will spend $300 billion on interest payments on the national debt. This is the equivalent of nearly 9 percent of all federal revenue collection and over $2,400 per household.

Households don’t pay for federal interest payments.

The federal government spends more on interest than on transportation, education, and research and development combined.

The above statement is irrelevant. It only demonstrates that the government could spend more on transportation, education, and research and development.

The household share of federal interest is larger than average household spending on many typical expenditures, including gas, clothing, education, or personal care.

Again, irrelevant. Households do not pay for federal interest.

Growing debt levels add to the cost and risk associated with them.

The federal government has the unlimited ability to fund interest payments, which actually stimulate economic growth. There is no risk associated with federal spending.

Even with exceptionally low interest rates, the federal government is projected to spend just over $300 billion on net interest payments in fiscal year 2021. This amount is more than it will spend on food stamps and Social Security Disability Insurance combined.

It is nearly twice what the federal government will spend on transportation infrastructure, over four times as much as it will spend on K-12 education, almost four times what it will spend on housing, and over eight times what it will spend on research and development.

All the above demonstrates is the that government could, and should, spend more on food stamps, Social Security, infrastructure, education, housing, and research and development.

Interest payments effectively consume more than half of the worker-side payroll tax paid by households and are almost twice as large as total payments received through federal excise taxes and customs duties.

Interest payments do not “consume” any taxes. Federal taxes do not fund federal spending.

If interest rates were one percent higher than projected for all of 2021, interest costs would total $530 billion — more than the cost of Medicaid.

If rates were two percent higher, interest costs would total $750 billion, which is more than the federal governments spends on defense or Medicare. And at three percent higher, interest costs would total $975 billion — almost as much as is spent on Social Security benefits.

On a per-household basis, a one percent increase in the interest rate would increase costs by $1,805, to $4,210.

The CRFB keeps repeating the same lie, that federal taxes fund federal spending. They learned from Hitler that if you repeat a lie often enough, people will begin to believe it.

Trump used the same strategy with his repeat of the lie that the election was stolen. Millions of people believe that lie, too.

The higher the federal debt, the more exposed the federal government is to interest rate risk. 

There is no risk to the federal government or to taxpayers. The government has the unlimited ability to pay its bills. There also is no risk of inflation, which is not caused by government deficit spending, but rather by shortages, usually of food and/or energy.

And now, here is the CRFB’s Big Lie in all its glory:

Once the U.S. recovers from the COVID-19 pandemic, policymakers should work to adopt a combination of entitlement reforms, smart spending reductions, and revenue increases that will ultimately put debt and deficits on a more sustainable path.

“Entitlement reforms” and “spending reductions” mean “cut Social Security, cut Medicare, cut all social benefits for the poor and middle-income.”

“Revenue increases” means “increase FICA and other taxes on the poor and middle-income.”

“Sustainable” is the CRFB’s favorite word, that actually has no meaning at all, but it sounds oh, so prudent, doesn’t it?

SUMMARY

The Big Lie in economics is: The Monetarily Sovereign U.S. government uses tax dollars to pay its bills. This lie prevents the government from supplying benefits to those who are not rich.

A corollary to the Big Lie is the notion that spending for social benefits discourages people from working.

The Big Lie and its corollary are disseminated by the media, the politicians, and the economists who are bribed by the rich so as to widen the Gap between the rich and the rest.

Rodger Malcolm Mitchell

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all or a reverse income tax
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

9 thoughts on “Is poverty harmful, harmless, or a benefit?

  1. Very well said, Rodger! Poverty is harmful to individuals, society, and the economy, while it is beneficial to the oligarchs who use it as a cudgel for economic coercion of the rest of us. The oligarchs want millions of desperate people having no bargaining power working as hard as possible for as little as possible to make the ultra-rich even richer. Thus, they consider poverty to be a feature, not a bug. And of course they would hate any government spending/programs that reduce poverty.

    Conservatives and reactionaries (or at least the traditionalist and patriarchal ones) also have an additional, more esoteric reason to oppose poverty-reducing programs: they want women to be as financially (and otherwise) dependent on men as possible in order to control them, hence their pseudo-moralistic fear of single mothers getting money from the government.

    In both cases, it is really about power and control above all else, and of course greed.

    We could literally eradicate poverty overnight with the stroke of a pen and a few clicks of a keyboard. So what are we waiting for?

    Like

    1. Inflation always is caused by shortages. So yes, government spending can result in shortages. It is not the additional money in the economy that in itself causes the inflation, but rather the additional buying that causes the shortages, and that’s what causes inflation.

      So, in answer to your question

      1. I’m sure there is because, at some level, federal purchases of limited goods, sometimes can cause shortages
      2. No one knows what level that might be. It would have to be purchases of limited and vital goods (food, oil, etc.) , and it probably would be well more than currently proposed.
      3. But the federal government has all the tools it needs to control it. The quick, short-term tool is interest rate control, i.e. making dollars more valuable.

      But the real, long-term tool is simply to purchase from abroad, and to distribute, the scarce goods.

      For instance, if the scarcity is oil, the government can purchase oil on the international market and/or distribute it from the national reserve. If the shortage is food, the government can do the same, and/or it can pay farmers to farm vacant or fallow land, or to increase yields via various methods, etc.

      The key to stopping inflation is not to cause a recession with deficit cuts, but rather to address the shortages. Otherwise, you’ll just wind up with a recession/inflation (or “stagflation.”)

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      1. Excellent explanation. Per Keynesian economic theory, there are two types of inflation:
        1) Demand-Pull – too much buying in an economy that leads to shortages, which can include both commodities, such as food and energy, as well as labor (unlikely in a normal economy)
        2) Cost-Push – Shortages in key commodities or labor due to external factors, such as OPEC oil embargo in the 1970’s or food shortages in Zimbabwe in the late 1990’s that lead to persistent hyperinflation.

        Economists worry that too much money or government spending in the economy would lead to demand-pull type of inflation, but the key point is that spending has to result in shortages of key commodities or critical labor for inflation to occur. That has not happened since WWII. The only way to deal with shortages is by reducing demand (taxes, bond issuance, regulation, higher interest rates, etc.), which can lead to recession/ stagflation, or increasing supply (imports, productivity/automation, immigration, technology, new resource development, etc.)

        What finally resolved the oil shock induced inflation of the 1970’s was the fall in oil prices (which peaked in 1981) due to reduced demand, which resulted from increased use of coal, natural gas, and nuclear for power generation, and the introduction of motor vehicle CAFE standards.

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        1. All true. However, the best way to deal with shortages is to increase supply, which can be done in several ways, all (ironically) with an INCREASE in federal spending. In fact, supply tends to respond to demand, and this occurs more quickly today than ever.

          Because inflation is a GENERAL increase in prices, the “too much” federal spending would have to be for energy. It is difficult to imagine “excessive” federal spending causing a general increase in food prices. (One or two foods, but not all of them.)

          The bottom line is that pumping money into the economy does not cause people to spend more on ALL commodities, causing general “demand-pull” inflation, despite what the economists tell us.

          The only, and I mean ONLY, way we will have inflation is if oil prices rise, and that rise will not be a result of federal money creation, but will instead be a result of OPEC/US/Russia politics.

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          1. These days, inflation only can occur with an oil shortage, and the government has the power to prevent that. It has nothing to do with money creation, but is related to OPEC, Russia, and US drilling activity.

            Like

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