–Monetary Sovereignty for Young People, Part 5. Medicare

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.
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Much of what I told you about Social Security, also applies to Medicare.

–The U.S. federal government became Monetarily Sovereign on August 15, 1971.

–Our Monetarily Sovereign government has the unlimited ability to create dollars (that’s part of what “Monetarily Sovereign” means)

–So, the government neither needs nor uses dollars sent to it by anyone. It doesn’t need or use tax dollars; it doesn’t need or use borrowed dollars. Taxing and borrowing are relics of our monetarily non-sovereign, pre-1971 days.

–The 1.45% of your salary you pay for Medicare, and the 1.45% your employer pays, are wasted. You and your employer might as well burn a week an a half’s worth of your salary. Federal taxes do not pay for federal spending (though state and local taxes do pay for state and local spending. The states, counties and cities are not Monetarily Sovereign.)

In Part 4, I referred to Social Security as “one of the crown jewels of American society. Medicare is another such jewel, a vital benefit to Americans.

Only the wealthiest among us can afford to pay for health care, particularly for serious illnesses, and particularly as we move into our more senior years. Then, not only are we weaker and more subject to disease, but our incomes usually are lower.

It is difficult to imagine anyone in America believing Medicare should be eliminated or even cut, although the Tea/Republican party wishes to cut federal payments, which inevitably will cut services, both in quality and quantity.

The alternative to having health care insurance is:

1. Poorer health, when people cannot afford regular visits to doctors, and cannot afford to take timely tests and cannot pay for suggested procedures and/or

2. More costly health care, as untreated diseases become more serious and more costly to treat. Also, the poor, instead of visiting doctors, are forced to visit free emergency rooms, which not only are more expensive, but move the cost to the bill-paying public.

“One measure of a government is how well it provides for its citizens.” Yet, the wealthiest nation on earth, neither provides the best health care, nor the most comprehensive health care.

In 2000, the The World Health Organization ranked the health care of 190 nations. Frankly, I don’t know their criteria, and I always am suspicious of such rankings, but the United States was ranked #37, just behind Dominica and Costa Rica, and just ahead of Slovenia and Cuba.

Our Medicare doesn’t cover all medical bills. Many Americans purchase Medicare supplement policies as well as Part D for prescription drugs. And coverage is limited to older people.

Younger people must be employed by a company that offers group health care insurance or must purchase it on their own. Most companies require employees to pay for part of the group policy, a significant expense for working people.

Purchasing health care insurance, when not part of a group, is expensive. Losing your job means losing your coverage as well as the income to pay for it – a double problem.

People who have a “pre-existing condition,” either from sickness or accident, are precluded from buying their own health care insurance. The Patient Protection and Affordable Care Act (Obamacare) is designed to help these people. However the Supreme Court, which has a conservative majority, either may eviscerate or completely destroy this program. As this is written, we are awaiting results of its deliberations.

It commonly is believed the threat of lawsuits raises the cost of healthcare, by increasing malpractice insurance premiums and by forcing doctors to order unnecessary tests. I’ve not seen data to support either, though I won’t deny both possibilities.

But, if a doctor’s malpractice causes physical injury, what is the correct settlement? How much would you accept to lose a leg? An eye? Your life? And which tests are “unnecessary”? There are no simple answers to these questions.

So, in summary:
1. Many Americans cannot afford to pay for health care insurance.
2. Many Americans have pre-existing conditions, so are refused coverage by insurance companies.
3. Available health care insurance, including Medicare, does not provide full coverage of all costs. These costs may be unaffordable for many Americans.
4. The population is aging, which increases the nation’s need for health care insurance.
5. Health care costs are increasing.
6. Businesses have begun to charge employees more and more for group coverage, an increasing burden on the average American.
7. The cost of malpractice insurance can be high, a burden that doctors and hospitals must pass on to their patients.
8. The Supreme Court may overrule some or all of “Obamacare,” because the program requires all Americans to pay for health care insurance.

There is a simple answer to every one of the above problems: The United States government should provide free, comprehensive Medicare coverage to every American, regardless of age or even citizenship.

This would have the following benefits:

–It would this solve #1 – #8, above.
–It would end the need for Medicaid, a huge burden on our financially weak, monetarily non-sovereign states.
–It would eliminate the requirement that hospitals provide free service to patients who cannot afford to pay, and pass these costs on to the bill-paying public.
–It would put dollars into the pockets of the poor and middle classes.

Here are very rough calculations of costs:

–The U.S. has 313 million people, of which 272 million (87%) are 65 years old or less (Census Bureau).

–Medicare will cost the federal government $480 billion in 2012. (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/health.pdf).

–Medicaid will cost the federal government $265 billion this year, which accounts for 55% of total Medicaid costs (the states pay 45% on average). Total Medicaid cost: $480 billion.

–The total cost of Medicare and Medicaid (including the states’ share) is $960 billion.

–The elderly (age 65 and over) totalled 13% of the U.S. population in 2002, but they consumed 36 percent of total U.S. personal health care expenses. (http://www.ahrq.gov/research/ria19/expendria.htm#HowAre)

–All else remaining the same, if the U.S. government were to provide Medicare for everyone in America, and eliminate FICA, and eliminate the Medicaid burden from the states the total Medicare cost to the federal government would be $2.7 trillion, and the total deficit would rise to $4 trillion.

–Can the federal government afford to eliminate FICA and eliminate the states’ responsibility for Medicaid, and provide Medicare for everyone in America? Clearly, the federal government, which has the unlimited ability to create dollars, can pay for anything.

So we are left with just one question and it boils down to inflation: Should the federal government pay for Medicare for everyone? Will this amount of spending cause inflation?

No one can say with certainty. Here are the federal deficits for the past six years:
2007: $0.16 trillion
Deficit triples
2008: $0.46 trillion
Deficit triples again
2009: $1.4 trillion
2010: $1.3 trillion
2011: $1.3 trillion
2012: $1.3 trillion

In 2008, the deficit tripled. The deficit tripled again, in 2009. Many people would have predicted that tripling the deficit (twice!) surely would cause massive inflation.

Instead, the economy has flirted with deflation, not inflation, and the government has had no difficulty paying its bills. This is in keeping with history, which shows that energy prices, not federal deficits, have caused inflation. And of course, our Monetarily Sovereign government never has, and never can, run short of dollars to pay its bills.

No one knows whether a $2.7 trillion addition to the budget, which once again will triple the deficit, this time will cause inflation. History says, “No.”

But we know for certain that eliminating FICA, eliminating the states’ Medicaid burden and providing Medicare for everyone will stimulate the economy, save the states from financial disaster, and improve the overall health of America.

When comparing a “maybe” with a certainty, I lean toward the certainty, and would begin the process first by eliminating FICA, then by paying for Medicaid and finally by providing Medicare to every American, by working down the age ladder, perhaps in 10-year increments.

The schedule would be dictated by inflation. If we see that the first step doesn’t cause inflation, take the next step. If inflation arises, raise interest rates. As a last resort, stop the process or increase taxes.

We should not allow the fear of a possible inflation prevent us from doing what definitely is right for the economy and for the health of Americans.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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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

#MONETARY SOVEREIGNTY

— Katrina vanden Heuvel writes an article I wish I had written.

I wish I’d written this article:

Republicans are causing a moral crisis in America

The real crisis of public morality in the United States doesn’t lie in the private decisions Americans make in their lives or their bedrooms; it lies at the heart of an ideology — and a set of policies — that the right-wing has used to batter and browbeat their fellow Americans.

Great article. What she says is so obviously true, I’m amazed that the entire nation doesn’t get it. But then, I feel the same amazement that the entire nation doesn’t get Monetary Sovereignty.

Hmmm . . . I wonder if she does.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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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

#MONETARY SOVEREIGNTY

–Monetary Sovereignty for Young People, Part 4. Social Security

The first three Parts of this series mostly have provided facts, with just a few opinions. Some of the facts are:

–The U.S. government is Monetarily Sovereign (MS), while the people, businesses and state and local governments are monetarily non-sovereign

–Our MS government creates dollars by spending and destroys dollars by taxing. In contrast, you and I transfer dollars by spending, and never destroy dollars.

–A MS government has the unlimited ability to pay any bills of any size at any time. Monetarily non-sovereign people and governments do not have this ability.

–A federal deficit is the difference between taxes and spending.

–A MS government does not need to obtain its sovereign currency from anyone, so taxing and borrowing do not support government spending.

–Federal debt is the total of outstanding Treasury securities.

–The government pays its debt by subtracting dollars from a debt holder’s T-security account and adding dollars to the debt holder’s checking account. It’s a simple asset exchange.

–Reduced money growth has been associated with recessions.

Part 4. will continue showing you facts, but also will include far more of my opinions.

The purpose of a government is to do for people what the people cannot, or do not wish to, do for themselves. A man living alone in the woods, neither wants nor needs a government. He does everything for himself.

Most of us do not live alone in the woods. We want the government to help protect us from crime, fire, tainted food and water, poverty, disease and enemies. We want the government to provide us with roads, bridges, education, justice and many of the services that improve our lives. In short, we want government to address the three “P’s”: Poverty, Protection and Prospects (the opportunities for success, health, comfort and happiness).

Some people, who view themselves as self-reliant, call such help “socialism.” They are wrong. Help is what any government does. Socialism not only includes providing help, but more importantly includes government ownership.

Even “self-reliant” people encounter situations where they want government help. When their house is on fire, using a garden hose might not be enough, and few people wish to build their own roads and bridges.

In less advanced societies, help may come from friends and neighbors. The more advanced governments provide more help, and one measure of a government is how well it provides for its citizens.

Most advanced civilizations care for their aged. There are two reasons:

1. Older people need help. They often lose some ability – financial, physical or mental – to care for themselves, so purely for moral and humanitarian reasons, governments provide care.

2. Older people are valuable. They have knowledge. They often understand past events, successes and failures, and can apply these to the future. They can teach those younger than them. This passing of knowledge from old to younger is a human advantage. It is a key to our survival as a species.

Without drifting too deeply into philosophy, I offer you my opinion that Social Security is one of the crown jewels of the American society, a great benefit not only to the individuals receiving benefits, but to America as a whole.

I have, however, three arguments with Social Security as it now is implemented. In my opinion:

I. FICA (Federal Insurance Contributions Act) tax should be eliminated
II. The income tax on Social Security should be eliminated.
III. The benefits should be increased

I. Why FICA Should Be Eliminated

Contrary to popular belief, FICA does not pay for Social Security. The U.S., as a Monetarily Sovereign nation, which has the unlimited ability to create its sovereign dollars, neither needs nor uses dollars received from anyone.

Here is how the U.S. pays Social Security benefits:

1. Every month, it sends a wire to each recipient’s bank, or it sends a check to the recipient. The wire and the check are not dollars; they are instructions to the bank.
2. The instructions tell the bank to increase the numbers in the recipients checking account.
3. The bank does as it is instructed. Increasing those numbers is what creates dollars.

The federal government, being Monetarily Sovereign, has the unlimited ability to send instructions. Even if FICA were $0, and SS benefits were tripled, the federal government still would not run short of instructions to increase checking accounts and pay SS benefits.

The federal government can pay any bill of any size at any time. It never can go bankrupt. Because the federal government can’t go bankrupt, none of its agencies can go bankrupt, and none ever has. No federal check ever has bounced.

Social Security is a federal agency. If you go on line to federal agencies, you will see a list of about 650 agencies. Not one ever has gone bankrupt. Not one ever has bounced a check. Yet, only two of these agencies is “supported by” (actually, limited by) FICA or by any other tax collection: Social Security and Medicare.

Why was this limit placed on Social Security and Medicare? Both programs were created when the U.S. government was monetarily non-sovereign. So, Congress needed to be convinced these two programs wouldn’t cost anything, and that these two programs were like private insurance policies, in which people paid for the benefits they received. That was the only way to get Congress to create Social Security and later, Medicare.

Today, because the U.S. now is Monetarily Sovereign, FICA not only is useless, and financially harmful, but it creates the wrong impression about Social Security finances. Because of FICA, some people believe Social Security will run out of money.

These people are wrong. Like all federal agencies, Social Security is funded by the U.S. government, not by FICA. It never can run short of money unless Congress and the President decide to withhold dollars.

FICA is harmful because:

1. Like all taxes, it takes dollars out of the pockets of people and companies. When people are forced to spend less, the economy is injured.

2. FICA is a regressive tax. It hurts poor people much more than rich people. For many poor people, it is the biggest tax they pay.

3. Some people receive income that is not covered by FICA; they may pay no tax. When these people get old, they still may need Social Security, but they will not receive it. Eliminate all FICA, and this problem will disappear.

II. The Tax On Social Security Benefits Should Be Eliminated

Though the government wrongly tells people to pay the FICA tax to “support” Social Security, the government also collects taxes on the benefits people receive. Interestingly, no such tax is extracted from Medicare benefits, which also supposedly are supported by FICA, though I expect Congress to take that step, one day.

I have difficulty imagining the logic that first tells people to pay dollars to a government having the unlimited ability to create dollars – and then tells people to pay a tax on the benefit that supposedly was paid for by taxes..

III. Social Security Benefits Should Be Increased

The purpose of Social Security is to keep our senior citizens from poverty. But anyone trying to survive solely on Social Security benefits lives in poverty.

Millions of people, either because of low earnings, joblessness, sickness or other factors, have not been able to save enough for retirement. These people are not lazy. They do not “deserve” to be poor. For many of them, it’s a case of bad luck.

Perhaps they were born unintelligent or to impoverished parents who couldn’t afford to educate them. Perhaps they have been stricken with illnesses. Perhaps they tried business and failed, or were fired, or lost their home to recession. Perhaps they had to support sick relatives. There are many reasons for poverty.

Whatever the cause, they turned 65, and they don’t have enough money saved, and Social Security will not give them enough to lead decent lives. They may be hungry, homeless, without adequate clothing, without adequate care. Do we turn our backs?

America, this Monetarily Sovereign nation, has no excuse. The government can pay any bill of any size at any time. There is no reason for Social Security benefits to be below subsistence levels. Yet, according to the Social Security Administration, “The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012.”

That’s just the average, so many people receive less. And that average comes to only $14,760 per year, which barely might be enough for a person living in a small, rural area, but guarantees starvation for someone living in a big city.

The next time you hear someone say Social Security will run out of money, know this: FICA can and should be eliminated; the tax on benefits can and should be eliminated; the benefits themselves can and should be greatly increased – and Social Security will not run out of money unless Congress and the President deliberately withhold funds.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

–Monetary Sovereignty for Young People, Part 3. Inflation

Some people have learned that the federal government, being Monetarily Sovereign, now has the unlimited power to create dollars. And of those people, some have learned that taxes hurt the economy by taking dollars out of the economy. And of those people, some see that federal spending grows the economy by adding dollars to the economy.

But, far too many people still believe federal deficits should be reduced. These people want increased taxes or reduced federal spending. How can they understand that dollars grow the economy, while still wanting fewer dollars in the economy? The answer: They fear inflation.

Inflation is when prices go up. Not just one price, or a few prices. Inflation is when almost all prices go up.

Is inflation a bad thing or a good thing? It can be both. It can be a bad thing, because your dollars will buy less of what you want – less food, less clothing, less everything. So, unless you get more dollars, inflation will make you poorer.

But the federal government believes a little bit of inflation every year is good. If people know prices will go up, they will buy things now, to take advantage of today’s lower prices, rather than waiting until later.

When people buy now, business’s sales increase now, which increases profits now. This leads to increased hiring. Unemployment goes down. When more people work, more people buy things, which further benefits business.

There also is a psychological benefit from inflation. Working people want salary increases. Inflation makes it possible for businesses to give raises with less valuable dollars. So, though the buying power of the higher salaries may be no more than the buying power of the previous, lower salaries, people like feeling they have more dollars to spend.

The federal government would like inflation to be about 2% – 3% every year. I say “about,” because it is impossible for the government to precisely control inflation.

While too much inflation is bad, its opposite – deflation – is thought to be a disaster. The hypothesis: During deflation, people cut back on buying. They wait for tomorrow’s lower prices. Businesses suffer. Profits go down. Hiring goes down. Unemployment goes up. The government will do anything it can to avoid deflation, so to be safe, it leans more toward 3%, than 2%, inflation.

Although 2% – 3% inflation every year is a “little bit” of inflation, over many years it can add up to a lot. Over 10 years, a 3% annual inflation adds up to 34% inflation. When someone says we have had “a lot of” inflation, they usually are talking about longer periods of time. Fifty years of 3% inflation means prices, on average, will more than triple.

How Does The Government Control Inflation?

Inflation is a balance between the value of goods and services, and the value of money. Inflation happens when the value of goods and services goes up or the value of money goes down – or both.

The value of everything is determined by supply and demand. When the supply of anything goes up, its value goes down. When the demand for anything goes up, its value goes up.

Years ago, there wasn’t as much trade between nations as there is today. Now, we get cars from Japan, grapes from Chile, clothing from China, and answering services from India. We import millions of things from dozens of countries. We are in a world market.

This makes inflation in any one country less likely. If the price of any one product goes up, we probably can buy it from many other nations, which reduces the likelihood of a general increase in prices. But, there is an exception: Oil.

The price of oil affects the prices of all other products and services, so when the worldwide price of oil goes up, we can have a general increase in prices – inflation.

The U.S. government has very little control over the value of goods and services. So to reduce inflation, the U.S. government tries to increase the value of dollars. To increase the value of dollars, the government can limit the supply of dollars, or it can increase the demand for dollars.

There are four problems with limiting the dollar supply to control inflation:

1. A growing economy needs a growing supply of money. So historically, when the government has limited the dollar supply we have had recessions and depressions.

2. To limit the dollar supply, the government either must increase taxes or reduce spending, and either option causes a huge political debate in Congress. This debate can take months or years. People called “lobbyists” try to influence Congress. Voters write and call their representatives. Polls are taken. Meetings are held. Votes are taken in the Senate and the House. And all the while, inflation could be growing. A faster inflation control is needed.

3. The effects of tax increases and limited spending are hard to predict. Every tax affects different people. If inflation were, for instance, at 5%, which specific tax should be increased and by how much? No one knows. Government spending also affects different people. Which specific spending should be reduced and by how much? Again, no one knows. Go too far, and we could cause a disastrous deflation or even a depression.

4. Finally, each tax increase or spending limit ultimately affects businesses. But to grow, businesses need to predict the future. Frequent tax increases or spending cuts make prediction impossible.

Because trying to control inflation by controlling the supply of dollars can have serious negative consequences, the U.S. tries to control the demand for dollars.

Demand is based on risk and reward. If the risk of owning money goes up, the demand for that money goes down. If the reward goes up, the demand goes up.

For any currency, “risk” is inflation. Since controlling inflation is the goal, the way to reach that goal is to increase the reward for owning money.

Bank savings accounts, bank CDs, money markets and bonds all are forms of money. What would make you more likely to demand money rather than real estate or stocks, which are not forms of money? That is, what would make you more likely to put your money into savings accounts, CDs, money markets and bonds? Answer: Increased interest rates.

And that is how the government controls inflation. It increases interest rates to increase the demand for dollars.

This has three advantages:

It doesn’t require endless Congressional debate. The Federal Reserve has the legal power to change interest rates, overnight.
It has broad economic effects rather than unfairly penalizing one industry or one business.
It can be done in small, frequent, controllable steps, rather than in huge steps that could have bad consequences

It is true that increasing interest rates also increases business costs, which could be inflationary – exactly the opposite of what is wanted. But history shows that on balance, the small increase in business costs has less effect on inflation than does the large increase in money value.

There could be two reasons for this:

1. A 1% increase in interest rates will have only a tiny effect on the average business’s overall costs. But if today’s interest rate is 3%, an increase to 4% is actually a 33% increase, having a huge affect on the demand for money.
2. The “world market” effect. If any business raises its prices, its goods or services can be purchased elsewhere.

In Summary

–Inflation is a general increase in the value of goods and services compared to the value of money.
–A little inflation stimulates economic growth.
–Federal deficits are absolutely necessary to grow the economy and to prevent recessions.
–By themselves, deficits could be inflationary. However, today’s world trade helps prevent this, so inflation today is caused not by deficits, but by oil prices.
–The government can control inflation via interest rates.

The Inflation Fear

Water is necessary for life, but if you drink 50 gallons of water in one day, you will die. So for a healthy life, don’t drink too little water, or too much water, but do drink water, especially if you plan to work out. And for sure, don’t stop drinking water.

Money growth is necessary for economic growth. But too much money can cause inflation. So for a healthy economy, don’t create too little money or too much money, but do create money, if you want the economy to grow. And for sure, don’t stop creating money (running deficits).

The goal is to grow the economy as much as possible without too much inflation. The method is to create as many dollars as possible, up to the point where interest rates don’t control inflation. It surprises many people to learn the U.S. never has had an uncontrollable inflation caused by too many dollars.

What About the Weimar Republic and Zimbabwe?

People who want to reduce the federal deficit often point to the (German) Weimar Republic and to Zimbabwe, as examples of countries that experienced hyperinflation (extreme inflation). The deficit reducers wrongly say those hyperinflations were caused by too much government spending.

However, the Weimar inflation was caused by harsh, World War I sanctions put on Germany by the winning Allies, and these sanctions destroyed the German economy. The Zimbabwe inflation was caused by Robert Mugabe, who stole the nation’s farm land from farmers and gave it to people we did not know how to farm.

In both cases, the inflation caused the money creation as the government tried to pay its bills, rather than the money creation causing the inflation.

In Part 4, we’ll discuss Social Security, Medicare and Medicaid

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

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