Tag: economic myths

–Why Medicare and Social Security are not “adequately financed”

The debt hawks are to economics as the creationists are to biology.

Soon you will read about this new report:

2010 Social Security Trustees Report, August 6, 2010: “. . . the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust Funds are adequately financed until 2040 and 2018, respectively. . . significant longer term financial imbalances of the programs still need to be addressed .”

By:
Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee
Hilda L. Solis, Secretary of Labor, and Trustee
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee
Michael J. Astrue, Commissioner of Social Security, and Trustee

For Mr. Geithner et al, “adequately financed,” means tax revenues will equal or exceed spending. When, spending exceeds taxes, Medicare and Social Security will be “inadequately financed,” i.e insolvent.

To put it gently, Mr. Geithner et al do not know what they are talking about.

Visualize a scenario where there are zero federal taxes. The federal government has no income, not even any money, yet sends you a check for $10 trillion dollars. You deposit the check in your bank. Will the check bounce? No. Your bank will send the check to the Treasury, which will credit your bank and debit its own balance sheets for $10 trillion. The bank now has $10 trillion, which it credits to your account, allowing you to buy a few thousand Rolls Royces or the State of Montana, whichever you prefer.

The government can send you checks endlessly, in any amount. With each check, the government merely debits its balance sheet and credits your bank account. The government balance sheet is just a score sheet, though it misleadingly is called “debt.” Whether that score sheet reads $10 trillion or $100 trillion makes no difference to the score sheet. The only limit is the artificial “debt limit,” on which Congress votes periodically. There is no functional limit on what any balance sheet can read. The government can write a check of any size, despite zero taxes, credit your account for any amount, and enter any amount into its score sheet.

Taxes may be levied for several social reasons (cigarette and liquor taxes are examples), but supplying the government with spending money is not one of them. The government creates money by spending. It does not use tax money. Therefore, all federal debt is sustainable, endlessly.

Because Social Security and Medicare are federal agencies, the government can support them endlessly, without any FICA taxes at all, merely by mailing checks. Sadly, the wrongheaded beliefs of Mr. Geithner et al have led to the deterioration of Social Security and Medicare benefits.

At one time, the “normal retirement age for Social Security benefits was 65. Today, it is age 67 for people born after 1969. Mr. Geithner’s kind of reasoning has cost Americans two years worth of benefits. Further, these benefits are subject to income tax. Thus, you pay tax on your FICA payments and pay tax again on your benefits – a double tax. Finally, despite paying FICA taxes for years, the day you die all benefits cease. You could pay FICA for 40 years, and if you die at age 60, your estate will receive nothing – all because of the false belief that taxes pay for federal spending.

Medicare payments also are so restricted many Americans purchase supplementary insurance to cover what Medicare does not – all because of the false belief that taxes pay for federal spending.

We pay penalties for believing taxes support federal spending. We pay penalties for believing Medicare and Social Security could go bankrupt unless FICA is increased or benefits reduced. We pay penalties for believing the federal deficits are “unsustainable.” We pay penalties for the misinformation coming from our leaders. We pay penalties for believing them.

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

No nation can tax itself into prosperity

–Debt madness in the media

The debt hawks are to economics as the creationists are to biology.

The media have made America’s voters insane. Any program designed to stimulate the economy is rejected because it would “add to the debt” (which is the only way to stimulate the economy) or would “be paid for by our grandchildren” (a monstrous lie).

Thus we have the ridiculous situation in which banks are criticized for not lending enough (i.e., for giving the private sector too little debt), while the federal government is criticized for having too much debt. Think, people! Do you really believe the solution to our problems is for the private sector to take on more debt, while the federal government reduces its debts?

On the one hand we have the private borrowers, already overburdened with bad debt, and falling into bankruptcy every day. On the other hand we have the federal government, which can support a debt of any size, and which does not even use tax money to support spending, and which as a monetarily sovereign nation, cannot go bankrupt. Which do you think should take on more debt to stimulate our economy?

It is absolute madness to ask for more private deficit spending and less federal deficit spending. Yet, that is what the media, the politicians and the obsolete economists do.

In the post, Is federal money better than other money, I demonstrated that while reductions in federal debt growth immediately precede recessions, increases in private debt growth also lead to recessions. The media and the politicians, who want more private debt growth and less federal debt growth have it exactly backwards.

Rumor says the Obama administration soon will suggest Fannie and Freddie give “upside down” mortgage holders a break, paid for by the federal government. If true, you will hear a great protest that this will increase the falsely termed “unsustainable” federal debt. The protesters prefer that the private sector bear this debt, which for the private sector, truly is unsustainable.

I’m not sure when it became more “prudent” for the private sector to suffer bankruptcies, than for the federal government to create money, but I pray, for the sake of America, that the media, politicians and sleeping economists come to their senses. This backwards thinking has caused terrible misery, as backwards thinking always does.

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

No nation can tax itself into prosperity

–America, wake up

The debt hawks are to economics as the creationists are to biology.

“Congress to Weigh Options for Reducing Federal Debt

Hard choices on Social Security, Medicare, defense and taxes can’t be avoided much longer. By Richard DeKaser, Contributing Economist, The Kiplinger Letter
July 30, 2010

Is Washington serious about tackling the federal debt? […] The key is Obama’s debt commission. Its short-term mission is to balance the budget by 2015 — not counting interest on the swelling national debt. That would slash the annual deficits by two-thirds, to about $500 billion. The long-term goal: Achieve fiscal sustainability, which is generally seen as holding debt at something under the equivalent of 65% of gross domestic product (GDP).”

Let’s get this straight. With a balanced budget, even minuscule inflation would reduce the amount of real money in the economy. Historically, recessions follow low deficit growth, and recoveries correspond with high deficit growth. So why aim for a balanced budget? No evidence, just anthropomorphic economics disease.

What makes fiscal sustainability 65% of GDP? No evidence. The DEBT/GDP ratio is meaningless – an apples/oranges comparison with zero significance. And where did 65% come from? Nowhere. Just popped into someone’s head. And that “pop” will cost you plenty.

The ignorant article continues:

“Recommendations in four areas are likely:

“Social Security. . . .Gradually raise the retirement age to 68, calculate benefits using the Consumer Price Index instead of wage inflation and shave a half point from annual cost-of-living increases would knock $548 billion off the deficit in 2040, for example. Another possibility is to raise the cap on earnings subject to payroll taxes, perhaps to 90% of earnings for everyone. That would juice up incoming revenue.”

If someone told you they would cut your Social Security payment, would you at least ask, “Why?” And if the answer were, “The government can’t afford it,” would you at least say, “Show me the evidence”? You never have seen any evidence except for unsubstantiated statements that the debt is too big. This is the same answer you have received since 1971. Wrong then; wrong now.

The ignorant article continues:

“Health care. . . apply a means test for Medicare and revise the recently passed health care law.” Yes, we’re going to cut your Medicare payments, reduce your doctors’ payments and require you to prove you need the money. Do you care? Naw. And don’t even bother to prove the government can’t afford the expense. I trust you. Just take my money and reduce the number of doctors. I love pain.

More from the ignorant article:

“Other government spending. . . A full-scale review is already under way, including plans to forgo or scale back big weapons systems — the F-35 Joint Strike Fighter, the C-17 transport and more. More base closings, especially abroad, are also possible.” Either we need these things for defense or we don’t. Or are you saying the unsupported notion that the government is broke trumps American defense initiatives?

And finally, my favorite ignorant paragraph:

“Taxes. . . rates will surely be raised at some point. Holding them steady for a year — for all but high incomers — costs $95 billion. For 10 years, the tab climbs to $2.46 trillion. Other tax options on the table include limiting itemized deductions and imposing a value-added tax.” Yes, debt hawks, raise my taxes. You don’t provide evidence, but you are much smarter than me, so go ahead, take my money. I don’t care.

The ignorant article continues, “All of the options are extremely painful, and lawmakers’ instincts will be to balk and refuse to budge.” And with darn good reason, because these options not only are painful, but are incredibly harmful and foolish.

America, wake up. These fools want to steal your money, your health, your defense and your lifestyle. Don’t let them do it. Demand proof they know what they’re talking about. Demand proof the federal deficit and debt are unsustainable. If someone wants to steal from you, vote them out.

Or you can just lie back, spread wide and say, “Take me.”

By the way, my $1000 offer still is unclaimed. I wonder why.

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

No nation can tax itself into prosperity

–Politics vs. people

Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
●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.
●The single most important problem in economics is the gap between rich and poor.
●Austerity is the government’s method for widening the gap between rich and poor.
●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.
●Everything in economics devolves to motive, and the motive is the Gap.

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Today’s headline: “Fears grow as millions lose jobless benefits”
Body copy: Senate Republican leader, Mitch McConnell of Kentucky, said: “The fastest-growing parts of this Democrat economy aren’t jobs — they’re the crushing burden of the national debt and the size of the federal government.”

The “crushing burden” is not national debt, which crushes no one. The crushing burden is the false belief the national debt is a crushing burden.

As a result of this false belief, millions will lose jobless benefits, taxes will be increased, Medicare doctors will receive less than they should, Social Security payments will begin later, Medicaid payments will be cut, defense spending will be reduced, federal funding of K-12 education and school breakfast programs will be cut, mass transit funding will be cut and federal assistance to the states will be reduced — all because of a myth with no factual support.

So you, dear reader, will suffer a significantly degraded life style, all because the debt hawks say the federal debt is a crushing burden and the debt causes inflation, neither of which is supported by any data.

Go to any debt hawk web site and ask them for data proving the U.S. federal debt is unsustainable or causes inflation. If they answer you at all (unlikely), they merely will give you statistics regarding the size of the debt, but no evidence it has a negative effect on America.

Here are a couple debt hawk sites you can visit:
Concord Coalition
The Cato Insitute
The Heritage Foundation
The Manhattan Institute
The Hoover Institution

Go ahead. Contact any of them. Despite impressive doctoral credentials, and oodles of statistics, they have no evidence to back their claims. Why? No such evidence exists, though massive evidence shows the misnamed “debt” (should be called “net money created”) is necessary for economic growth.

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

No nation can tax itself into prosperity