–Why Robert J. Samuelson wants to cut Social Security, Medicare and Medicaid. Monday, Mar 7 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.

Robert J. Samuelson is a weekly columnist for The Washington Post, writing on political, economic and social issues. His column usually appears on Wednesdays. Add his name to the long list of economics writers who are ignorant of Monetary Sovereignty, the basis of all modern economics.

In a March 7, 2011 column titled, “Why Social Security is Welfare,” he makes the following comments:

Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts – as polls indicate many Americans prefer – would ordain massive deficits, huge tax increases or draconian reductions in other programs. That’s a disastrous formula for the future.

Yes, Robert, not cutting Social Security, Medicare and Medicaid would “ordain” (?) deficits. However, because the U.S. now is Monetarily Sovereign, there is zero connection between deficits and taxes. For your benefit, Robert, I’ll say again what you as an economics writer already should know: “Federal taxes do not pay for federal spending.”

And so far as those draconian reductions in other programs, why do you believe a nation with the unlimited ability to create dollars, needs to cut spending, when inflation is nowhere in sight?

Here is how I define a welfare program: First, it taxes one group to support another group. . .

Robert, now repeat after me until you get it: “Federal taxes do not pay for federal spending.” State taxes do pay for state spending, and city taxes do pay for city spending. The states and cities are not Monetarily Sovereign. But, federal taxes do not pay for federal spending. In fact, FICA could be eliminated, and this would not reduce by even one penny, the federal government’s ability to support this program – even were benefits doubled.

Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today’s workers.

Things have changed markedly since the 1940’s, and Robert has not kept up with the changes. In August, 1971, one of the biggest economic changes in our lives occurred. We became Monetarily Sovereign. At that instant, Social Security ceased being a “pay-as-you-go” program, because FICA no longer supported benefits. In a Monetarily Sovereign nation, tax dollars are destroyed upon receipt. They do not, and cannot, support federal spending.

Think about it, Robert. Why would a government with the unlimited ability to create dollars, need to use taxes to pay for anything? It makes absolutely no sense. Sadly, Robert still lives in a gold-standard (aka “flat-earth”) world.

Annual benefits already exceed payroll taxes. The gap will grow.

Yep, the difference between FICA collections and benefits will grow. More net money will be created. This will stimulate economic growth. So what is the problem?

No doubt people would be outraged (by benefit cuts). Having been misled, they’d feel cheated. They paid their taxes, why can’t they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.

No, shared sacrifice is meaningless if it is purposeless. There is absolutely, positively no reason to cause widespread human misery by cutting Social Security, Medicare and/or Medicaid benefits. Causing misery out of sheer ignorance is unforgivable.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth.

–What will help the poor? Taxes vs. Spending Monday, Dec 20 2010 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Now that the new tax bill has passed, three related issues will remain in the news:

1. Will tax reductions cause inflation? (In the unlikely event they do, the Fed will prevent/cure inflation by raising interest rates)

2. Will tax reductions bankrupt Social Security and Medicare? (No. Because the federal government is Monetarily Sovereign, federal spending is not constrained by taxes. If FICA were reduced to $0, this would not affect by even one penny the federal government’s ability to support Social Security and Medicare. Tax reductions cannot bankrupt the U.S. or any of its agencies.)

3. Should taxes on the rich be increased as soon as the current law expires? That is the question discussed in this post.

Some people favor higher taxes on the rich, because they believe this somehow will help the poor. The concept is that by taxing the rich, we close the “gap” between rich and poor, and this closed gap benefits the poor.

I discuss this “gap” further at Closing the Gap and at A Partial Solution for the Gap.

I strongly empathize with the desire to aid the poor. But bringing down the rich is not the way. Whether Bill Gates has $50 billion or is brought down to “only” $10 billion, does not affect the poor. We have had 90% top tax rates, and that did nothing to help the poor. In fact, increasing taxes on anyone, rich or poor, removes money from the economy, which slows the economy. Slowed economic growth always hurts the poor more than the rich, as witness the most recent recession. Who was hurt most, the rich or the poor?

As I mentioned, the federal government does not spend tax money. Unlike state and local governments, which are not Monetarily Sovereign, the federal government spends money it creates ad hoc. If the wealthy were taxed at the 99.99% rate, this would not increase by even one cent, the federal government’s ability to spend, i.e. to help the poor.

The poor benefit most when the economy is growing fastest, because that increases the availability of jobs and money. So to help the poor, we must stimulate the economy. That is, if we want to help the poor, we very simply should help the poor. The Federal government could:

–Increase Social Security benefits.
–Initiate free universal health care insurance.
–Increase unemployment benefits.
–Pay a salary to all students. ( SALARY)
–Eliminate FICA. (FICA)
–Increase the standard deduction on income taxes.
–Allow home rent to be tax deductible.
–Increase food stamps.
–Pay states and cities to reduce sales taxes

There are many ways to help the poor. We should focus on that, not on punishing the rich, which may provide some emotional satisfactions, but does not provide financial benefits to anyone. Let me see some of your ideas for helping the poor.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Et tu, Wall Street Journal? Monday, Mar 1 2010 

An alternative to popular faith

The average person doesn’t understand the difference between federal government finances, state government finances and personal finances. The same could be said of most politicians and most editorial writers.

But one expects more of the Wall Street Journal, whose editors are, after all, immersed in finance all day long. So it was saddening to read WSJ’s March 1, 2010 editorial titled “Back to the ObamaCare Future.”

The editorial begins, “Natural experiments are rare in politics, but few are as instructive for ObamaCare that Massachusetts set in motion in 2006.” Do you detect the problem? The WSJ thinks a state-run, health-care program provides a learning template for a federally run program, despite the crucial differences in ability to fund programs. (States’ access to money is limited; the federal government’s access is unlimited.)

The WSJ properly criticizes Governor Deval Patrick for wanting to set hospital and doctor rates. Why does the governor want to do that? So he can cut the rates. You see, the Massachusetts program is running a deficit (of course), so rather than committing political suicide by raising taxes, the governor wants to assure worse health care by discouraging doctors and hospitals from operating profitably in his fair state.

The editorial continues, “The administered prices of Medicare and Medicaid already shift costs to private patients, while below-cost reimbursement creates balance-sheet havoc among providers.” Yes, that’s right. Medicare pays too little, which forces our most talented doctors into boutique programs, where annual fees run anywhere from $50 to $5,000 (or more?) Eventually all the best doctors will be unaffordable to the very people Medicare is supposed to help. And smaller hospitals will disappear. This because of federal price controls.

The editorial continues, “It doesn’t even count as irony that former Governor Mitt Romney (like President Obama) sold this plan as a way to control spending.” Sure, states need to control costs, but why doesn’t President Obama understand the difference between state spending and federal spending?

Let’s see if we can clarify the difference: Taxpayers pay for state spending. Taxpayers do not pay for federal spending. Can I make it any simpler?

Because states do not have the power to create unlimited amounts of money, they must rely on taxes and borrowing. Eventually, the ability to borrow runs out, and everything falls on the taxpayer. Ultimately, there is a direct relationship between state taxes and state spending.

The federal government does have the power to create unlimited amounts of money, and so does not need to rely on taxes. It does not even need to borrow (See: https://rodgermmitchell.wordpress.com/2009/09/10/it-isnt-taxpayers-money/)

The biggest problem with Medicare (and Social Security, for that matter) is that it’s limited by FICA collections. Medicare is a version of federal price controls, which WSJ properly criticizes. Government price controls always are damaging. As WSJ said, “. . . hospital rate setting in the 1970s and 1980s . . . didn’t control costs . . . and it killed people.”

If government medical rate setting doesn’t work, and in fact kills people, please tell me again how the universal health care plan is designed to save money.

And if the federal government has the unlimited ability to create money, without ever charging the taxpayer, please tell me again why the universal health care plan is designed to save money.

Oh, the unnecessary damage the debt hawks have caused — not just financial damage, but human damage — and all for refusing to acknowledge that federal deficits not only are beneficial, but necessary for a growing economy.

Rodger Malcolm Mitchell