Even though I passed right through 88, and am roaring toward 89, I still do, which means I love being shown where I’m wrong. How else can anyone learn but to be given new beliefs that replace former beliefs?
Never be too old or too sure to learn.
So here is a challenge to you, my readers, plus the MMT gang (Stephanie, Warren, Randy et al.), CRFB, Fox viewers, mainstream economists, journalists, politicians of all stripes, and all others who may believe some or all of what I believe is wrong.
You may agree with me on many things but disagree on certain details (Hello MMTers). I’d love to hear from you.
Some of you may disagree with everything I write.
I’d love to hear from you (except from those whose main argument consists of comparing me to excrement. No learning there; I’ve heard it all).
Some of you merely may have questions, not necessarily disagreements, about what I believe. Send me your questions and I will try to answer those I feel may be educational.
Some of you agree with everything I write. Gotta love you.
Here’s the challenge:I will list certain things I believe. You tell me where I’m wrong, and this is the important part: Show me your data.
I’ll print worthwhile comments along with whether I feel you’ve made a valid point(s). Where appropriate, I’ll provide data or other evidence to substantiate my point. Or, I’ll simply agree with you.
This way, we all can learn, and it will be fun.
I believe:
I. Our Monetarily Sovereign governmentnever can run short of its sovereign currency, the U.S. dollar. It can pay for anything costing dollars, instantly, simply by pressing computer keys. This compares to city, county, and state governments, which are monetarily non-sovereign, and do not have a sovereign currency, so can and often do run short of dollars.
In the same vein, euro nations like Germany, France, Italy, Greece et al, do not have sovereign currencies, so they can and do run short of euros. The European Union is Monetarily Sovereign so it cannot run short of euros.
II. Federal taxes do not fund federal spending. The primary purpose of federal taxes is to control the economy by taxing what the government wishes to limit and by giving tax breaks to what the government wishes to encourage.
Even if the federal government collected $0 taxes, it could continue spending, forever. In fact, the Treasury destroys all the tax ollars it receives, and orders new dollars to pay for goods and services.
A secondary (though not necessary) purpose of federal taxes is support demand for the U.S. dollar by requiring dollars to be used for tax payments.
III. The Federal government does not borrow dollars, nor does it use the dollars that are deposited into T-security accounts. After being deposited, those dollars remain the property of the T-security account holders and are not touched (including the interest dollars deposited by the government.)
The federal government easily could operate without accepting any T-security dollars. The purposes of T-securities are to provide a safe storage place for unused dollars (which stabilizes the dollar), and to aid the Federal Reserve in controlling interest rates.
IV. The federal deficits and debt are not, nor will they ever be, “unsustainable.” That word, “unsustainable,” is used by Libertarians and other debt hawks, yet never have I seen what it supposedly means. Does “unsustainable” mean the government will be unable to pay its bills? If not, what exactly does it mean?
The “debt ceiling” is an artifact of economic ignorance and should be eliminated. It’s sole purpose is to provide an excuse for outrage by the political party not in power. As such, it is a danger to America if used by traitors in Congress.
V. Federal deficit spending never causes inflation. Every inflation in history has been caused by shortages of key goods and services — most often oil and food — not federal deficits.
Today’s inflation was caused by OPEC and Russia related shortages of oil, and by COVID-related of a litany of products and services.
The old saw, “Inflation is too much money chasing too few goods” is half wrong and half right. It should read, “Inflation is too few goods and services.” Period.
VI. Federal spending does not cause the above-mentioned shortages. Inflations tend to come suddenly. Federal spending does not cause a sudden increase in oil shortages (producers like OPEC, Russia and even America can and do suddenly contract production.)
Similarly, federal spending does not cause people suddenly to eat more food, thereby causeing a food shortage.
Thus, federal deficit spending does not cause inflation.
VII.All hyperinflations — pre-WW2 Germany, Zimbabwe, Argentina, et al. have been caused by shortages, not by government spending. The illusion of “excessive” spending (the infamous currency in a wheelbarrow) is created by an unknowledgable government’s poor response to inflation — printing higher denominations of currency rather than acquiring and distributing the scarce products and services.
VIII. Recessions are caused by reduced federal deficit spending and are cured by increased deficit spending to acquire and distribute the scarce products and services.
IX. Depressions are caused by federal surpluses and “balanced budgets,” and are cured by deficit spending.
X. The federal government can and should fund no-deductible, comprehensive Medicare coverage to every man, woman and child in America.
IX. The federal government can and should fund Social Security benefits for every man, woman, and child in America.
X. The federal government should fund all education from pre-K through post-college-grad, while paying people to attend school. The pre-K through 12 financial burden should be taken from the monetarily non-sovereign cities, counties, and states and paid by the infinitely solvent federal government.
XI. Benefits from the federal government do not dissuade people from working.The vast majority of Americans wish to increase their incomes and/or move up the income/wealth/power scale, so they will work to augment whatever they receive from the federal government.
XII. All benefits should go equally, to everyone, rich or poor. This eliminates the onerous task of monitoring. incomes.
XIII. Gap Psychology (The desire of those near the top of any social scale to distance themselves from those below, and the desire of those below to approach those above) is the prime driver ofbigotry,poverty and street crimein America. Curing those social problems will require dealing with Gap Psychology.
XIV.Gold, silver, or any other physical substance never were money, nor have they ever “backed” money nor provided safety for money. They merely are products the federal government periodically decides to purchase or sell at prices stipulated by the whim of the federal government.
If I were writing a book, every paragraph, I – XIV, would warrent a separate chapter and supporting data. Instead, I’ll address your comments and questions, and most importantly, I’ll provide supporting data, as I hope you will.
Hoping to receive many objections, so we all can learn.
Imagine witnessing an argument between two people. Person #1 says, “A stork delivers babies.” Person #2 says, “FedEx delivers babies.”
What would you say about that argument? That it’s so ignorant as to be beyond words?
It’s pretty much what I say about arguments concerning the U.S. federal “debt.”
Dems, Republicans Far Apart On Soaring U.S. Debt: I&I/TIPP Poll, Terry Jones, April 17, 2023
The perennial dance between the president and Congress over the budget and raising America’s debt ceiling is a widely reported but much-ignored, event. This time around, it shouldn’t be.
Even as our national debt soars, Americans are split over how serious the problem is, the latest I&I/TIPP Poll shows. Meanwhile, a government shutdown, or even possibly default, looms.
At the last official count, federal debt totaled about $31.5 trillion. Looked at from a different perspective, $31.5 trillion means each American household is now responsible for roughly $237,500 in U.S. debt.
There is the Big Lie in all its glory. As an American, you are responsible for exactly $0 of the so-called “debt” (that isn’t even a real debt).
And it’s getting bigger fast, posing a threat to both the economy and the financial system. If Congress and President Joe Biden can’t make a deal soon, a government shutdown, or worse, possible default, loom.
What exactly is the “threat”? Is it that our Monetarily Sovereign government, which has the infinite ability to create its sovereign currency, the dollar, will be unable to service the “debt”?
No, as previous Federal Reserve Chairs have said:
Alan Greenspan:“A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke:“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Will the interest on the “debt” bankrupt the government?
No:
Alan Greenspan:“There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
The federal “debt” isn’t even federal debt. It is the net total of deposits into T-security accounts held at the Federal Reserve. Each account resembles a safe deposit box.
The depositor owns the contents. When each account matures, the contents are returned to the owner by transference to the owner’s checking account. It’s a simple asset transfer that does not involve you — not as a debtor, taxpayer, or American citizen — not in any way.
So you can forget about the $237,500 Terry Jones, the author, claims you owe. You don’t.
How does the public feel about this? The online I&I/TIPP Poll for April, taken from March 29-31 from 1,365 Americans across the country, asked the following question: “Some say that the debt is not sustainable.
Others say that the debt is manageable relative to the size of the American economy. Which is closer to your viewpoint?”
The respondents were given the false choice of two wrong answers. The “debt” is neither sustainable nor “manageable.” It is meaningless.
The size of the economy is not the point. So long as America’s obligation to creditors is in U.S. dollars, it is totally under the control of the U.S. government.
Governments get into financial trouble when:
They are monetarily non-sovereign, so they cannot create whatever currency they use (Examples are cities, counties, states, and euro nations) or
They are Monetarily Sovereign but still trade and borrow in U.S. dollars or some other currency, not their own (Examples are Argentina, Russia, Venezuela).
Overall, voters saying the debt is “not sustainable” totaled 48%, a plurality, compared to those who called the debt “manageable relative to the size of the economy” at 35%. (The poll’s margin of error is +/-2.8 percentage points.)
It was a meaningless poll. The public believes what they are told, and they are wrongly told that federal (Monetarily Sovereign) financing is like personal (monetarily non-sovereign) financing.
The political breakdown, however, is telling and perhaps explains why the debt debate each year gets increasingly divisive and angry: Republicans (74%) and independents (50%) overwhelmingly call the debt unsustainable, compared to Democrats at just 32%.
Only 14% of Republicans and 28% of independents call the debt “manageable,” versus 51% of Democrats who do.
This huge split between Democrats on one side, and Republicans and independents on the other, will make it hard to forge a deal satisfactory to both sides. Failure to do so risks a financial cataclysm.
It isn’t the split that makes it hard to forge a satisfactory deal. It’s just that the two alternatives are of the “stork vs. angel” variety. The third alternative — that the so-called “debt” (i.e., deposits) is meaningless — was not offered.
What can be done? On Jan. 19, the debt ceiling was hit, meaning the government has had to play a kind of fiscal shell gameto pay its bills.
As though the use of the term “debt” to mean “deposits” and the wrongheaded worries about “sustainability” (whatever that means) weren’t enough, the not-a-debt also repeatedly has been called a “ticking time bomb” every year since 1940.
In 1940 the Gross Federal Debt was $51 Billion. By 2022, it was $31 Trillion, an astounding 60,000% increase. Annual predictions have been made that the “debt” is not sustainable, and every year America sustains it.
Although it is the slowest time bomb in history, you can rely on this year’s repeat of the annual predictions that the “debt” is “unsustainable.”
And as for that “shell game,” it’s the result of a strange law that essentially says, “We will punish our creditors unless they immediately return the dollars that T-security account owners have deposited.”
House Republicans, negotiating with the Biden administration, have put forward a plan to temporarily raise the debt ceiling until May of next year. In exchange for avoiding a possible federal default, they seek caps on federal spending,
The argument is this. The debt is unsustainable, but we’ll raise this unsustainable ceiling if you take dollars from the middle classes and the poor. Yes, really.
“The GOP proposal would call for a cap on either non-defense discretionary spending or overall discretionary spending after paring the federal budget back to 2022 levels,” the Washington Times reported last week.
In 2019, non-defense discretionary (NDD) spending totaled $661 billion, or 14 percent of federal spending. That same year, the federal “debt” was $23 Trillion. The entire NND was less than 3% of the so-called “debt.”
Would you be willing to see every dollar cut from health care and health research, diplomacy, science, environment, energy, transportation, economic development, law enforcement and governance, education and training, and economic security?
Oh, but that’s not all.
“The proposal would also claw back unspent COVID-19 funds, block President Biden’s student loan forgiveness plan that is currently tied up in a Supreme Court battle, institute work requirements for social welfare programs and implement the Republican plan to lower energy costs, which passed the House but is expected to languish in the Senate,” the report said.
Essentially, the GOP’s idea is to punish the poor and middle classes and reward the military-industrial complex, all for the dubious accomplishment of immediately returning the deposits in T-security accounts.
Of course, the GOP doesn’t have a real plan. Those were some general suggestions. They have refused to devise an actual plan because their only thought is to negate anything Biden suggests and exact Trumpian revenge by investigating Democrats.
It’s the failed Benghazi investigation all over again.
And the White House’s position has always been: No preconditions. Just raise the debt ceiling.
The real position should be “No preconditions. Just eliminate the debt ceiling. But, the public has been imbued with the notion that having a debt ceiling makes for prudent finance.
So flat-out elimination only can be accomplished when the public is educated that the “debt” is meaningless for a Monetarily Sovereign government.
Strangely, the public doesn’t complain when the ceiling arbitrarily is raised — 90 times — but probably would object to it being eliminated. That’s human thought.
Fresh from his April 11-14 trip to Ireland, Biden had this to say when asked if he would talk to McCarthy:
“Of course, I’ll speak to him. Show me his budget,” Biden told reporters. “That old expression — ‘show me your budget.’ You know, he — we agreed early on, I’d lay down a budget, which I did on March 9th, and he’d lay down a budget.”
“I don’t know what we’re negotiating if I don’t know what they want,” Biden added.
Sunday was the deadline for Congress to agree on a new budget. For the 20th year in a row, it failed in that responsibility. No surprise there since the Senate is controlled by the Democrats and the House by Republicans, who remain far apart in their priorities.
What should be done?
It’s not a difficult question. The debt ceiling should be eliminated. Period.
The Biden Administration believes the solution to America’s economic woes is more federal spending and higher taxes.
Having increased federal spending by nearly $5 trillion in its first two years, the Biden administration now proposes additional tax and spending increases totaling $4.7 trillion and $1.9 trillion, respectively.
Those who understand Monetary Sovereignty know that our Monetarily Sovereign government has no need or use for taxes. It has the infinite ability to create dollars at the touch of a computer key.
Monetary Sovereignty became a reality in 1971 — the “Nixon Shock” — when President Nixon made the most significant move of his administration: He divorced the U.S. dollar from gold.
We no longer needed to match the value of gold (which changed daily) to any fixed number of dollars. We could create dollars at will as we needed them.
The debt ceiling was created in 1917 to allay fears about dollar acceptance. It tried to make lenders and users confident that the dollar would not suddenly lose value.
Today, the debt ceiling is laughably useless.
Depending on who is doing the research, it is said that the US raised its debt ceiling (in some form or other) at least 90 times in the 20th century.
Anyone with at least half a brain would understand that if any limit is increased 90 times, it has served no useful purpose. The sole purpose is to give the party that is not in power some leverage over the party in power. It’s a foolish idea, which is why Congress loves it.
The debt ceiling was raised 74 times from March 1962 to May 2011,[14] including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama. The debt ceiling has never been reduced, even though the public debt itself may have been reduced.
Congress has raised the debt ceiling 14 times from 2001 to 2016. The debt ceiling was raised a total of 7 times during Pres. Bush’s eight-year term, and it was raised 11 times during Pres. Obama’s eight years in office.
Meanwhile, White House assertions that it will actually cut deficits over the next decade by $3 trillion have been roundly criticized by budget hawks. In fact, projections from the nonpartisan Congressional Budget Office show annual deficits growing from $1.4 trillion this year to $2.7 trillion in 2033, while as a result total federal debt will soar from $32.4 trillion at the end of this year to $52 trillion in 2033.
The White House, the entire Democratic Party, and the entire Republican Party (with the possible exception of Marjorie Taylor Greene) understands the debt ceiling is a fraud. But the public doesn’t understand it, so all politicians suck up the “fiscal responsibility” of the debt ceiling.
In a way, it’s something like the GOP denying that Donald Trump is a criminal or the Democrats saying that a tax increase on the rich would “pay for” something.
The IMF’s Fiscal Affairs Director Vitor Gaspar recently told Yahoo Finance that it is clear “that from the viewpoint of medium- and long-term prospects, there is a very strong case for fiscal adjustment in the U.S.”
Actually, “there is a very strong case for” Gaspar lying or ignorant of Monetary Sovereignty.
Of greater concern is what would happen if foreign holders of U.S. government debt suddenly get spooked and start to sell their holdings of U.S. securities.
Officially, foreign treasuries and investors own about $7.6 trillion of U.S. government debt. Bad news here, such as a default on U.S. debt this summer, could spark a run on the dollar and cause interest rates to surge, sending a recessionary shock wave through the U.S. and global economies.bad news
If Congress would forget about the phony debt ceiling, it could, if it wished, pay off the federal “debt” tomorrow simply by returning the dollars sitting in T-security accounts.
The purpose of those accounts is not to provide the U.S. government with spending dollars. It has infinite amounts of those. T-bills, T-notes, and T-bonds, the purpose of which is to provide a safe, interest-paying place to store unused dollars. This stabilizes the dollar.
All this nonsense about debt ceilings is about to do exactly what the debt Henny Pennys fear: Cause a run on the dollar.
Recent deals among the Russians, Chinese, and Saudis to create alternatives to the world’s dollar-based trade are already threatening the dollar’s preeminent position as the No. 1 global currency.
A debt panic might push the dollar to the brink, bringing inflation and perhaps eventually forcing the U.S. to do something it hasn’t had to since before World War II — pay some, if not most, of its bills in someone else’s currency, a huge disadvantage.
No, the Russians, Chinese, and Saudis won’t cause a run on the dollar, but this year the Republican Party might do just that.
Americans’ complacency about our growing fiscal problems has so far not hurt us too badly. That might not always be the case, however.
Complacency won’t hurt us. The nutty debt ceiling eventually might, however. We should get rid of the damn thing before it causes real damage.
I&I/TIPP publishes timely, unique, and informative data each month on topics of public interest. TIPP’s reputation for polling excellence comes from being the most accurate pollster for the past five presidential elections.
Terry Jones is an editor of Issues & Insights. His four decades of journalism experience include serving as national issues editor, economics editor, and editorial page editor for Investor’s Business Daily.
And by the way, when the federal debt doesn’t rise enough, we have recessions.
When federal debt growth falls, we have recessions (vertical gray bars.) Recessions are cured by increased federal debt growth.
It’s pretty simple. A growing economy requires a growing supply of money. Federal deficit spending adds money to the economy.
Not enough federal money = recessions. Add federal money = recessions cured.
Self-evaluation corresponds with intelligence. If you are smart, being smart lets you understand that you are smart. If you are stupid, being stupid keeps you from knowing you are stupid. Thus, everyone thinks they are smart. In related issues, everyone thinks they are above-average drivers and that the federal government can run short of dollars.
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A rose by any other name may smell as sweet, but what if they called it “stinkwort”? Labels do matter. Visualize this scenario:
The boater must take more water from the ocean than he receives from the ocean. That is, the ocean must run a water deficit for the boater to survive, just as the federal government must run a dollar deficit for the economy to survive.
A man sits in a rowboat in the Pacific Ocean.
Using his desalinization kit he fills his canteen with one pint of water, which he later drinks and excretes as urine,
But, because of perspiration evaporation and breathing, he excretes only 9/10th pint of urine.
So, for boater the Pacific Ocean runs a deficitof 1/10th pint of water.
Does anyone care?
No, the Pacific Ocean running a 1/10th pint of water deficit is meaningless, because for all intents, the ocean has infinite water.
Infinite water minus 1/10th pint still equals infinite. No change.
Now imagine the same scenario, except instead of viewing it from the ocean’s standpoint, view it from the boater’s standpoint.
The man has drunk a pint of water, 9/10th of which he has excreted as urine into the ocean, and used the rest for perspiration, and other bodily functions.
That pint of water has allowed him to live for a certain time. Without the pint of water, he would have died.
That’s important.
In both scenarios we gave you the same information, but in one case we labeled it as a water measure from the standpoint of the ocean, and in the other case we labeled it as a water measure from the standpoint of the boater.
This graph shows the nation’s money flow from the standpoint of the U.S. government, not from the standpoint of the economy.
Here are excerpts from the accompanying article:
State of the union’s wallet Last night, President Biden held the annual State of the Union. A big theme was the economy. He threatened to veto any proposal that would cut spending on Social Security and Medicare while also imploring Congress to raise the debt ceiling.
I O U $1.4 trillion: In fiscal year 2022, the federal government collected nearly $5tn in revenue, with more than 50% of that coming from individual income taxes.
However, the US government spent even more, leading to a nearly $1.4tndeficit.
To make up for the difference the US government does what everyone who overspends their budget does — they borrow.
This then adds to its already enormous tab (AKA the national debt), which currently sits at the $31.4tn debt ceiling limit.
With a debt pile that big, the interest payments aren’t small. Indeed, last year the US government spent ~$480bn on net interest payments, just shy of Ireland, Norway or Nigeria’s annual GDP.
There are three major problems with the above scenario.
It draws a false parallel between the finances of our Monetarily Sovereign governmentand the finances of monetarily non-sovereign “everyone.” The former has infinite money and the latter does not.
It falsely states that the federal government must borrow in order to “make up the difference.” The federal government, having the infinite ability to create its sovereign currency, never borrows dollars, and never needs to “make up the difference.” To pay all its obligations, the federal government creates new dollars, ad hoc. It destroys all the tax dollars it receives.
It labels the money movement from the standpoint of the federal government rather than from the standpoint of the economy.
Think of the Pacific Ocean as analogous to the U.S. federal government, and the boater as analogous to the economy.
Like the Pacific Ocean’s water, the federal government has infinite dollars. And like the boater’s limited water supply, the economy has limited dollars.
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Quote from from 60 Minutes: Scott Pelley: Is that tax money that the Fed is spending? Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
(The final sentence, above, is Fed-speak for, “The government does not borrow to pay its bills.”)
The U.S. government is not the only Monetarily Sovereign government. The European Central Bank also is Monetarily Sovereign (and like the U.S. economy, individual euro nations are monetarily non-sovereign.)
Press Conference: Mario Draghi, President of the ECB, 9 January 2014 Question: I am wondering: can the ECB ever run out of money? Mario Draghi: Technically, no. We cannot run out of money.
To survive, the boater needs the Pacific Ocean to run a water deficit. Similarly, to survive, the economy needs the federal government to run a dollar deficit.
The Pacific Ocean does not need to receive any water from the boater nor does the Ocean “owe” the boater any water. Similarly, the economy should not be asked to give the federal government any money, nor does the government “owe” the economy any money.
Finally, the Pacific Ocean does not borrow water to give water to the boater.
Think of the Pacific Ocean and the boater the next time you hear about federal debt limits and taxes.
Here is an easy way to detect economics bullshit: If someone tells you that U.S. federal government spending — any U.S. federal government spending — is “unsustainable” without explaining why, you can be sure that person is a liar or a fool. No exceptions.
“Unsustainable” long has been the word of choice for those who spread fear about federal deficits, federal debt, Social Security, Medicare, Medicaid, aid to the poor, and everything else the rich don’t like.
But what exactly is “unsustainable” about federal spending? Will the federal government, which created the very first laws out of thin air, and will the laws that created the dollar out of thin air, suddenly be unable to create more dollars out of thin air?
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
When challenged, the liars and fools reluctantly admit, “No, the government can’t run out of dollars, but deficit spending causes inflation.”
We’ve debunked that myth so many times my typing fingers are worn down. See here, here, here, here, and here, and many other places.
The simple and obvious fact is that inflation is not caused by federal deficit spending. And inflation is not caused by interest rates that are too low. The cause of all inflations is scarcities of key goods and services, most notably oil and food.
So the cure for inflation is not to cut federal deficit spending, nor is it to raise interest rates. The treatment for inflation is to cure the scarcities of critical goods and services, most notably energy and food.
How does one cure those inflation-causing scarcities? Federal deficit spending to obtain and provide the scarce goods and services.
Sadly, the Libertarian Reason.com’s solution to all ills is to claim government spending is “unsustainable.”
Libertarianism = Anarchy
Medicare? “Unsustainable.” Social Security? “Unsustainable.” Military spending? “Unsustainable.” Everything the federal government does? “Unsustainable.”
Never mind that we have been “sustaining” huge and growing federal deficit expenditures for more than 80 years, while the economy has grown massively.
When you’re a Libertarian, you hate the government. Period. You are an anarchist.
And here is an example of that, from Reason.com’s website:
For The New York Times’ Paul Krugman, the real crisis facing America’s entitlement programs is that the media isn’t working hard enough to ignore their impending collapse.
“I’ve seen numerous declarations f,rom mainst,ream media that of course Medicare and Social Security can’t be sustained in their present form,” Krugman wrote in a Times op-ed this week. “And not just in the opinion pages.”
Perhaps that’s because the unsustainable trajectories of Social Security and Medicare aren’t a matter of opinion.
They’re factual realities, supported by the most recent annual reports of the programs’ trustees and the independent analysis of the Congressional Budget Office central). Social Security’s main trust fund will hit insolvency somewhere between 2033 and 2035, according to those projeleadingns, while one of the main trust funds in Medicare will be insolvent before the end of this decade.
Have you ever wondered why you never hear worries about the “trust fund” for the military? Or the “trust fund” to support the Supreme Court?
And why no concern about “trust funds” to fund the White House, the Senate or the House of Representatives?
Federal Trust Funds Are Not Real Trust Funds
Here is what the Peter G. Peterson Foundation says about these “trust funds”:
Federal trust funds bear little resemblance to their private-sector counterparts, and therefore the name can be misleading.
A “trust fund” implies a secure source of funding. However, a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.
In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries. In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.
Rather, the receipts are recorded as accounting credits in the trust funds and then combined with other receipts that the Treasury collects and spends.
Further, the federal government owns the accounts and can, by changing the law, unilaterally alter the purposes of the accounts and raise or lower collections and expenditures.
Get it? Trust funds aren’t real funds. They are just accounting mechanisms to track inflows and outflows. The federal government owns the books andcan change the books at will.
The federal government can change the purposes of the Medicare and Social Security “Trust Funds”; it can add or subtract dollars at will; it can continue to fund Medicare and Social Security in any desired way and in any desired amounts.
The government and its liars and fools wring their hands and claim the trust funds are in danger of insolvency. But no federal agency can become insolvent unless that is what the President and Congress want.
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
The federal government literally has the power to change the account books simply by passing a law. All the bleating and worrying about a federal agency becoming insolvent is a lie.
If the federal government wished, it instantly could add a trillion dollars to the Medicare “trust fund,” and eliminate FICA altogether. Keep in mind: The government owns the books.
When insolvency hits, there will be mandatory across-the-board benefit cuts—for Social Security, that’s likely to translate into a roughly 20 percent reduction in promised benefits.
“Mandatory,” until the government decides it isn’t mandatory.
Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.”
Nevertheless, Krugman says he’s got a solution that “need not involve benefit cuts.”
His argument boils down to three points. First, Krugman says the CBO’s projections about future costs in Social Security and Medicare might be wrong.
Second, he speculates that they might be wrong because life expectancy won’t continue to increase.
Finally, if those first two things turn out to be at least partially true, then it’s possible that cost growth will be limited to only about 3 percent of gross domestic product (GDP) ov,er the next three decades and we’ll just raise taxes to cover that.
There never is a need to raise federal taxes. There is no funding need for federal taxes at all. The federal government destroys all tax dollars it receives, and creates new spending dollars, ad hoc.
When you pay your taxes, your dollars come from the M2 money supply measure. When they reach the Treasury, they cease to be part of the M2 money supply or any other money supply measure. They literally are destroyed.
When the federal government spends, it sends instructions (not dollars) to the creditors’ banks, instructing the banks to increase the balances in the creditors’ checking accounts.
This creates the new dollars that are added to the M2 money supply.
The banks clear the instructions through the Federal Reserve preserving the tidy, double-entry bookkeeping.
If you remember just one thing from this post, remember that dollars are not physical things. They are legal, bookkeeping entries, and the federal government controls the laws and the books.
If the government wished, it could eliminate all federal trust funds, or add a trillion dollars to each of them, and it all would just be bookkeeping.
Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
“America has the lowest taxes of any advanced nation; given the political will, of course we could come up with 3 percent more of G.D.P. in revenue,” he writes. “We can keep these programs, which are so deeply embedded in American society, if we want to.
Killing them would be a choice.”
Federal taxes do not fund the federal government. The purpose of federal taxes is to control the economyby taxing what the government wishes to discourage and giving tax breaks to what the government wishes to encourage.
The federal government could eliminate all federal taxes, yet continue to spend forever.
It’s notable that Krugman sees benefit cuts as “a choice” but believes that implementing a massive tax increase on American employers and workers would be “of course” no big deal.
But that hardly addresses the substance of what he gets wrong. Let’s take each of his three arguments in order and show why they’re incorrect.
First, he says the CBO’s projections about future costs for the two programs might be inaccurate because the agency is assuming that health care costs will continue to grow faster than the economy as a whole.
At best, that means postponing insolvency by a few years. The structural imbalance between revenues and outlays means that depletion of the trust funds is a question of “when” and not “if,” as this chart from the Committee for a Responsible Federal Budget makes clear.
The above would be true if the federal government were monetarily non-sovereign, like the states, counties, cities, euro nations, you and me.
We monetarily non-sovereign entities do not have the unlimited ability to create our sovereign currencies. We have no sovereign currencies.
But the U.S. government is absolutely sovereign over the U.S. dollar. It can create as many or as few dollars as it wishes.
It can give those dollars any values it wishes and it can change those values (which it has done many times) at will.
The U.S. dollar is a tool of the U.S. government.
The Reason.com Libertarians seem ignorant of the difference between Monetary Sovereignty and monetary non-sovereignty, and thus ignorant of economics
Krugman even concedes that despite a decline in the expected rate of growth in future health care costs, those costs are still expected to rise faster than the economy grows.
Combined with the aging of America’s population, this is a demographic and fiscal time bomb. Ignoring that reality is certainly not a sound policy strategy.
Even if healthcare costs were to triple tomorrow, the federal government could fund Medicare while not collecting a single penny in FICA taxes.
Second, he speculates that mortality rates might continue to drop. While that might be good news from an actuarial perspective, it seems both morally horrifying and incredibly risky to base a long-term entitlement program on the assumption that more people will die at a younger age.
Even if every American retired at 50 and lived to age 200, the federal government could fund Medicare for All, and a generous Social Security for All, again while not collecting a penny if FICA taxes.
In fact, Krugman gets this point exactly backward. Instead of banking on a decline in life expectancy, Congress ought to raise the eligibility age for collecting benefits from Social Security and Medicare.
That would create the same demographic benefits on the accounting side even as people live hopefully longer, better lives.
And there you have it. The Libertarian solution for all government problems is to cut benefits, especially those benefits that aid the poor and middle classes.
The Libertarians refuse to accept this vital truth: The sole purpose of any government is to protect and improve the lives of the governed.
How cutting benefits accomplishes that purpose has yet to be explained.
Krugman would no doubt see such a change as an unacceptable benefit cut, but in reality, it would restore Social Security to its proper role as a safety net for the truly needy, not a conveyer belt to transfer wealth from the younger, working population to the older, relatively wealthier retired population.
The so-called “conveyer belt” would only be true if federal taxes funded federal spending. But they don’t.
Federal taxes fund nothing. FICA could and should be eliminated, while Social Security benefits should be increased.
When Social Security launched in 1935, the average life expectancy for Americans was 61. That’s changed, so the program’s parameters should too.
Yes, Social Security parameters should change. Benefits are too low. FICA should be eliminated.
Finally, the blitheness of Krugman’s actual solution—a massive tax increase—ignores all the knock-on effects of that idea.
Keeping Social Security and Medicare whole will require a tax increase in excess of $1 trillion, which would have massive repercussions on wages, the costs of starting a business, and economic growth in general.
It’s far from an ideal solution.
Keeping Social Security and Medicare whole will require no tax increase at all. The programs are not funded by tax dollars, which are destroyed upon receipt. The programs are funded by laws, and Congress controls the laws.
Paraphrasing Reason.com’s claim, eliminating FICA would have massive positive effects on wages, the costs of starting a business, and economic growth in general.
In all, Krugman’s column amounts to an argument that his addiction to donuts is totally sustainable as long as someone else agrees to keep buying donuts for him (and as long as he ignores the long-term costs to his health).
Maybe the doctors are wrong about the projected consequences of eating too many donuts. Maybe it will turn out that living longer just isn’t all that great anyway.
But if all else fails, at least he’s got someone else willing to pay for his habit—and making any changes would be tantamount to killing a tradition deeply embedded in the Krugman morning routine. We must take that option off the breakfast table.
The above analogy might make some sense for monetarily non-sovereign governments, but it is completely false for the federal government.
Instead of lying to their readers and constituents, America’s thought and political leaders (not just President Joe Biden and Krugman but lawmakers and media commentators on all sides) should start acknowledging that America’s entitlement programs are not sustainable in their current form.
Instead of lying to their readers and constituents, Libertarians (not just Reason.com) should acknowledge the differences between Monetary Sovereignty and monetary non-sovereignty.
Without changes, they will wreck the economy or force many retirees to deal with sudden cuts to benefits they expected to receive. Maybe both.
Waiting to deal with this problem will only make it worse. If Krugman’s column is the best argument for the long-term sustainability of America’s two major entitlement programs, it should only underline how seriously screwed they are.
No, Krugman’s column is not the best argument for long-term sustainability.
Using the facts about Monetary Sovereignty is the absolute guarantee of long-term sustainability.
#Monetary Sovereignty - Mitchell 