Is poverty harmful, harmless, or a benefit?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Federal taxes fund federal spending. FALSE

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

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

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

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

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

2. Federal deficit spending causes inflation. FALSE

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

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

3. Federal deficit spending slows the economy. FALSE

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

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

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

4. Federal borrowing competes with private borrowing. FALSE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How High Are Federal Interest Payments?
Mar 10, 2021

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

Households don’t pay for federal interest payments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SUMMARY

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

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

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

Rodger Malcolm Mitchell

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

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

The most important problems in economics involve:

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

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

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

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

MONETARY SOVEREIGNTY

And just when I began to feel so good about Congress and the President, at long last, . . .

And just when I began to feel so good about Congress and the President at long last beginning to understand and tell the truth about economics, then I am splashed by ice water coming from the Committee for a Responsible Federal Budget.Image result for splashed with ice water

You know the CRFB.

They are the ones who run interference for those in Congress who want you to believe the common myth that federal finances are just like your finances.

Here’s what they say:

Important to Pay For Child Tax Credit Expansion

Democratic lawmakers are planning to unveil legislation to substantially boost the child tax credit from $2,000 to $3,000, providing monthly payments to households and higher payments for younger children.

While this thoughtful proposal to expand support for children deserves consideration, it cannot legitimately be classified as COVID relief and should be fully paid for under the House PAYGO rules and normal principles of budgeting.

Briefly, “PAYGO” is an ill-considered concept that requires federal spending to be matched by taxes or T-security deposits.

It’s part of the myth that federal finances are like personal finances (and state/local government finances), where outgo must be funded by income. That’s why CRFB speaks of “normal principles of budgeting.”

Those “normal principles” are normal for you, normal for your state, county, and city, and normal for businesses. But they are not normal for the federal government, and this is what CRFB does not want you to understand.

When you pay for your spending, you must have a money source.

You must have a paying job, or you must borrow, or you must have savings. That’s because you are monetarily non-sovereign.

State and local governments, and businesses operate the same way. They too are monetarily non-sovereign.

The federal government is different. It is Monetarily Sovereign. It uses neither income nor borrowing. It creates, ad hoc, every dollar it spends,, each time it pays a creditor.

The federal government does not borrow and the taxes it collects are destroyed upon receipt.

The federal government does not have money; it creates money. Last year, it was able to spend trillions of dollars it did not have, and yet never ran short, and never bounced a check.

You can’t do that, nor can any other monetarily non-sovereign entity.

Soon, the Biden administration will spend another $2 trillion the government doesn’t have, and still no checks will bounce. That is Monetary Sovereignty.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

We are still in the midst of a pandemic and economic crisis, and more borrowing will be needed to provide necessary relief and support the economic recovery.

However, emergency borrowing authority must be reserved for pandemic-related needs, not for enacting long-sought-after policy priorities.

It’s amazing how many misstatements the CRFB can pack into three short sentences:

  1. What they call “borrowing” (T-bills, T-notes, T-bonds) merely consists of accepting deposits into T-security accounts. The government does not use those deposits. They remain in the accounts, accumulating interest, until maturity, at which time they are returned. You do not lend to the federal government. You make deposits into your own T-security account.
  2. There is no need to “reserve emergency borrowing authority.” The government can accept as many dollars into T-securities accounts as it wishes, any time it wishes (though again, it doesn’t use the dollars in those accounts. That’s why it isn’t “borrowing.)
  3. I’m not sure why the CRFB tries to differentiate between “pandemic-related needs” and “long-sought-after policy priorities.” Spending is spending. All federal spending is funded exactly the same way: Via money creation.

House PAYGO rules make clear that new spending increases and tax cuts not related to the COVID response or climate change must be paid for.

Expanding the child tax credit clearly doesn’t qualify under either of these exemptions, as it is clearly meant as a permanent policy and is in many ways duplicative with the proposed $2,000 per child recovery rebates.

All federal spending is “paid for.” Apparently, the CRFB falsely means, “paid for via borrowing or taxing.” This demonstrably false statement has been disproven every year. In 2020 alone, trillions of dollars of federal spending easily were “paid for” without the need for tax increases or borrowing.

Replacing the current $2,000 child tax credit with a more broadly available $3,000 to $3,600 credit would help address the disadvantages that kids face in the federal budget.

But we shouldn’t borrow from our kids in order to pay for their care when there are plenty of offsets available.

This mixed-up sentence speaks of “borrowing from our kids,” which probably means future (totally unnecessary) tax increases. But then it talks about “offsets.” And what are those so-called “offsets” that don’t “borrow from our kids?

Overall, this policy will cost over $100 billion per year and more than $1 trillion over a decade if made permanent. Reducing child poverty is a worthy policy priority and one worth paying for.

Senator Mitt Romney’s recent proposal to consolidate existing support for children and workers and repeal regressive tax breaks represents one possible package of offsets.

The $5.8 trillion of tax increases and budget savings proposed by President Biden during the campaign also offers many alternatives.

Offsets could also be phased in to avoid imposing tax increases during a pandemic or disrupting a fragile recovery.

So, to help reduce child poverty, we should “consolidate existing support for children and workers”?? Ah, that lovely little word “consolidate” which in CRFB language means an even smaller word: “Cut.”

And, of course, “repealing tax breaks” is a synonym for “increasing taxes.” (Historically, the breaks the CRFB has seemed to favor eliminating are those that benefit the poor and middle classes.)

It is the “children and workers” who would have to pay the increased taxes and suffer the reduced support.

Offsets could also be phased in to avoid imposing tax increases during a pandemic or disrupting a fragile recovery.

This is a worthy policy aimed at achieving a worthy goal. That’s no reason to throw budget discipline out the window. Borrowing for the pandemic isn’t an excuse for unrelated tax cuts, nor is it a reason to enact permanent policies that aren’t properly financed.

So let’s see. The recovery is “fragile,” but we should have “budget discipline,” which means increasing taxes during this fragile recovery. How wise.

So the government should do something temporary — cut taxes and increase spending — and when we recover the government can increase taxes and cut spending.

“But we shouldn’t borrow from our kids.” Except that “borrowing from our kids” is exactly what future tax increases and spending cuts would do.

If empty-headed claims were dollars, the CRFB would be the wealthiest organization in the world.

Rodger Malcolm Mitchell

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

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

The most important problems in economics involve:

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

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

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

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

MONETARY SOVEREIGNTY

STOP THE STUPID. The Pell Grant “reserves”

Just An Introduction
Trump followers claim that Republican judges and SCOTUS justices are cowards who have yielded to mythical “pressure” into denying Trump’s absurd claims.Stop the Stupid Tucker Carlson Boycott - POLITICO Magazine

But, most of the so-called “pressure” is coming from Trump, and as for SCOTUS justices, what sort of pressure can affect them? They are immune.

Nevertheless, Trumpers have taken to the streets to scream, “Stop the Steal.”

I suggest the retort should be “Stop the Stupid,” for only a very stupid person actually believes that 30+ judges and the entire Supreme Court, most of whom are right-leaning, would ignore right-wing evidence.

(The problem is, when people are stupid, they are too stupid to realize they are stupid.)

The Main Idea
The phrase “Stop the Stupid” brings me to an article published by that ever-dependable source of economic ignorance, The Committee for a Responsible Federal Budget (CRFB)

Today’s article, like virtually all CRFB articles, suggests cutting federal benefits to everyone who is not rich.

Whether it be Social Security, Medicare, unemployment compensation, food stamps, or any other financial support program for the middle or poor, you can rely upon the CRFB to come in, all a-twitter, with charts and articles demonstrating the lie that the federal government can’t afford such spending.

And so it is now, with Pell grants.

WHAT ARE PELL GRANTS?
Today, the Pell Grant program assists undergraduates of low-income families, who are actively attending universities and or other secondary institutions. Before the Pell Grant became what it is today, it went through numerous changes.

In 1965, Congress passed the Higher Education Act of 1965 (HEA). President Lyndon B. Johnson implemented the HEA as a part of his administration’s “Great Society” agenda to assist and improve higher education in the United States.

It was the initial legislation to benefit lower- and middle-income students.

The HEA program included not only grants but also low-interest loans to students who did not qualify for grants.

Universities and other institutions, such as vocational schools, benefited as well from the HEA program, by receiving federal aid to improve the quality of the education process.

Student aid programs administered by the US Department of Education are contained in Title IV of the HEA and so are called “Title IV Programs.”

As you can see, the HEA, like all laws, was created from thin air by Congress and the President. It was a time when Congress and the President cared about helping low- and middle-income families. (Remember those days of yor?)

Congress was able to create HEA, and subsequent Amendments, because being Monetarily Sovereign, the U.S. has unlimited dollars available to it. Even without collecting a single dollar in taxes, the federal government cannot ever run short of dollars. Not ever.

In 1972, Title IX Higher Education Amendments were a response to the distribution of aid in the current grant.

Senator Claiborne Pell set forth the initial movements to reform the HEA. Lois Rice, an American corporate executive, scholar, and education policy expert is known as the “mother of the Pell Grant” for her work lobbying for its creation.

Opportunity Grant Programs (Basic Grant) were intended to serve as the “floor” or “foundation” of an undergraduate student’s financial aid package. Other financial aid, to the extent that it was available, would be added to the Basic Grant up to the limit of a student’s financial need.

Most changes to the federal student aid program result from a process called reauthorization.

Through the process of reauthorization, Congress examines the status of each program and decides whether to continue that program and whether a continued program requires changes in structure or purpose.

Congress has reauthorized campus-based programs every five or six years, beginning in 1972.

In short, the Pell program is completely arbitrary.

It has no intrinsic financial constraints. Pell’s finances are constrained only by what Congress and the President happen to voice on any particular day.

Pell primarily is funded by arbitrary appropriations.

President Donald Trump signed a bill finalizing funding for the government for fiscal year (FY) 2020

The bill provides $72.8 billion in discretionary funding for the Department of Education (ED), a $1.3 billion increase from FY 2019. The bill boosts the maximum Pell Grant award to $6,345, though it relies on a $500 million recession from the program’s reserve fund.

The bill also increases funding for the Federal Supplemental Educational Opportunity Grant (FSEOG) program by $25 million (to $865 million) — which Trump proposed to cut entirely — and allocates $1.2 billion for the Federal Work-Study (FWS) program, a $50 million increase from FY 2019.

In Trump’s proposal, he suggested slashing funding for FWS in half.

To hammer home the central point, the Pell grant, and every other program financed by the government, can be at any cost. The federal government, unlike state and local governments, cannot run short of dollars.

Congress and the President decide what to spend, and create the spending dollars from thin air.  The federal government controls infinite financial resources.

Here for instance is what Congress appropriated for Pell during a 5-year period, 2007 – 2011.

Appropriations
Fiscal Year 2011: $41,674,180,000
Fiscal Year 2010: $21,772,000,000
Fiscal Year 2009 : $19,378,000,000
Fiscal Year 2008 : $16,256,000,000
Fiscal Year 2007 : $13,660,711,000

Why the hugely different amounts? Congress simply voted for whatever it pleased. There are no financial limits placed on Congress or the President. You wouldn’t know that, however, if you read the latest CRFB histrionics:

Now’s Not the Time to Raid the Pell Surplus
December 14, 2020

With 2020 college enrollment down as a result of the COVID-19 pandemic, the Pell Grant program may add more to its reserves than previously estimated.

A lie. There are no “reserves.” They are a financial myth.

Think: Of what purpose would “reserves” be, when the supply of dollars is infinite. Creating “reserves” is just a way to con the poor and middle-income people into believing that federal money is tight.

It is a lie, and I have come to the conclusion that, after all these years, everyone at the CRFB knows it is a lie.

Policymakers may be tempted to spend these additional reserves in the end-of-year omnibus bill by expanding Pell Grants, for example, to cover short-term educational or training programs. They should avoid this temptation.

As recent experience from the Great Recession shows, economic downturns can quickly increase the costs of the Pell program and lead to large shortfalls.

A lie. “Shortfalls” only will come if Congress unnecessarily votes to create shortfalls. Fictional “reserves” can’t cover “shortfalls” or anything else. The federal government never unintentionally faces financial shortfalls.

Spending funds now on low-priority, questionable initiatives will leave less room to weather the economic downturn or target future funds where they are truly needed.

A lie. The “room to weather an economic downturn or target future funds” is infinite. This year, Congress voted to spend an additional $3 trillion in stimulus money.

No problem. It could (should) have voted double or triple that amount, and still there would be no problem. The federal government simply creates money by spending money. That is the federal government’s standard process for creating dollars.

The Pell Grant program, which provides financial aid to low- and middle-income college students, has a unique budgeting structure.

Program costs are based on the number of eligible applicants, and all eligible applicants automatically receive their award based on a formula.

It is mostly funded, however, through the annual appropriations process.

Exactly. Congress votes; the President signs; and the money is created from thin air, at the touch of a computer key.

When appropriations exceed costs, the program can essentially save the unspent dollars to expand its reserves. This has been the case in recent years, leading to an $11 billion reserve in 2020.

Prior to the COVID-19 pandemic, CBO projected reserves would continue to grow to $18 billion by 2030.

A lie. The “reserve” is a  bookkeeping fiction. Totally unnecessary.

At the whim of Congress, the reserve could be $0 or $1 trillion, and nothing would change. Whenever it wishes, Congress merely can vote to increase the reserve, eliminate the reserve, or do anything else it wishes. The reserve is financially meaningless, meant to fool the uninformed.

CBO previously projected the Pell program would generate $850 million of extra funds in 2021; the actual amount is likely to be higher.

As a result of the pandemic, college enrollment for the 2020-2021 academic year is down 4 percent for all students and 16 percent for freshmen.

A lie. The Pell program generates nothing. Congress spends whatever it wishes to spend.

If Pell costs fell just 5 percent as a result, the Pell reserve would grow an additional $1 billion per year; if they fell 10 percent, it would expand by more than $2 billion per year.

A lie. The reserve is neither more nor less than what Congress and the President want.

The “reserve” is just numbers on a balance sheet that the government has the infinite ability to change at will. It’s like a game of Monopoly™, where the players can change the rules any time they wish.

Politicians may view these extra reserves as an opportunity to expand the Pell program. Given current economic uncertainty, however, this would be a mistake.

A lie. One cannot say what Congress viewed, but the reality is, “extra reserves” provide no opportunity to expand the program.

The opportunity to expand the program comes from Congress’s and the President’s acknowledgment that unlimited dollars are available.

While pandemics tend to reduce college enrollment, recessions often boost enrollment substantially.

During every recession since the 1960s, college enrollment has increased as unemployed workers looked to learn new skills and saw college as a more attractive option given the lack of available jobs.

This was particularly evident during the Great Recession, when the number of people collecting Pell Grants jumped 70 percent from 5.5 million in 2008 to 9.4 million in 2012.

The fact that more people opt for college during hard times merely demonstrates the wisdom of the populace.

It is no threat, whatsoever, to federal solvency, which is infinite.

Over this period, the Pell finances took a turn for the worse. In 2007, CBO’s projected future Pell costs would roughly match funding levels.

By 2012, the agency projected a ten-year shortfall of nearly $60 billion.

The expansions to the Pell program at the beginning of the Great Recession and subsequent rise in enrollment and average award meant Congress had to inject more than $50 billion above regular appropriations between 2009 and 2014 and cut eligibility and benefits in the latter years.

A lie. Pell finances turn for the worse (or better) based on which political party is in control.

If the Democrats control, Pell usually is given more money. The GOP usually tries to cut Pell.

Note that Congress injected more than $50 billion extra into the program, simply by voting to do so. The money didn’t “come from” somewhere. Congress created it just by voting.

The same deterioration could occur again once an effective vaccine is distributed throughout the population and people are no longer avoiding in-person schooling.

This time enrollment could increase for several reasons – including from enrollment of those who delayed schooling through the pandemic, those who suffered job losses or business closures, and those who continue to enroll in newly expanded online programs.

Until these enrollment pressures are better understood, policymakers should avoid spending what is likely a very temporary source of excess funding.

A lie. If the Democrats regain control over Congress, there is a greater chance funding will increase. It’s that simple.

It has nothing to do with job losses and business closures. It has to do with the desire to support the more needy Americans.

Instead of expending a temporary Pell surplus on a questionable new policy, policymakers should save it for rainy days that could be soon to come.

As we monitor enrollment in the post-pandemic portion of the recovery, we will have a better sense of what resources are available and more time to deliberate on how to use them effectively to best achieve the goal of ensuring higher education access and affordability for low-income students.

A massive lie. In federal finances, there is no such thing as a “rainy day.”

For the federal government, every day is financially sunny. The federal government should not just expand Pell. Rather it should fund college for everyone who wants it, regardless of personal wealth and income. (See: Ten Steps to Prosperity, below)

Each dollar spent on college educations funds greater American brainpower, economic growth, and international competitiveness.

In Summary

CRFB is one gigantic lie, composed of numerous half-lies, innuendos, false comparisons, fear-mongering, and flat-out dishonesty.

It is funded by the very rich to provide the government with false excuses for not helping the middle and the poor.

The purpose is to widen the Gap between the rich and the rest.

If you want to know who the liars are, here’s a list.

You can tell them: STOP THE STUPID.

Rodger Malcolm Mitchell

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

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

The most important problems in economics involve:

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

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

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

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

MONETARY SOVEREIGNTY

Will people still work if the government gives them money?

There is a rather widespread belief that if the government simply gives people money, they won’t work. Instead, they will be satisfied with the money they are given.

Long days, hard labor another day at the office for Oregon firefighters - CNN.com
Forest Fire Fighter: Median pay, $40,815 a year.

The variables in this hypothesis are: The amount of money, the people’s needs, the jobs available, the salaries available, and perhaps most importantly, the psychology of the people with regard to work.

There is a strange paradox that the people who labor hardest or at the least appealing jobs are paid the least.

It’s a paradox only because, for instance, one would think an employer would have to pay more to get someone willing to dig in a windowless, damp, dark, dreary, dangerous mine than to a teacher sitting in a comfortable, clean, often air-conditioned room, with windows to the outside.

Where would you rather be: A mine or a classroom?

Yet the median coal miner’s salary is about $29 per hour and the median elementary school teacher’s salary is about — right, that same $29 per hour.

When those coal miners, school teachers, forest fire fighters, et al are out of work, Modern Monetary Theory(MMT) refers to them as “buffer-stock.”

When you are nothing more than “buffer-stock,” you have no ambitions, preferences, or human needs.

You are just a peg to be fitted into an appropriately-sized government hole.

And having none of those aforesaid ambitions, preferences, or needs, you will be satisfied with whatever amount of money you have and/or receive.

So, if you are a buffer-stock person formerly making $50,000 a year, and the government was to pay you $30,000 a year, you will be satisfied, and not work to earn even more. At least, that is the belief of MMT and others with similar views.

California construction firm buys Lunda Construction
Highway construction worker: Median pay: $45,940 per year

And that is why MMT suggests its Jobs Guarantee.

Rather than having the government simply give you money, MMT et al would give you a minimum wage job, that you may or may not (probably, not) like, to prevent you and the other lazy slugs from just lolling about, doing nothing but collecting the dole.

The MMT rationale is that having any job, even a crap job, will look good on your resume, and help you find a job.

Puleeeze! I personally have hired hundreds of people, and never have found that make-work on a resume was more attractive than no-work.

Quite the opposite.

The myth of the lazy poor is rampant and ignores the reality that pay scales tend to be inverse to effort or benefit to society.

The laziest people on earth probably are the billionaires who resent having to walk, drive, lift, wash a dish, make a bed, set an appointment, wait in a line, fill out a form, or rear a child.

For those rich, their primary contribution to society is to give falsely appreciated property to charity, thereby gaining more in tax deductions than the cost of the property. (Hello, Donald Trump, who hasn’t paid taxes in most of the past 20 years).

These entitled few are given tax breaks that allow them to pay little or nothing against millions or even billions of annual income.

Yet there is annoyance, even among your fellow buffer-stocks, when a poor person receives any sort of free ride. Taking a few dollars in food stamps receives sneers even from the middle classes.

When there is a mention of Step 3. of the Ten Steps to Prosperity (below) [Provide a monthly economic bonus to every man, woman and child in Americasimilar to social security for all], there is heard in our land, plaintive moans, “Who will pick up our garbage; who will pave our streets; who will mow our lawns, who will do the dirty work the rest of us can’t bear to touch?”

The whole notion of the “buffer-stock” not caring to earn more and lift their standard of living is demeaning, ridiculous, and ignorant.

BUT, let’s say it’s true. Let’s say that if you simply give all those road construction workers the equivalent of their salary, and they decide not to work, what would happen?

First, it would stimulate the economy. When state and local governments pay bills, they use existing, recirculated dollars. No stimulus there.

But when the federal government pays bills, it uses newly created dollars, which increases the nation’s money supply and stimulates Gross Domestic Product.

Second, there would be a shortage of road construction workers, which would lift their salaries, and that would narrow the Gap between the richer and the poorer. A narrow Gap benefits the masses, which should be both a moral and economic goal of any nation.

In Summary, people are not “buffer-stock.” They are humans with hopes and dreams for themselves and their children. Whatever they have, they want more.

If unemployed people need money, give them money, not junk jobs.

Don’t pretend it is morally unsavory to do for the poor exactly what the government does for the rich. The less affluent need money, so give them money.

The inverse relationship between effort and reward is an abomination. If being given money means fewer people will accept junk jobs, good.

That will help force employers to make the jobs less “junky.” Work environments will improve and the pay will increase. Those are good results.

Every man, woman, and child in America should receive Social Security, and the benefits themselves should be increased. The result would be greater economic growth and a narrower Gap between the richer and the rest.

Rodger Malcolm Mitchell

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

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

The most important problems in economics involve:

Ten Steps To Prosperity:

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

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

MONETARY SOVEREIGNTY