–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.
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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
http://www.rodgermitchell.com

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

–What’s the deal with professional economists? Thursday, May 13 2010 

An alternative to popular faith

I probably shouldn’t generalize, but what’s the deal with professional economists? Why are so many blind to the obvious? Economics is a difficult, complex field, requiring substantial brain power to understand even the basics. There are no unintelligent professional economists. They are exposed to consumption theory, capital theory, the theory of economic growth, and the analysis of labor markets. Yet, many don’t understand the simple truths that all money is debt, and a growing economy requires a growing supply of debt.

They are taught such esoteric lessons as producer theory, consumer theory, choice under uncertainty, welfare analysis and mechanism design. Yet, many believe an expanded health care system is unaffordable for the government.

Professional economists learn general equilibrium analysis, social choice and welfare economics, cooperative, noncooperative game theory and repeated games and economics of information. Yet, many believe federal borrowing reduces the availability of lending funds.

They immerse themselves in time series analysis, ARMA models, VARs, and detrending, dynamic stochastic general equilibrium models of business cycles, and New Keynesian theories. Yet, many say a balanced federal budget is more prudent than a federal deficit.

They author and publish papers on linear/non-linear regression theory on estimation, consistency, asymptotic properties and hypothesis testing. Yet, many believe federal taxes pay for federal spending, our children and grandchildren will pay for federal deficits, and the US will have difficulty finding lenders.

They critique writings on panel data regression, maximum likelihood estimation for tobit, logit and probit estimations, generalized method of moment estimation, least absolute deviation estimation, quantile regression method, nonstationary time series, cointegration, UAR and Kalman filtering for the time-varying parameter estimation. Yet, many neither recognize that debt/GDP is a useless, highly misleading, apples/oranges ratio, nor that low interest rates do not stimulate the economy.

They speak on neoclassical growth model, endogenous growth theory, models of product variety, and Schumpeterian models. Yet, many do not understand the crucial differences between a monetarily sovereign government vs. Greece or Illinois.

Why do so many smart people closely examine minutia, while ignoring abundant, overwhelming and widely available evidence? In effect, professional economists seem to spend lifetimes examining and expounding on one dot in a pointillist work, while ignoring the Sunday Afternoon on the Island of la Grande Jatte?

What’s the deal with professional economists? Why are so many blind to the obvious?

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

No nation can tax itself into prosperity

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