The Social Security train crash

What should this man do?  

A normal person might say that the man should simply get off the track. But sometimes, politicians, economists, and media writers are not normal people.

They sometimes eschew normal solutions to problems and present complex, non-solutions. A politician probably would say, “It’s too late for the man. We could raise his taxes to cover the cost of installing brakes on the train, or we could stop service altogether. Walking will do people good.”

Consider Social Security and the federal government. Social Security is running short of dollars. The government has infinite dollars.

Fed Chairman, 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.

Fed Chairman, 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.” It’s not tax money… We simply use the computer to mark up the size of the account.

Fed Chairman, Jerome Powell stated, “As a central bank, we have the ability to create money digitally.

Secretary of the Treasury, Paul O’Neill: “I come to you as a managing trustee of Social Security. Today we have no assets in the trust fund. We have promises of the good faith and credit of the United States government that benefits will flow.”

Paul Krugman (Nobel Prize–winning economist): “The U.S. government is not like a household. It literally prints money, and it can’t run out.” 

Given that Social Security is facing funding issues and the federal government has the ability to create unlimited money, one might suggest that the government should simply fund Social Security.

Ah, but no. That is not the way of our information leaders, as the following article will attest:

Social Security: Insolvency date keeps getting closer

By The Week US

A new report has projected that Social Security funds could be depleted by 2033

Time is running out to avert a Social Security cataclysm, said William A. Galston in The Wall Street Journal. The program’s trustees warned in a recent report that the Social Security trust fund “will be exhausted in the first quarter of 2033″—nine months earlier than they predicted a year ago—at which point benefits will be cut by 26%.

Is Mr. Galston a “normal person”? Does he suggest that the entire “cataclysm” would disappear if the federal government simply funded Social Security? No.

A few factors explain why the coffers are being drained:

How much money is in the federal government’s “coffers”? Actually, it doesn’t have coffers. It creates dollars, on demand, by paying creditors. The process is quite straightforward:

1. Congress and the President pass a law, funding a project
2. The chosen agency of the federal government writes checks to suppliers
3. The Federal Reserve clears the checks based on the law passed by Congress and the President.
4. Dollars appear in the checking accounts of creditors.

Where did those dollars come from? Thin air, the same place the very first dollars came from in the 1780s. Congress votes. The President approves. Numbers appear in the government’s books. Those numbers are money. That is all money is: Numbers in the government’s books.

There is no physical money — just numbers. Even dollar bills are not money, They just represent the dollars on the government’s books. And the government controls its books.

The over-65 population has nearly doubled since 2000, beneficiaries are living longer, and declining fertility rates mean there are fewer workers to support each beneficiary.

It widely, and falsely, is believed that the FICA extracted from your paycheck funds Social Security. It doesn’t. Even if the government didn’t collect a single penny in FICA taxes, it could continue funding Social Security (and Medicare) forever.

The old saw about “fewer workers to support each beneficiary” is wrong, wrong, wrong. Even if there were no workers, the government could fund Social Security — yes, again — forever.

We’ve known about these trends for decades and could have enacted reforms gradually. Now it’s too late. If lawmakers acted today, “restoring Social Security’s long-term solvency would require a 22% benefit cut for current and future beneficiaries,” or an increase in payroll tax to 16%, from the current 12%.

You have just read an example of the Big Lie in economics: That benefit cuts or tax increases are necessary to “save” Social Security. Three lies in one paragraph:

1. The “Now it’s too late” lie. Congress and the President could provide the funds to save Social Security this afternoon.
2. The “benefit cut” lie. The government could triple benefits and still maintain Social Security’s solvency.
3. The “tax increase” lie. The government could eliminate FICA, and Social Security could continue to be solvent.

But lawmakers won’t act today. President Trump “has repeatedly ruled out cuts to Social Security,” and Democrats didn’t do anything when they were in power. At some point, politicians will have to “level with the American people about the hard choices that lie ahead.”

Yes, at some point, politicians will have to “level with the American people” about the vast sums of money the government could, if it wished, allocate to Social Security and Medicare.

“If endless borrowing were no cause for concern,” the fix would be easy, said Bloomberg in an editorial. Congress could just change the rules that say Social Security can’t borrow money to pay out benefits and carry on.

But with the national debt sitting at $36 trillion and rising fast, that’s not possible.

The government does not borrow dollars. Why would it. It can create all the dollars it needs, simply by pressing a computer key. Who says so? Well, for one:

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 federal government is not financially constrained and does not need to ‘fund’ its spending.”

Not being dependent on credit markets means the government doesn’t borrow.

The writer almost admits the truth: “Congress could just change the rules that say Social Security can’t borrow money to pay out benefits.

Get it? Congress always can “just change the rules.”  Congress could fund Social Security the same way it funds the army, the navy, the marines, the air force, the space force, the SCOTUS, the White House, and Congress itself, along with almost every other federal agency: By voting for the money.

So why doesn’t Congress do that? We’ll explain shortly.

So we have to consider the other available options, said David Von Drehle in The Washington Post. One is to raise more revenue, possibly by making the wealthy pay more. “Another choice is to further raise the age of full eligibility,” which has already gone from 65 to nearly 67 for those born in 1960 or later.

Or we could “increase the number of workers paying into the system.” But President Trump’s immigration crackdown means the opposite is happening.

We already have discussed these so-called “solutions” and why they neither are necessary nor advisable. And now we get to what Congress would really love to do.

There’s one more idea on the table, said Allison Schrager in Bloomberg. Sens. Bill Cassidy (R-La.) and Tim Kaine (D-Va.) have proposed creating “a separate fund for Social Security” that could invest in “stocks and other investments,” not only Treasurys, as the current trust fund is required to do.

Oh, how the political donors would love to get their greedy hands on your retirement money. Remember the 2008 recession caused by banks selling fake investment products to a naive public? Yes, those are the crooks who thing Social Security should be privatized.

The senators estimate that savvy investing would be enough to fill the fund’s coffers. And maybe they’re right: “In hindsight, the program would not be facing a shortfall” if it had jumped into stocks two decades ago. “

But investing is always easy in hindsight.” There’s no guarantee the market will replicate the outsize returns of the past 20 years.

And with Social Security so near to insolvency, some tax hikes and benefit cuts are likely inevitable even with a shift to stocks. “The first rule of investing, after all, is that there is no such thing as a free lunch.”

Yes, it’s all part of the Big Lie, easily seen if one has the sense to look.

So if it’s so obvious that all solvency problems would end if the federal government merely funded Social Security, why hasn’t it been done? And the answer is: The rich donors don’t want a solution.

Here’s why.

1. “Rich” is a comparative.

2. Being rich doesn’t just mean one owns a great deal of wealth. It means one owns a great deal more wealth than others.

3. Becoming richer requires widening the income/wealth/power Gap

4. The Gap can be widened by obtaining more for oneself or by forcing others to have less.

5. The rich use their financial power to widen the income/wealth/power Gap below them.

6. The rich discourage benefit-narrowing benefits to those who are poorer

7. They do this by bribing thought leaders to promulgate economic lies.

a. They bribe the media via ownership and advertising dollars.

b. They bribe the economists via school endowments and lucrative jobs in think tanks.

c. They bribe the politicians via campaign contributions and company employment

8. Among the economic lies the rich promulgate are:

a. The federal deficit and debt are too high. Economically, they are too low.)

b. Social Security is funded by FICA (All federal spending is funded by money creation, not taxes)

c. To prevent SS insolvency (and Medicare insolvency, too), FICA must be increased or

d. Benefits must be reduced.

e. The government cannot afford to pay for Social Security (The government can afford anything.)

f. The poor are naturally lazy, and benefits encourage them not to work (On average, the poor work harder than the rich)

g. It isn’t fair for the poor to receive money for not working. (It’s fairer than the current Gap)

h. Federal spending is inflationary (Inflations are caused by shortages, never by spending, which can cure shortages)

You are being conned into believing Social Security (and Medicare) are facing intractable financial problems that only can be cured by giving recipients less and/or taxing them more (or by allowing the rich to handle the money and profit from it).

I cannot say whether William A. Galston and the Wall Street Journal editors are ignorant of the facts or are outright lying. I suspect that, given all the informational resources at their command, they are not ignorant.

The fact that a very rich man, Rupert Murdoch, owns the WSJ, provides one clue.

In the following months, you will continue to hear versions of the Big Lie drummed into your head, again, again, again, in the hopes that repetition alone will make you accept it and not protest at what is being taken from you.

Your best hope is to contact your Senators and Representatives repeatedly, letting them know you’re on to them and will hold them accountable in the coming elections. Do the same with any medium that tells the Lie.

Fight hard enough and maybe, just maybe, we won’t have to keep reading headlines like this:

Trump slashed Medicaid — now he’s got another health care crisis looming

There goes Obamacare.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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