The Dunning-Kruger effect. Are you affected?

Have you heard of the “Dunning-Kruger” Effect? 

Before you answer, here are a few warm-up questions:

1. What is the primary source of funds to pay for Social Security benefits?
2. What is the primary source of funds to pay for Medicare benefits?
3. What is the main difference between the federal government’s financing and the state/local governments’ financing?
4. Where does the federal government obtain the money to pay off federal debt?
5. Does the federal government borrow dollars?
6. What is the primary cause of inflation?
7. What is the purpose of federal taxes?
8. What is the purpose of state/local taxes?
9. Taxes are paid with dollars from the M2 supply measure. In what measure are those dollars after they are paid, and why?

Answers:

1. and 2. Social Security and Medicare Funding: All benefits are paid with newly created federal dollars, not from payroll taxes. FICA pays for nothing.

3. Federal vs. State/Local Financing: The federal government, being Monetarily Sovereign, can create dollars at will, while state and local governments must collect revenue before they can spend.

4 and 5. Paying Off Federal Debt: The federal government does not borrow dollars. Instead, it creates new dollars by spending. To pay for goods and services, the U.S. Treasury instructs the Federal Reserve to increase the balances in private bank accounts. These new dollars are generated by keystrokes in the electronic banking system, rather than being taken from a pre-existing supply of money.

When the government sells T-bonds or T-bills, it’s not obtaining the dollars it needs to spend. It’s simply offering investors a way to exchange their existing dollars (bank reserves) for interest-bearing accounts at the Fed. This helps the Fed manage interest rates and provides a safe asset, but it doesn’t finance federal spending.

When a bond matures, the government “pays it off” by marking up the holder’s reserve account. No taxpayer dollars or new loans are required. The Fed just credits the account — the same way it does for any government payment.

6. Primary Cause of Inflation: Inflation primarily is a shortage problem. Inflation occurs when current production and inventories are insufficient to meet demand, often due to sudden shortages of key goods such as energy or food.

7. Federal Taxes: Federal taxes are used to control the economy (by taxing what the government wishes to discourage and by rewarding what the government wishes to encourage). Federal taxes also support demand for the U.S. dollar by requiring taxes to be paid in dollars. Federal taxes do not fund federal spending.

8. State/Local Taxes: State and local taxes fund operations and public services because these governments cannot create unlimited money.

9. Money Supply: Because there is no limit to the federal government’s dollar balance, any attempt to measure “how much money the federal government has” is meaningless. That’s why no M1, M2, or other money-supply measure includes federal money — it’s not constrained by scarcity, it’s purely an accounting record until spent.

Not one person in a thousand can give you the correct answers, but nearly everyone wrongly believes they know some, if not all, of the answers.

And that is the Dunning-Kruger effect, a cognitive bias in which people overestimate their knowledge or ability in a specific area. This tends to occur because a lack of self-awareness prevents them from accurately assessing their own skills.

Per Wikipedia:

The concept of the Dunning-Kruger effect is based on a 1999 paper by Cornell University psychologists David Dunning and Justin Kruger. The pair tested participants on their logic, grammar, and sense of humor and found that those in the bottom quartile rated their skills far above average.

The researchers attributed the trend to a problem of metacognition—the ability to analyze one’s own thoughts or performance. “Those with limited knowledge in a domain suffer a dual burden: Not only do they reach mistaken conclusions and make regrettable errors, but their incompetence robs them of the ability to realize it,” they wrote.

In summary, those who know the least fail to realize how much they don’t know. This is why the most uninformed people tend to argue most fervently for their beliefs.

It’s what’s known as a “double curse:” Not only do people perform poorly, but they are not self-aware enough to judge themselves accurately—and are thus unlikely to learn and grow.

Confidence is so highly prized that many people would rather pretend to be smart or skilled than risk looking inadequate and losing face.

Even smart people can be affected by the Dunning-Kruger effect, because intelligence isn’t the same as learning and developing a specific skill. Many individuals mistakenly believe that their experience and skills in one particular area are transferable to another.

The Dunning-Kruger effect partly explains mistaken beliefs about our economy. That, along with misstatements by our thought leaders — politicians, the media, and some economists — produces the false belief that federal taxpayers and their children will have to pay for the federal debt.

They won’t. The truth is that federal spending costs taxpayers nothing. If the federal government suddenly had to pay a $100 trillion bill, it could do it at the touch of a computer key, and it would cost you and your children $0. 

Moreover, the more the federal government spends and the less it collects in taxes, the healthier our economy becomes. This principle is reflected in the formula for the prime measure of the economy, Gross Domestic Product.

GDP = Federal Spending = Nonfederal Spending + Net Exports.

Both federal spending and nonfederal spending increase when the government runs deficits. The best outcome for the American economy would be for the federal government to run larger deficits and accumulate more “debt.”.

Dunning-Kruger contributes to the ongoing “debt ceiling” crisis, which has disrupted our government and economy for many years.

Dunning-Kruger helps prevent Medicare for All, Social Security for All, better and more education for America, and a host of other benefits the federal government easily could fund, but doesn’t.

So check out the title of this post. What’s your answer?

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

Source: https://mythfighter.com/2025/11/12/the-dunning-kruger-effect-are-you-affected/