Social Security trustees have once again sounded the alarm about the program running out of money.
In reality, the federal government has infinite dollars. As former Fed chair Alan Greenspan admitted, “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.” Federal spending is limited by things to buy, not by dollars.
Ask yourself: Why do SS and Medicare have trust funds but Defense, Transportation, Education, and all other departments do not? The trust funds are accounting gimmicks originally intended to comfort recipients but now used to justify cutting benefits. They are nothing more than numbers on a spreadsheet. When it comes time to pay benefits, the government will create new dollars using computer keystrokes, the same way it pays for everything.
Claims that the trust funds will run dry actually mean that the laws establishing those funds will no longer authorize payment of full benefits. The problem is not the ability to pay but rather the legal authority to pay. Congress could change the law to authorize full or even increased benefits. In fact, that is exactly what they did when they set up Medicare’s Supplemental Medical Insurance (SMI) trust fund. It is solvent forever because of how its law was written. Congress could easily modify the SS and Medicare laws to permanently preserve full or expanded benefits.
Better yet, let’s drop the trust fund charade and just pay benefits at the level needed by recipients.
[A local newspaper published a letter in rebuttal to the above post. The author mentioned Milton Friedman’s famous quote that “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” He also cited hyperinflation in Zimbabwe and Venezuela as proof that money creation causes that problem. And he added plenty of snark about the national debt. Below is my response to his letter.]
A July 8 letter, in response to my earlier letter, raised concerns about government spending, inflation, and the national debt. Those concerns are understandable and commonly held, but they are misguided.
Milton Friedman’s famous statement on inflation is not supported by empirical evidence as explained here: https://tinyurl.com/monysupply
Some of the flaws in his argument are described here: https://tinyurl.com/friedmanflaws
The author of the letter also referenced hyperinflation in Zimbabwe and Venezuela as the dangers of government overspending. Unfortunately, he and many others misunderstand what happened in those countries. In fact, the excessive money printing occurred after the hyperinflation began, not before. To learn more about those two situations, read here: https://tinyurl.com/venezimbabweimar or here: https://tinyurl.com/vzwproof
Finally, he mentioned our $37 trillion national debt. That’s a concern I used to share until I learned more. Our national debt that scares so many is nothing more than the sum total of all outstanding U.S. government bonds. Some readers may hold them as financial assets. In that sense, they aren’t so scary.
A bond is issued by transferring existing dollars from a reserve account to a securities account at the Fed, very much like how a bank CD is created. Bonds are paid off (debt retired) by transferring those dollars back, all done with a keyboard. Some of this happens every day.
The government could pay off the debt today if it wanted, but that would anger many bondholders. So we keep issuing bonds, and the debt keeps growing. You shouldn’t lose sleep over it.