Sunday, April 6, 2014

Money Myth 7: Social Security and Medicare are unfunded liabilities that we cannot afford.

FACT: A currency-issuing nation can always afford any obligation denominated in its own currency.

Many of us have grown up hearing politicians and pundits telling us repeatedly that these future obligations to seniors and the sick are huge burdens that we cannot possibly bear.

They love to use terms such as "unfunded liabilities"; they reference "trust funds" as though that's all the money we've got; they delight in scaring people with sound bites like "social security is going broke" or "our trust fund is running out". 

These alarming proclamations lead us to believe that we haven't collectively saved enough money or that our politicians have squandered away the savings, leaving us unable to pay for the future obligations to our senior citizens without massive new tax hikes and austere living for our children.

Who are these people that make such outrageous claims and mislead whole generations? Let me suggest that when people are mostly sowing fear, and not hope, start looking for their agenda and seek other perspectives. 

Once again, let's get beneath the rhetoric and look at the facts in light of how modern money works. 

Social Security doesn't need to be saved, it needs to be funded.

What is the essence of Social Security? As a nation, we have made a promise to our elderly that once they stop working we will credit their bank accounts with an adequate income stream so they can provide for their needs for the rest of their lives. We care for our own. We're not going to leave our parents and grandparents to live in poverty. 

Now as a sovereign currency-issuing nation, can we ever run out of keystrokes that add numbers into bank accounts? Of course not! 

Do we need to take more money from working people before our government can afford to meet the needs of the elderly or sick? Never. Federal government spending is all done via the creation of new money. 100%. Taxes never add to the government's bank account. Spending never diminishes what they have left to spend. 

Remember, we are not a currency-using government that must obtain its currency before it can spend. We are a currency-issuing sovereign. We invented the concept of currency-issuance precisely so that we can direct our government to credit bank accounts for those things we deem in the public interest. We don't have to choose between providing adequate income for the elderly or paying our troops.

Now of course we can decide foolishly to tie our hands behind our backs and pretend that we don't have any money. We can decide to self-impose limits on the amount of money being issued and subsequently saved by the private sector. We can choose to impose meaningless budget rules that hurt the economy and the lives of our citizens. We can choose to stop investing in the things that ensure our children's future is better than our own by pretending we can't afford it. These are political choices, not driven by economic necessity. 

We can always afford Social Security because we can always direct our government to credit bank accounts with new money. How about a constitutional amendment to permanently fund a social security income for all at a living wage, adjusted as necessary for inflation? The same applies to Medicare, Veteran's care, funding our roads and bridges, and all other important financial obligations we have made together that benefit society. We simply need a commitment to fund. 

What about the Trust Fund? Shouldn't the government save for the future? 

Some would have us taxing more today so that our government can put that money away in a lock box to be drawn upon only by future generations. They want the government's savings account to get a really big balance today so that it has enough for all the future needs. 

Really? So we want to put a high tax burden on the economy today - removing money from people and savers - for what? So our currency-issuing government won't have to issue money later? 

As a point of logic, an IOU-issuer can't "save" its own IOUs. It has no need for them (aside from printing costs) since it can always create new ones. When governments try to do so by running budget surpluses, they are being counterproductive in economic terms and short-sighted in terms of the real needs of their country. They can always issue money later but they can't instantaneously issue infrastructure or education or health. Saving reserves of scarce real goods such as food & oil may make sense for emergencies and national security, but when currency-issuing sovereign governments save money for future needs they are simply overtaxing the population

Our real social security is found in real things.  

If we, the people, decide we want to provide a living income for our senior citizens, we simply direct our government to issue them the necessary digits in their bank accounts. No new taxes are needed to fund anything. 

The bigger question is whether we have invested in the actual resources they need to live well: things like good food, safe and affordable housing, transportation, a healthy environment. Is the remaining working population equipped to be productive enough and is it fully employed to meet their own needs and those of the rest of society when the future is here. Have we trained enough care workers? Do we have a good food supply? Have we build livable cities and neighborhoods where people of all ages can get around safely? Are we in tune with our climate and environment in how we consume resources, grow food, and rely on clean water?

Do we really think we can't take care of our elderly? The greatest threat is our gross misunderstanding of our monetary system that prevents us from maintaining and strengthening policies that provide essential benefits to those in need, and investing today for the needs of tomorrow.

Similarly, if we decide that essential health care is something everyone should be able to benefit from, we can always "afford" to credit the bank account of doctors and nurses and hospitals when they provide care for the sick. We shouldn't be passing laws that burden workers or businesses with these costs. In fact, I would argue that removing health costs as a business expense (and hence cost of production) will increase our national competitiveness while lowering the cost of goods to consumers. 

The health care debate should be over what approach we take to ensuring everyone has access to and can afford essential health services. 

More reading

Warren Mosler has suggested an appealing alternative to our current confused and convoluted health care system.