More Rainbow Stew

by Don Boudreaux on May 1, 2010

in Inflation, Monetary Policy, Myths and Fallacies, Not from the Onion, Reality Is Not Optional

Here’s a letter to Lynn Parramore of New Deal 2.0:

Dear Ms. Parramore:

Writing at the Huffington Post, you’re comforted by Prof. Stephanie Kelton’s claim that government programs can never be insolvent (“The Deficit: Nine Myths We Can’t Afford,” April 27).  Prof. Kelton explains: “government’s ability to pay benefits does not in any way depend on the balance in the Social Security or Medicare Trust Funds.  Benefit checks come directly from the Treasury, and, as Alan Greenspan has admitted, ‘[A] government cannot become insolvent with respect to obligations in its own currency.’”

And so the question is not whether the government needs to make ‘tough choices’ in order to keep these vital programs afloat. The question is, will politicians make the toughest choice of all and tell the American people the truth: Social Security and Medicare face no financial crisis now or in the future.”

Ah ha!  So because government can print money, Social Security and Medicare will always have sufficient funds to meet their obligations.  We’ve nothing to worry about!

You and Prof. Kelton are deeply confused.  The concern about these programs’ obligations is not that Uncle Sam won’t find enough green pieces of paper to enable him to pay.  The concern is that the process government will have to go through to get this money – raising taxes or inflating the money supply – will devastate the economy.

Your advice to not worry about government’s huge financial obligations reveals your belief that Uncle Sam conjures real wealth and resources by using green ink to paint countless tiny monochrome portraits of dead American statesmen.

If Uncle Sam’s green ink truly is so miraculous a substance, why not have Washington assume the debts of the entire country?  With Uncle Sam using his magical green ink to pay everyone’s car notes, house notes, student loans, credit-card bills, gambling debts, and pledges to NPR, each American will accumulate such riches, and wallow in such opulence, as to become the envy of every oil sheik.

Sincerely,
Donald J. Boudreaux

Indeed, why pay taxes at all given that every government program and endeavor can be funded with newly printed money?  Or, hell, why even work?!  Let’s just all live off of the Magical Green Ink!

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