Can We Still Afford Social Security and Medicare?


Stepahine Kelton has the post Can We Still Afford Social Security and Medicare?.

As promised, today’s post is a rejoinder. With the political fight over entitlement programs like Social Security and Medicare heating up—and, yes, they are entitlements because people are entitled to coverage under the law as long as they meet program eligibility requirements—it’s important to bring some clarity to the debate.

I am not sure that this brings clarity for most people. I understand what she is trying to say, and I think I can say it more clearly.

The USA Government’s Federal Reserve Bank creates all USA money (except for the small part created by the mint or the paper currency). That ability to create money means that the USA Government can always create the money to satisfy all future Social Security obligations.

Where the problem could arise is when the retirees use that money to buy things. The issue is whether or not the economy can produce all the things the retirees have the money to buy. If we don’t invest enough in expanding our economy in the future, then the productive part of the economy may be too small to produce what the retirees have the money to buy.

The non-productive part of the economy includes the part of the economy that collects debt interest payments from the people. Paying interest on debt makes banks richer, but it does not increase the economy’s ability to produce what people want to buy.

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