Social security is broke....

[EconGuy]

Ok, ok, that was click bait-y I admit, but stick with me, because the question of Social Security and the amount of money to fund it really doesn't make any logical sense, at least the way most people think about it.

To understand why Social Security is "broke" (but can be paid indefinitely) you need to understand how the federal government (only the federal government) creates money.

This explanation is made harder by the fact that the US has gone though a few different types of money systems:

Gold redemption (up to 1934)
Gold Backed (1934-1971)
Fiat (1971-present)

Though I'd argue that the gold backed era was really the first phase of fiat, weening people off the idea that a dollar was worth some amount of gold. Telling people gold was "backing" money was a façade meant to make people comfortable with the idea of fiat before Nixon threw it out before the US had to give away all of it's gold stores.

Ok, to understand why the government has zero dollars for Social Security (SS from now on) is because the government never had dollars in the first place, one needs to understand that the government can never logically save it's own money. Why? Because the US government, creates the dollars by decree and it always has, it has an unlimited amount of dollars and yet still has none. Even in the earlier eras of money. Government start with zero dollars and created money by issuing orders given by the Treasury to mark up accounts of people the government wishes to pay.

For example, if you are owed money, let's say $1000 at the end of the year for taxes, the Treasury issues the Federal reserve instructions to credit your account $1000. The money doesn't come from some stockpile of money. The Treasury issues an instruction to mark up your account by $1000 and digits are changed, that's it. The government then records it's expenditure and at the end of the year all expenditures are subtracted from all receipts and the difference is recorded as (usually) deficit. The opposite is also true, when you owe the government money it sends the Fed instructions to delete $1000 from your account and then simply records it. It doesn't get saved, or moved to some account.

Where did the $1000 come from? No where, it created those dollars out of thin air. Despite common belief, they weren't borrowed (bond sales comes after money is spent, not before). Inevitably, someone will ask me, if I'm right why doesn't the government create a zillion dollars and hand it out? Because the government does have a real constraint on spending (no it's not borrowing) it's inflation.

Let's try an analogy. I ride the DC Metro every day. Right now my Metro card has enough value on it for me to ride about 100 stops. But what is the farecard from the Metro's point-of view? It is debt, I am owed a ride totaling 100 stops. Could I sell the card? Sure, I could sell it to anyone that needs a farecard for about what it costs to ride 100 stops. But what is the card worth to the Metro system? Nothing, it's debt (it can't be both a debt and an asset to the same entity). If I gave my farecard (that has an exchange value of about $50) back to the Metro system, would the Metro system have an extra $50 of farecards it can sell? No, it can create all the farecards it wants. Only when a person (outside the metro system) obtains a farecard, does the card have value. An asset to the holder and a debt to the Metro.

In other words, all the unused DC Metro farecards are debts and if everyone tomorrow handed them back to the Metro system, the Metro wouldn't have money equal to the value of those cards, they would have less debt, in this case the Metro systems debt would be zero. Why? Because the Metro system can create as many cards and put whatever values on them they wanted. Let's say 1000 cards with $1000 worth of rides. If the Metro system puts those cards in a safe, the Metro has no more or no less assets or debts. But if I had 1000 cards with $1000, I would have $100,000 worth of farecards I could sell. They would be my assets and debts of the Metro system.

It is similar with the government, just as Metro cannot save in farecards it creates, nor can the government save (as in accumulate) in it's own dollar. It makes zero logical sense to say the US government can save (as in accumulate) it's own money as every dollar issued is a debt. Dollars exist because the government creates and spends them. Yes banks create money too, but bank money is different than government money, something I can follow up on as the explanation is long in the middle of an already too long post.

Thus, the government, at least in an economy similar to the one we have today (a large net importer) can never be positive in it's own money, it can only have less debt The most it can ever have is zero. Thus, giving money to the government to "save" for social security isn't saving anything. Taxes, all taxes, reduce the amount of debt the government has, that's it. There is no pile of money set aside for social security. The government doesn't "borrow" from social security, that's like the Metro system borrowing it's own farecards. Its nonsense. It's accounting used as a political tool to scare voters.

Sure, the government tracks the accounting of these things and they have meaning, but the idea that there is money in some special account called Social Security and that Social Security will be insolvent at some point makes no sense, zero.

You could say that there is more money be paid to beneficiaries than is taken in, in SS taxes, but so what? Why does SS have to have a special line item where taxes are collected specifically to fund it separately from all other things the government spends money on? Why don't we have a specific tax on our pay stubs to fund roads, the military, transportation, education etc, ect? The fact is, SS could just as easily be rolled into our normal taxes and reported as a line item in the budget just like everything else.

Social Security will only be insolvent when the government is unable to issue it's own dollar. Which, if that happens, our nation as we know it will already be long gone and your biggest worry won't be your SS payment, but where your next meal is coming from.

Thoughts?

 

[Heyo]

Ok, ok, that was click bait-y I admit, but stick with me, because the question of Social Security and the amount of money to fund it really doesn't make any logical sense, at least the way most people think about it.

To understand why Social Security is "broke" (but can be paid indefinitely) you need to understand how the federal government (only the federal government) creates money.

This explanation is made harder by the fact that the US has gone though a few different types of money systems:

Gold redemption (up to 1934)
Gold Backed (1934-1971)
Fiat (1971-present)

Though I'd argue that the gold backed era was really the first phase of fiat, weening people off the idea that a dollar was worth some amount of gold. Telling people gold was "backing" money was a façade meant to make people comfortable with the idea of fiat before Nixon threw it out before the US had to give away all of it's gold stores.

Ok, to understand why the government has zero dollars for Social Security (SS from now on) is because the government never had dollars in the first place, one needs to understand that the government can never logically save it's own money. Why? Because the US government, creates the dollars by decree and it always has, it has an unlimited amount of dollars and yet still has none. Even in the earlier eras of money. Government start with zero dollars and created money by issuing orders given by the Treasury to mark up accounts of people the government wishes to pay.

For example, if you are owed money, let's say $1000 at the end of the year for taxes, the Treasury issues the Federal reserve instructions to credit your account $1000. The money doesn't come from some stockpile of money. The Treasury issues an instruction to mark up your account by $1000 and digits are changed, that's it. The government then records it's expenditure and at the end of the year all expenditures are subtracted from all receipts and the difference is recorded as (usually) deficit. The opposite is also true, when you owe the government money it sends the Fed instructions to delete $1000 from your account and then simply records it. It doesn't get saved, or moved to some account.

Where did the $1000 come from? No where, it created those dollars out of thin air. Despite common belief, they weren't borrowed (bond sales comes after money is spent, not before). Inevitably, someone will ask me, if I'm right why doesn't the government create a zillion dollars and hand it out? Because the government does have a real constraint on spending (no it's not borrowing) it's inflation.

Let's try an analogy. I ride the DC Metro every day. Right now my Metro card has enough value on it for me to ride about 100 stops. But what is the farecard from the Metro's point-of view? It is debt, I am owed a ride totaling 100 stops. Could I sell the card? Sure, I could sell it to anyone that needs a farecard for about what it costs to ride 100 stops. But what is the card worth to the Metro system? Nothing, it's debt (it can't be both a debt and an asset to the same entity). If I gave my farecard (that has an exchange value of about $50) back to the Metro system, would the Metro system have an extra $50 of farecards it can sell? No, it can create all the farecards it wants. Only when a person (outside the metro system) obtains a farecard, does the card have value. An asset to the holder and a debt to the Metro.

In other words, all the unused DC Metro farecards are debts and if everyone tomorrow handed them back to the Metro system, the Metro wouldn't have money equal to the value of those cards, they would have less debt, in this case the Metro systems debt would be zero. Why? Because the Metro system can create as many cards and put whatever values on them they wanted. Let's say 1000 cards with $1000 worth of rides. If the Metro system puts those cards in a safe, the Metro has no more or no less assets or debts. But if I had 1000 cards with $1000, I would have $100,000 worth of farecards I could sell. They would be my assets and debts of the Metro system.

It is similar with the government, just as Metro cannot save in farecards it creates, nor can the government save (as in accumulate) in it's own dollar. It makes zero logical sense to say the US government can save (as in accumulate) it's own money as every dollar issued is a debt. Dollars exist because the government creates and spends them. Yes banks create money too, but bank money is different than government money, something I can follow up on as the explanation is long in the middle of an already too long post.

Thus, the government, at least in an economy similar to the one we have today (a large net importer) can never be positive in it's own money, it can only have less debt The most it can ever have is zero. Thus, giving money to the government to "save" for social security isn't saving anything. Taxes, all taxes, reduce the amount of debt the government has, that's it. There is no pile of money set aside for social security. The government doesn't "borrow" from social security, that's like the Metro system borrowing it's own farecards. Its nonsense. It's accounting used as a political tool to scare voters.

Sure, the government tracks the accounting of these things and they have meaning, but the idea that there is money in some special account called Social Security and that Social Security will be insolvent at some point makes no sense, zero.

You could say that there is more money be paid to beneficiaries than is taken in, in SS taxes, but so what? Why does SS have to have a special line item where taxes are collected specifically to fund it separately from all other things the government spends money on? Why don't we have a specific tax on our pay stubs to fund roads, the military, transportation, education etc, ect? The fact is, SS could just as easily be rolled into our normal taxes and reported as a line item in the budget just like everything else.

Social Security will only be insolvent when the government is unable to issue it's own dollar. Which, if that happens, our nation as we know it will already be long gone and your biggest worry won't be your SS payment, but where your next meal is coming from.

Thoughts?

I'm confused by your explanation and know a bit about money.
As you explained it, it sounds as if money is only created out of thin air. Which is not completely right. Maybe you first explain gold based money where the government can have and save money (gold) and then explain how that still holds true with fiat money but is a bit more complicated?

 

[EconGuy]

First, let me be clear about something, I've shared how the system we have works. I've not given my opinion on it.

I'm confused by your explanation and know a bit about money.

That's why I post, interesting conversation. Ask away.

it sounds as if money is only created out of thin air

Currency Is created by governments or other agents (like the Metro system with gates and guards to prevent you from entering without a farecard) with the power to enforce its currency regime (a feature of currency disliked by some). Money, despite what others say, is a somewhat nebulous term of which currency is a form. Gold bugs will call gold real money, but as I see gold strictly as a commodity, albeit one that that is nearly universally recognized as valuable which is why, historically, it's been used to trade and to store value. Some will point to golds intrinsic value (and currency's lack of intrinsic value) as evidence of its status as "true money". If the government fails and society degrades into chaos, AA batteries, seeds or bullets will make better money than gold. Why? Because their intrinsic value is much higher. In other words, the same regime (government) that helps enforce stable markets for gold do the same for the government's currency.

Currencies are much, much more efficient as money. A claim I can defend if interested.

Maybe you first explain gold based money where the government can have and save money (gold) and then explain how that still holds true with fiat money but is a bit more complicated?

The thread was already long, so adding a history of money section would have made the post two times longer. Is there a specific question or perhaps share your understanding of money where it might differ from my own?

Respectfully,

EG

 

[Heyo]

First, let me be clear about something, I've shared how the system we have works. I've not given my opinion on it.


That's why I post, interesting conversation. Ask away.


Currency Is created by governments or other agents (like the Metro system with gates and guards to prevent you from entering without a farecard) with the power to enforce its currency regime (a feature of currency disliked by some). Money, despite what others say, is a somewhat nebulous term of which currency is a form. Gold bugs will call gold real money, but as I see gold strictly as a commodity, albeit one that that is nearly universally recognized as valuable which is why, historically, it's been used to trade and to store value. Some will point to golds intrinsic value (and currency's lack of intrinsic value) as evidence of its status as "true money". If the government fails and society degrades into chaos, AA batteries, seeds or bullets will make better money than gold. Why? Because their intrinsic value is much higher. In other words, the same regime (government) that helps enforce stable markets for gold do the same for the government's currency.

Currencies are much, much more efficient as money. A claim I can defend if interested.



The thread was already long, so adding a history of money section would have made the post two times longer. Is there a specific question or perhaps share your understanding of money where it might differ from my own?

Respectfully,

EG

I liked your example with the Metro ticket best. I think the most important character of money is its value equivalence, a.k.a. buying power. It is also the one everybody can understand. And the buying power of currency is not created ex nihilo. To understand money one needs to understand how its buying power comes to be and how it can be influenced. I don't know how to formulate that in a succinct but comprehensive way and the really good YouTube video that does it is in German.

 

[EconGuy]

I liked your example with the Metro ticket best.

Let me ask, what was your understanding of Social Security before my post? Does my post make sense?

The point is, don't let politicians scare you into thinking there isn't enough money to fund social security because that's not how the system works.

At worst there are choices about what to fund, but there are many, many things in the government's budget that could/ should be cut before social security (and Medicaid), if (and that's a big if) those sorts of choices need to be made.

And the buying power of currency is not created ex nihilo.

Without giving it much thought, and reserving the right to change my mind, my first inclination is first not only to think about buying power but the range of goods that can be purchased in a particular market.

<Warning minor tangent> Have you ever given any thought to the the fact that producers of products and services are trying to identify problems and solve those problems with their product or service. However, not all societies have the same capacity to solve problems. Advanced countries with low unemployment and reasonable wages results in the biggest problems are solved, food, shelter, clothing, health, energy, education, transportation and access to information. Those markets become saturated, so we get things like beauty, vacations, jewelry, art and entertainment that covers a HUGE varsity of products and services, and then there are ways we consume needs but in way that is a mix between need and want.

For example:

This solves the problem of transportation:

Need:

So does this, but it also solves other "problems".

Some people need to travel and coach solves this problem:

What problem is being solved here?

I heard an add the other day for hand and foot anti-perspirant. Now imagine shopping for that in a poor city in Bangladesh. Or even something like Pet Rocks or scented erasers. They aren't in those places because they NOT because they don't want them, they aren't available there because in those places other problems are more pressing. If you create a business there are plenty of more serious and pressing problems that need to be solved.

The reason that we have products that solve increasingly frivolous problems in the US ($400 nail anyone?) is because there is so much saturation solving the most pressing problems.

So the question is, do you start a business that solves pressing problems (where most of the competition is), or do you solve increasingly less pressing issues but in a space with less competition?

Now going back to the question of buying power.

Just think about this question though time. Would you rather be rich before the invention of the car, anti-biotics and telegraph, or middle class today?

The point is, buying power means different things in different places and comparing between different times.

It is related to society and its capacity produce, but also societies capacity to consume.

Now let me take a crack at your question, what is buying power and how can it be influenced?

In an economic context, buying power is the ability of a consumer to purchase goods and services with a given amount of money. It is influenced by a number of factors, including income, prices, and the value of the currency.

• Income: The most important factor in determining buying power is income. The more income a person has, the more goods and services they can afford to buy.
• Prices: Prices play a role in determining buying power. If prices rise, buying power decreases, as people can afford to buy less with the same amount of money. Conversely, if prices fall, buying power increases.
• Value of the currency: The value of the currency also affects buying power. If the value of the currency falls, it takes more of that currency to buy the same goods and services. Conversely, if the value of the currency rises, it takes less of that currency to buy the same goods and services.

How can it be influenced?

In an economic context, buying power is the ability of a consumer to purchase goods and services with a given amount of money.

• An increase in income: If a person's income increases, their buying power will also increase.
• A decrease in prices: If prices decrease, buying power will also increase.
• A depreciation of the currency: If the value of the currency depreciates, buying power will decrease.
• A government policy that lowers taxes: A government policy that lowers taxes on income or on certain goods and services will increase buying power for consumers.

Of course government and certain private sector policies can influence these ideas. The other thing to remember is that these factors rarely move alone, so of course this assume that all other things are equal, but, that said, they rarely are.

 

[Heyo]

In an economic context, buying power is the ability of a consumer to purchase goods and services with a given amount of money.

Yep. And ...

It is influenced by a number of factors, including income, prices, and the value of the currency.

• Income: The most important factor in determining buying power is income. The more income a person has, the more goods and services they can afford to buy.

... that's why income has nothing to do with buying power. Income is just how much money you have, it doesn't tell you how much you can purchase with a given amount of money.

• Prices: Prices play a role in determining buying power. If prices rise, buying power decreases, as people can afford to buy less with the same amount of money. Conversely, if prices fall, buying power increases.
• Value of the currency: The value of the currency also affects buying power. If the value of the currency falls, it takes more of that currency to buy the same goods and services. Conversely, if the value of the currency rises, it takes less of that currency to buy the same goods and services.

How can it be influenced?

In an economic context, buying power is the ability of a consumer to purchase goods and services with a given amount of money.

• An increase in income: If a person's income increases, their buying power will also increase.

Again, not relevant.

• A decrease in prices: If prices decrease, buying power will also increase.
• A depreciation of the currency: If the value of the currency depreciates, buying power will decrease.

Depreciation of currency is an effect, not a cause.
Printing money and bringing it into circulation would be a cause. (I think we had that in the other thread about inflation.)

• A government policy that lowers taxes: A government policy that lowers taxes on income or on certain goods and services will increase buying power for consumers.

It would increase the amount of money you have to spend, not the buying power of a single unit. In fact, it would increase circulation, causing inflation and thereby decreasing buying power. (All other thing being equal, which they will not as higher consume would lead to higher production.)

Of course government and certain private sector policies can influence these ideas. The other thing to remember is that these factors rarely move alone, so of course this assume that all other things are equal, but, that said, they rarely are.

One important factor is missing and that is

• Production: the other side of the equation. Money is a value equivalent. Without a real asset balancing the money, money also has no value. The art of keeping a currency stable is in balancing the money in circulation with the assets it represents. What makes this especially difficult is that a lot of the money is only balanced by potential future assets. A hailstorm that destroys the harvest, destroys the value of the money in circulation in the expectancy that it can buy grain in the autumn.

Too complicated already?

 

[Shaul]

I have resigned myself to the fact that my earned Social Security and Medicare benefits will be diverted to someone else who has been less wise fiscally. Through earnings testing my earned benefits will be taxed to supplement the benefits of those that did not properly plan. It isn't "fair' but I always assumed the government would not keep its promises to me. It took my money while I earned it with the promise to pay me when I retired. Now that I retired it will be taking back the benefits it promised through taxation. The government is not to be trusted.

 

[EconGuy]

... that's why income has nothing to do with buying power. Income is just how much money you have, it doesn't tell you how much you can purchase with a given amount of money.

I think I see the problem.
Here is an example of how buying power works:

• Let's say a person works for 10hrs and earns $100. If the price of a gallon of milk is $2, they can buy 50 gallons of milk.
• However, if the price of milk rises to $3 per gallon, you can only buy 33 gallons of milk with the same amount of money.

That is buying power of a currency, what I was describing takes the currency and accounts for the buying power of an individual.

For example:

If a different person worked 10hrs and earned $1000. They 500 gallons of milk assuming the same price.

A person who can earn more money in less time has more buying power. But again, I think we're looking at this in two different ways.

Without a real asset balancing the money, money also has no value.

Agreed, said another way, money's value is relative to what it can be used to acquire.

The art of keeping a currency stable is in balancing the money in circulation with the assets it represents.

With respect, that's a common mistake. The amount of money in circulation is a factor in demand, but there are other factors as well.
Things that you need to consider.

So money added to an economy modified by:

ΔPopulation
Per-person output or productivity
ΔSavings rate
ΔDebt repayment
Desired growth target

Population. As population increases the amount of money in circulation per person declines. Increases in money in circulation prevent the demand/ value/ buying power of money from increasing (assuming ceteris paribus). Or if population declines the opposite can be true.

Per-person productivity - As per-person productivity increases, again, ceteris paribus, it takes fewer people to do all the work that needs to be done. Without new money the value of work would decline as demand for jobs rose relative to the number of jobs available.

Savings - Every dollar saved isn't spent. Every dollar not spent isn't earned as income. Some will argue that increased savings drives down the cost of interest as a rule, there is no direct correlation because interest rates aren't set by savings rates. That system, Fractional Reserve Banking ended when the dollar became non-convertible to gold. I would say there's in indirect correlation because if people save and the economy enters a downturn, the Fed can lower rates to entice more spending.

Debt repayment. If, like after 2008, debt repayment outpaces bank borrowing and people repay more than they bowwow the amount of money circulating decreases.

For example, if we look at the period post 2008, we can see a shift in private sector borrowing before 2008 changes from over $1 trillion per year to -$65 billion.

As shown here:

Here is a close up.

The table above shows

Money borrowed-money repaid=n

We can see in the 4 years leading up to 2008 the private sector net borrowed roughly $4.4 trillion more than it repaid.

In the 4 years after 2008 it was roughly positive $200 billion, that's a net difference of $4.2 trillion less when comparing the 4 years prior and the 4 years after. Indecently we see the government try to offset some of that by increasing spending, but it was too little and the wrong people benefited, hence the anemic recovery.

Lastly we have a growth target. If you want to shoot for a growth target for 4% and expect to target inflation at 2%, you are going to need spending to increase by 2%. That increase can come from increased velocity or an increase in private or public spending or a combination of both.

Too complicated already?

For most people, yes, and I don't mean to sound like an ego mainiac when I say that. I've spent almost two decades studying this stuff, most people simply don't have the time to dedicate to learn. I try to make it easy, but politics has become so partisan on the issue, usually I can tell a persons power affiliation by how they engage with me.

 

[EconGuy]

I have resigned myself to the fact that my earned Social Security and Medicare benefits will be diverted to someone else who has been less wise fiscally. Through earnings testing my earned benefits will be taxed to supplement the benefits of those that did not properly plan. It isn't "fair' but I always assumed the government would not keep its promises to me. It took my money while I earned it with the promise to pay me when I retired. Now that I retired it will be taking back the benefits it promised through taxation. The government is not to be trusted.

Shaul, Do you own a business?

 

[EconGuy]

my earned Social Security and Medicare benefits will be diverted to someone else who has been less wise fiscally.

What is fiscal wisdom in this context?

 

[Shaul]

Shaul, Do you own a business?

I am retired. I have income from pensions and investments.

 

[Shaul]

What is fiscal wisdom in this context?

In this context it is the wisdom to realize that one's financial security in retirement is a personal responsibility. Those that abdicate that responsibility to others trusting they will take care of you is precarious to say the least.

 

[Heyo]

Agreed, said another way, money's value is relative to what it can be used to acquire.

From a personal perspective.
From an economic perspective the money in circulation is equal to the assets in the economy (all other things being equal and sometimes with a delay). That's why printing money doesn't change the value of the sum of all money, it just lowers the buying power of a single unit.

With respect, that's a common mistake. The amount of money in circulation is a factor in demand, but there are other factors as well.
Things that you need to consider.

So money added to an economy modified by:

ΔPopulation
Per-person output or productivity
ΔSavings rate
ΔDebt repayment
Desired growth target

Population. As population increases the amount of money in circulation per person declines. Increases in money in circulation prevent the demand/ value/ buying power of money from increasing (assuming ceteris paribus). Or if population declines the opposite can be true.

Per-person productivity - As per-person productivity increases, again, ceteris paribus, it takes fewer people to do all the work that needs to be done. Without new money the value of work would decline as demand for jobs rose relative to the number of jobs available.

Savings - Every dollar saved isn't spent. Every dollar not spent isn't earned as income. Some will argue that increased savings drives down the cost of interest as a rule, there is no direct correlation because interest rates aren't set by savings rates. That system, Fractional Reserve Banking ended when the dollar became non-convertible to gold. I would say there's in indirect correlation because if people save and the economy enters a downturn, the Fed can lower rates to entice more spending.

Debt repayment. If, like after 2008, debt repayment outpaces bank borrowing and people repay more than they bowwow the amount of money circulating decreases.

Agreed. All those factors (and a few more) complicate things even more.

For most people, yes, and I don't mean to sound like an ego mainiac when I say that. I've spent almost two decades studying this stuff, most people simply don't have the time to dedicate to learn. I try to make it easy, but politics has become so partisan on the issue, usually I can tell a persons power affiliation by how they engage with me.

I appreciate that, a task I have mostly failed at. Trying to find the most basic concepts and explaining them seems to me to be the way to go. And I think that "money = assets" is one of those basic concepts.

 

[EconGuy]

I am retired. I have income from pensions and investments.

If you don't mind me asking, how did you make your money?

 

[EconGuy]

In this context it is the wisdom to realize that one's financial security in retirement is a personal responsibility. Those that abdicate that responsibility to others trusting they will take care of you is precarious to say the least.

So then by that definition, anyone that doesn't have enough money for their retirement is irresponsible, regardless of how a person comes to their situation?
On the other hand, there are those who are completely irresponsible in their life choices, but thanks to the lottery of their birth they are well taken care of?

You mentioned earlier the word "fair", seems kind of ironic, no?

 

[Shaul]

If you don't mind me asking, how did you make your money?

I worked for high tech companies and did quite well. I invested well. I retired from that career and became a public school teacher to serve others. I am eligible for Social Security, but since I don't need the income now. So I am putting off applying for it until age 70 so the benefit will grow.

 

[EconGuy]

That's why printing money doesn't change the value of the sum of all money, it just lowers the buying power of a single unit.

That's just it, that's false. How do we know? Because businesses don't set prices based on how much money is in circulation, they set prices based on supply relative to demand. And increasing demand only cause prices to increase if demand cannot be met. But if money increases and that in turn causes an increase in demand and that demand can be met without large scale investment, then prices won't go up as a rule.


The only way that what you say is true is if an economy is operating at or near it's capacity to produce. I mean, you recognize that money's value is tied to real goods and services, but you aren't accounting for the fact that increases in demand can be met with increases in output.

Money created and circulated is a factor of demand and demand is a factor of inflation, but the relationship isn't always causal.

Let's look at output relative to capacity.

Now this chart shows us capacity utilization, so any potential inflation driven by demand would have to overcome existing capital resources that are currently unutilized before those same companies would experience widespread shortages.

So what about recent inflation?

Largely driven by global supply shortages resulting in inflation largely driven by increased global costs rather than domestic demand.

"money = assets" is one of those basic concepts.

If I were to oversimplify things, I think it's more like "expected demand=expected supply.

I mean, think about it, what is the value of something not offered for sale? Money can only buy things that are offered for sale. I'd argue there is more value in things that are owned and not for sale than things that are for sale.

 

[Shaul]

So then by that definition, anyone that doesn't have enough money for their retirement is irresponsible, regardless of how a person comes to their situation?
On the other hand, there are those who are completely irresponsible in their life choices, but thanks to the lottery of their birth they are well taken care of?

You mentioned earlier the word "fair", seems kind of ironic, no?

I didn't say they were irresponsible. I wrote that they are responsible for their retirement. That's different. Many, if not most, are just ignorant about how to succeed financially. Most people are poor due to ignorance, not irresponsibility. Most people have access to sufficient tools to succeed. A lack of money is not the issue. Improper planning is the cause of most financial failures. The fact is the vast majority of wealthy people did not inherit their wealth. Most millionaires are self-made.

 

[EconGuy]

I worked for high tech companies and did quite well. I invested well. I retired from that career and became a public school teacher to serve others. I am eligible for Social Security, but since I don't need the income now. So I am putting off applying for it until age 70 so the benefit will grow.

Good for you, I also have found decent success in technology. I've been told quite often I would have made a great teacher. Maybe I'll be as lucky as you one day (soon). Thanks for sharing, sincerely.

 

[EconGuy]

The fact is the vast majority of wealthy people did not inherit their wealth. Most millionaires are self-made.

Self-made is an interesting term. I believe a statistic I saw said that 67% of millionaires were self-made, but in that same report it said 70% of those lived in homes that were in the top 20% of households growing up which gave them better access to education and networking opportunities.

I agree that ignorance is a hurtle for those that grow up in the lower and lowest tiers of family income. I'm curious, do you think taking money from you (or others that have achieved a modicum of success or better) to create more opportunity in the lowest classes is something that we should support? Do you think that's fair?