Some of the favored children of the economic elite who have a public presence, work hard in their writing and speaking to divert attention from inequality and oligarchy issues by raising the issue of competition between seniors and millennials for “scarce” Federal funds. That’s understandable. If millennials develop full consciousness of who, exactly, has been flushing their prospects for a decent life down the toilet, their anger and activism might bring down the system of wealth and economic and social privilege that benefits both their families and the favored themselves in the new America of oligarchy and plutocracy.Here and here, I evaluated Abby Huntsman’s arguments for entitlement “reform,” and, of course, Pete Peterson’s son, Michael fights a continuing generational war against seniors in pushing the austerian line of the Peterson Foundation. Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:
Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.
She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:
But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. (Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.)
Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”
After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:
”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.
This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.
To draw on the benefits of these programs seniors were required to pay FICA contributions during their working lives. These payments, according to the law, give them the right, in other words, entitle them, to receive the benefits of SS and Medicare that were mandated by Congress.
No one ever said to today’s seniors that there was some rule in the SS and Medicare programs requiring that their payments needed to, or ought to, correspond to the amount of their total benefits, since that was never the deal legislated by Congress. No, the deal was: “You pay your FICA contributions, and you get your benefits at retirement.” Simple as that!
So, people who followed the SS and Medicare rules and made their payments over the years rightly view themselves as having paid for their entitlement benefits, regardless of whether their cumulative FICA payments fall short of or exceed the cumulative sum of those benefits. Why shouldn’t they, and why is Rampell implying that the deal implicit in our major entitlement programs is anything different?
Additionally, I’m afraid that Rampell is also wrong when she says that today’s seniors “paid for” their parents’ entitlements. They certainly paid FICA and Medicare-related contributions, of course; but it is not true that these revenues paid for anything, in spite of Federal reports that appear to link the two, or the accounting that shows that the Social Security Administration has built up a $2.8 Trillion credit against future expenditures, and that Medicare has a much smaller volume of credit to be used for such expenditures.
The reality of Federal monetary operations is that Congress mandates the spending for all Federal programs and then spending occurs through the Treasury keystroking reserves into recipients’ accounts. Where do those reserves come from? They come from the Federal Reserve, of course, which has the delegated authority from Congress to credit reserves into Treasury accounts.
When, where, and why does it do this? The main trigger events are 1) tax and FICA contribution revenues, 2) sales of Treasury securities, 3) credits from coin sales and deposits at the Fed (coin seigniorge), 4) sales of Federal property, and 5) return of Fed profits to the Treasury. Tax and FICA payments cause the Fed to credit Treasury Tax and Loan (TT & L) accounts with reserves. Treasury coin sales and deposits at the Fed cause it to credit the Mint’s Public Enterprise Fund (PEF) account with reserves, and Fed profits and asset sales cause it to credit other Treasury accounts with reserves. So that’s how reserves get into what might be called Treasury income accounts.
From there, the Fed and the Treasury co-ordinate to ensure that there are sufficient reserve credits in Treasury spending accounts to allow Treasury to keystroke reserves into private sector accounts in fulfillment of all Treasury spending obligations. This occurs through the Treasury informing the Fed about its scheduled payments and peak reserve balance needs for a particular time period, and then the Fed and Treasury ensuring that the reserves will be there, if necessary through the issuance and sale of debt instruments, or even if Treasury would choose to do so through its creation (through the Mint), and deposit at the Fed, of platinum coins with face values specified by the Secretary (of course, this last option hasn’t yet been used).
So, two important points emerge from this account that Catherine Rampell and all who think that entitlement benefits are “paid for” by taxes and/or FICA contributions need to learn. First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its keystroking activities.
And second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax. Or that millennials, and other age cohorts, are paying for seniors’ entitlement benefits, or for the difference between what seniors’ payments were before they began to receive benefits and what they are now getting paid afterwards.
The whole neoliberal construction of Government finance which assumes that the Government is a currency user with limited financial resources is false. The Government is a high-powered money creator of reserves, currency, and coins. It is the only high-powered money creator. It is the high-powered money monopolist.
So, Catherine Rampell, as well as all the conservative and/or austerian, and most of the progressive pundits and politicians of all stripes, are wrong to spend time debating who does or should “pay for” entitlement benefits with their taxes. Federal taxes don’t pay for anything. So, payments made to the Government “for” entitlement benefits should be, required, if at all, only for other purposes than “paying for” such benefits.
They have only the following functions. Some unknown level of taxation gives a national fiat currency its value, by ensuring that people will need that currency to pay their taxes. Taxes also can drain excessive reserves and net financial assets from the financial system, reducing aggregate demand when this is desirable. They can also be used to reduce levels of behavior society believes is undesirable, or to incentivize behavior it considers desirable, and to reduce the accumulation of wealth across generations, or to drive resources to charities, and for other purposes as well.
But, what they cannot do in a fiat currency system is to function as the actual effective means of “paying for” sovereign spending. The instrument that, in fact, enables such spending day-to-day is the sovereign and sole authority of the Government to create high-powered money. In the United States. This means it is the whole process of interaction among Congress, the Fed, and the Treasury that creates such high-powered money which determines the amount of spending we have and not the specific taxes we collect from any specific generational cohorts.
And this brings us to Rampall’s next point:
So who’s making up the difference between what seniors paid yesterday and what they receive today? “Spoiled millennial [expletives]” like me, as well as Gen-Xers and both groups’ children. And absent a major influx of working-age immigrants, the burden per worker stands to grow enormously in the coming years. That’s because the bloated baby-boomer cohort is aging into retirement, Americans are living longer and health-care costs per person are rising.
The facts of fiat money operations described earlier, make clear that nobody is making up that difference between seniors’ current benefits and seniors’ payments prior to their receiving entitlement benefits with their tax payments. What is happening instead, is that the Government is paying all benefits using established monetary operations, and its authority to create high-powered fiat money.
So, Rampell has nothing to worry about. Her money isn’t going to baby boomers or other seniors like me. Its destruction by the Government through taxation is fulfilling public purposes other than providing baby boomers and other seniors with their benefits.
But while on this subject, what’s the point of the reference to “the bloated baby boomer-cohort”? Are the boomers to blame for the size of their cohorts? Should they have increased their suicide and murder rates to bring the size of their cohort more in line with others? Do they bear a moral responsibility for continuing to live?
Full disclosure: I’m a senior, though not a boomer, but I don’t see what the point or the justification is for referring to them as “bloated” because their parents decided to celebrate the end of the Great Depression and World War II by having lots of children. In fact, I don’t think referring to the boomer cohort as “bloated” makes any more sense than referring to the millennial generation as “spoiled.” It’s the kind of thing that in days of more simplistic philosophy people used to call “cognitively meaningless,” and that we have always called ad hominem argument.
As for health care costs rising enormously, and “the extra burden” that will place on other generations, there are many ways of handling that other than reducing benefits to seniors. For example, we could begin by recognizing that increasing health care costs are not a burden for a Government that can create high-powered money to buy anything for sale within its own borders, and that the REAL financial problem of rising health care costs isn’t a government solvency problem, but a financial hardship problem for most Americans. It’s they who need both lower costs and good health care outcomes, not the Government.
So, rather than implying that Medicare benefits need to be cut, why doesn’t Rampell propose that HR 676, enhanced Medicare for All, be immediately passed by Congress? We know from experience in other nations that HR 676 or similar legislation would reduce the rate of increase of health care spending much below today’s levels.
In addition, if we can get down to the same percent of GDP Canada spends for health care with such legislation, then we will spend roughly $1 Trillion per year less than we spend now on health care. Since health care involves no deficit spending right now, that means $1 Trillion per year left in the pockets and bank accounts of sectors of the economy other than health care insurers and providers.
That’s an awful lot of new jobs created, along with better health care outcomes, if the experience of other nations with single-payer systems is any guide. So, why isn’t Rampell advocating that kind of solution, instead of saying things like “Look over here at that greedy old codger” and “Don’t tax you, don’t tax me; tax that senior standing under the tree”?
Maybe we can find an answer to that question by looking at the last paragraph in her column.
But as a society, we must decide exactly how much we’re willing to subsidize the growing ranks of the elderly. Republicans argue that we should control entitlement spending because (I’m paraphrasing here) deficits are evil. They should be joined by Democrats, but for a different reason: Money for other worthy, traditionally liberal causes — education, infrastructure, children, the deeply poor — is being gobbled up by increasingly expensive and unfunded promises to the old.
So, here we have everything in a nutshell. Rampell, consistent with her false belief that entitlements are “paid for” by inherently limited Government fund raising through taxing or borrowing, also appears to believes the falsehood that Federal money is limited by the Government’s ability to tax and borrow, and that the needs for a quality education for the young, infrastructure for a healthy economy, a good life and equal opportunity for children, the deeply poor, and, implicitly, opportunities for good jobs and a good life for her own millennial age cohort, are in competition for Federal money with the needs of seniors.
However, Federal money sufficient to fulfill all these needs can easily be made available if Congress is willing to appropriate it. For example, the faux entitlement solvency crisis that Rampell worries about can easily be fixed by passing legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.
Congress does that now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice, using similar legislative language, can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. Solving the crisis can be done this way in an afternoon if Congress really wants to do it. End of faux problem; almost end of story, apart from possible debt limit problems.
Once legislation like this is passed, no gaps between SS revenue and benefits can be projected by institutions such as CBO, or other Petersonian deficit warriors. Because under current law, once those appropriations are set on automatic renewal annually, the Treasury will then have the obligation to spend those appropriations by using one or more of the various tools listed earlier to generate credits in the Treasury General Account (TGA).
Again, the Treasury has no fiscal solvency problem, under current law, provided it has an appropriation mandating it to spend, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues. The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, while adding the net financial asset of Federal debt to that sector, and getting the Fed to place an equal amount of reserves in its accounts. But, this way of getting the necessary reserves can be interrupted by debt ceiling crises.
However, there are other ways it can be done that get around any refusal to raise the debt limit, if it wants to fulfill its obligations and pay all the benefits guaranteed by the change in the law to provide automatic appropriations that would solve this faux problem. The best way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. I’ve explained how this would work in my kindle e-book, as well as in many blog posts.
The basic idea is that its platinum coin seigniorage authority can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing. If Treasury doesn’t want to do this, then it can use a type of debt instrument which isn’t counted toward the debt limit such, as consols (See here).
Just as Congress, along with the Federal Reserve and the Treasury, can work together to solve faux self-created entitlement crises, it can also legislate the deficit spending needed to fulfill all the needs Rampell is worried about. It is a question of will and intention, not a question of financial capability. Rampell should not write disingenuously as if a future entitlement funding crisis is an inevitable fact of nature, rather than an aspect of “shock doctrine” and a political choice.
Entitlement benefits aren’t in competition with other needs for scarce Federal funds, and what seniors have paid in FICA taxes aren’t important for the level of benefits we decide to allocate to them. The whole debate over what’s been paid in and what seniors get out is all sound and fury signifying nothing but neoliberal madness and moral bankruptcy.
The proper frame to use when evaluating the question of how much the Government ought to subsidize one generational cohort as opposed to another isn’t the competitive neoliberal framing used by Rampell at all. The framing Rampell should be using is this:
supplemented by this:
We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.
We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own.
Contrary to what Rampell advocates, the Democrats shouldn’t join with the Republicans to cut entitlements or any other spending, just for the sake of deficit reduction. Instead, they should embrace the framing of FDR’s last years and his Second (economic) Bill of Rights. That is the heart and soul of the Democratic Party: its reason to continue to exist.
It must turn away from corporatism and neoliberalism and turn again to this vision, or face its own death. Because if it won’t undertake and complete the great work FDR set out for it in 1944, creating renewed political, and new economic and social democracy, and ending the new American oligarchy, then the American people need it no more. And it may as well consign itself to history, and give a new “party of the people” a chance to do what it will not.
(Cross-posted from New Economic Perspectives.)