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More Misdirection from Rampell in the Service of Generational War

11:28 am in Uncategorized by letsgetitdone

In my last post, I took issue with a recent column by Catherine Rampell, who tries to make the case 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. Rampell relies on an Urban Institute study to make her case. Since that post, she’s offered another that replies to some of the questions raised by commenters on her earlier effort. I’ll reply to that new post shortly, but first I want to present key points emerging from my analysis of Federal monetary operations in my reply to her earlier post. See that post for the full argument.

Catherine Rampell 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.

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 reserve keystroking into private sector account activities that today represent most of the reality of Federal spending. Read the rest of this entry →

Misdirection: Rampell Views Entitlements Through the Generational War Lens

9:28 am in Uncategorized by letsgetitdone

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.

Catherine Rampell 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.

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. Read the rest of this entry →

Let’s Defend Social Security and Other Entitlements With the Second Bill Of Rights

2:05 pm in Uncategorized by letsgetitdone

The favorite defense of Social Security by progressives harkens back to Franklin Roosevelt <a who famously said:

”I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

So, today progressives echo this even though the SS Tax is a regressive tax, and anything but progressive in its impact on the economy. With the development of the MMT approach to economics, and its emphasis on the government’s ability to spend without a solvency constraint on the Federal Budget, it’s now clear that SS doesn’t need to be funded by a regressive payroll tax; but can be funded out of general revenues and also guaranteed by a provision in law providing for automatic annual funding. Some government “trust funds” are funded this way, including parts of Social Security and Medicare, so there’s no economic reason why the primary funding for both programs couldn’t be provided for these programs.

But a friend, in an echo of FDR’s view, recently said to me in correspondence:

“It seems to me that it is a lot easier to make the case that people are entitled to a government benefit if they have been paying a dedicated tax for 45 years that is described as funding that benefit.”

And I replied in the following way.

It is easier; but it’s still not easy as we now see; and, on the downside, to defend it that way we have to:

1) support the view that people are entitled to government payments only when they pay for them;

2) then defend against the attack that the entitlement payout greatly exceeds the amount paid in, and has no relationship to what is paid in;

3) accept the idea that SS and Medicare must be self-funding like any business, while also ensuring that they are “solvent” as much as 50 years out unlike any business (that is people are upset now because questionable long term fiscal projections show that full coverage of SS spending can only be projected out for 21 years to 2033, so they are calling for fixes to extend that projected “full solvency” period out to 2075 or 2080);

4) always have a very hard time justifying any increases to entitlements for current recipients, because those oppose entitlements always cry out that the Government is running out of money, and would have to raise SS taxes to pay for it;

5) never bring into the argument the fact that things are very different now than they were when SS was first passed, because we now have a fiat money system which makes many things possible now that weren’t possible back then, because THERE IS NO SOLVENCY PROBLEM; and

6) ignore the great argument that our entitlements are the embodiment of an economic bill of rights that ought to apply to all Americans which, of course was outlined by the same FDR in 1944.

In my view, the protestant ethic defense that we’re entitled to SS, because we worked for it isn’t worth the candle. It makes things easier in the short-run, but it reinforces a skin-flintism which is wholly inappropriate to our modern economy, with its monetarily sovereign fiat currency system, and is largely responsible for the rapidly increasing inequality we’ve been experiencing over the years, which has now reached a ridiculous and anti-democratic pass.

We can’t look at SS and our other entitlements in isolation. We have to fight and win the battle for FDR’s economic bill of rights, and for an expansion of all the entitlements in the American social safety net; now the stingiest, most inadequate safety net among modern industrial nations!

FDR’s strategy for justifying SS was great for the 1930s, when we were still on the gold standard. But nearly 80 years later it’s time to move on to his economic bill of rights as our justification for entitlements, and stop reinforcing the idea that it’s only an entitlement if one pays for it. It’s time to stand on the over-riding moral argument! It’s time to say that when a nation like the United States can afford to implement these rights, as the United States has been able to do at least since 1971, they then are human rights that must be implemented as part of the public purpose. Let us have a Green New Deal with a much stronger social safety net including greatly increased payments for SS and Medicare for All, and a Federal Job Guarantee emphasizing Green Jobs!

Let’s fight for that and implement it economically using Modern Money Theory (MMT)-based fiscal policies!

(Cross-posted from New Economic Perspectives.)

Photo by Mr. T in DC under Creative Commons license.

We Need A Tax and Spend Party Again

7:46 pm in Uncategorized by letsgetitdone

It’s been nearly 35 years since we’ve had a “tax and spend” political party. During the 1970s, the Democrats gave up fighting the Republicans about the “tax and spend” label, and the Carter Administration tried to escape from that charge by making very serious attempts to balance the budget. During the 1980s, more and more Democrats emphasized their concern for reducing deficits and balancing budgets as a way of distinguishing themselves from the Reagan Administration’s unprecedented peacetime deficits. This didn’t work for them during Reagan’s time, but they finally were able to use the balanced budget old-time religion game to get George Bush to violate his no new taxes pledge, which both contributed to the Bush recession and, as a further consequence, was a big reason why Bill Clinton was elected.

Clinton, of course, embraced the philosophy of deficit neutrality. He relied primarily on credit expansions in the private sector to drive the economy, raised taxes on higher income people, and basked in the glory of unexpected budget surpluses in the last four years of his tenure. Clinton’s surpluses withdrew demand from the private economy, and were the proximate cause, along with the collapse of “the dot com boom,” in creating the recession at the very end of Clinton’s term. During the Bush Administration, the Democrats continued to attack the Republicans for the Bush tax cuts from a deficit neutrality perspective, while preparing to run against them in 2004, 2006, and 2008.

And Barack Obama, even after the crash of 2008, ran on a promise of fiscal responsibility in the White House, while also promising to end “The Great Recession.” Since taking office, he’s shown a reluctance to spend more in a way that isn’t deficit neutral. Yes, the stimulus package was pure deficit spending. But it was about half the size needed to end the recession decisively. And, in addition, the President’s health care reform was limited to $800 Billion over ten years, and the Democrats in Congress worked hard to see that it was scored by CBO as likely to have a surplus over a 10 year period. In addition, the President is trying to end the Bush tax cuts for higher income people; everything else he’s proposing that will cost money is apparently shaped with deficit neutrality in mind, while, finally, his “Catfood Commission” is apparently going to recommend deep cuts in entitlements, along with some tax increases, after the election.

In short, the Democrats haven’t been the “tax and spend” Party for close to 35 years now. And the Republicans have mostly been a “spend and spend” Party, though not, of course, on the social safety net, education, infrastructure, or in areas of other public need, but rather on various wars and the military-industrial complex. So, what’s happened to America without a “tax and spend Party” that will do a lot of Federal deficit spending on domestic needs, while complementing that spending with a progressive taxation system with high marginal tax rates?  . . . Read the rest of this entry →

Getting To Full Employment

12:19 pm in Uncategorized by letsgetitdone

Given the problems the United States has been having and the unnecessary, misplaced, and wrong-headed, but very real angst of people about becoming insolvent if we continue to increase the size of the deficit, I find myself wondering why we have not turned to another time-tested and very effective New Deal solution to the problem of growing employment. That solution is the Fair Labor Standards Act.

Why not amend the Act so that the standard for a full-time work week is lowered to 35 Hours, while the minimum wage is raised to $10.00 per hour? While this would not by itself create full employment, because many of the already employed, will increase the frequency with which they work at second jobs, I think it’s likely to decrease the unemployment rate by 5% or so. Along with a Federal Job Guarantee program, which would cost much less if it were implemented in the context of a decreased normal work week and an increase in the minimum wage, the employment problem would be gone within 6 months, and the increase in aggregate demand would end the recession.

The benefits for working people of decreasing the hours in a full-time work week are fairly obvious, so I won’t say very much about them, but I do want to point out that doing this is one way of ensuring that some small share of the rapidly increasing productivity that has occurred since 1970 goes to working people, rather than just to the pocketbooks of wealthy Americans who have been enjoying almost all the fruits of that productivity increase over the past 40 years.

Such a measure would also be a cure for the reported $1.8 Trillion in cash that businesses are reluctant to invest, since higher wage costs would cut into the profits of large companies and force some of that cash off the sidelines. In addition, the projected rise of aggregate demand, will provide incentives for businesses to invest and get still more of that business cash off the sidelines.

Republicans, of course, will object to any such proposal saying that business, and particularly small business won’t be able to afford it in a recession. FDR faced similar arguments in 1937 and 1938. Of course, he won the day, and Americans have benefited from his courage ever since.

One of the most attractive aspects of this proposal to amend the Fair Labor Standards Act is that it will have a positive impact on the deficit, not so much because those working at the minimum wage will pay very much in income taxes; but they will pay FICA and unemployment insurance taxes, and their employment will reduce Federal safety net expenditures, as well.

So, politically this proposal could be cast simultaneously as a jobs creating/deficit reduction measure which could make it tough to defeat, if only a majority vote in the Senate is needed to do it. Of course, a super-majority will be needed in the Senate.

So, this measure, along with many other worthwhile solutions to America’s growing risk of problems can only be passed if the filibuster is ended first. If "the nuclear option" is used, this can be done at anytime. So, why can’t we do these things? Only because our political system is broken, and is no longer subject to the will of the majority.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Beat the Deficit Hawkism Frame or Lose

12:01 pm in Uncategorized by letsgetitdone

The corporatist-centrist politicians, such as Judd Gregg, Kent Conrad, Evan Bayh, no longer afraid of a total collapse of the world economy, are using deadly innocent frauds, scare, myths, and lies about the deficit and the national debt to undermine the possibilities of progressive change in the United States. It seems, also, that they’re now being led by President Obama, who has emerged as a full-throated champion of deficit hawkism, while pretending to be concerned about the well-being of the Middle Class, during his first State of the Union speech, where the President treated us to the following statements, about the debt, and the deficit, among others. Read the rest of this entry →

Hoover or FDR?

2:24 pm in Uncategorized by letsgetitdone

Sometime during the past 32 years many prominent Democrats forgot the lessons of the Great Depression, or never learned them, and, instead, absorbed the lessons of Hooverism, in part from Ronald Reagan who believed in the religion of free market capitalism, and also in the derivative idea that real economic growth always come from the private sector, but also, in part, I think, from Democratic opposition to Reagan’s deficit’s, which they opposed, not simply because they were incurred to give tax cuts to the rich, but also, on the old-time religious grounds that balanced budgets and surpluses should be the norm for a virtuous America.

Bill Clinton reinforced the old-time religion when his restrained public spending coupled with good economic fortune in the private sector, led to higher Federal revenues, and to surpluses in the last years of his Administration. Democrats since have taken these surpluses as points of pride, and proof that it is the Democratic Party that is fiscally responsible, and not the Republicans, who shortly after the accession of George W. Bush returned to deficit spending. In taking pride in Clinton’s “achievement,” Democrats have conveniently ignored that the very end of the Clinton Administration was marked by a recession following the collapse of the Internet bubble of 1999. They make no connection between the appearance of that recession, and the Administration’s insistence on managing for budget surpluses rather than for economic development and job growth. Read the rest of this entry →

Do We Expect Too Much From the President? A Reply To Bill Egnor

8:45 am in Uncategorized by letsgetitdone

Bill Egnor blogs about whether or not we’ve been expecting too much from President Obama. He says:

“If you look at the Presidency from the point of view of the Constitution, it really is not a powerful office except in terms of what it prevents. It is really and primarily a check on the powers of other areas of our government and military. The president proposes no legislation, none. He can only do one of two things with a piece of legislation; he can sign it and make it law, or he can veto it. This is intended to be the final check to prevent the Congress from making a big mistake. They can override a veto, it is true, but when a veto happens it requires a reexamination of the bill by both Houses and a two thirds majority in each in order to overrule the President.”

I don’t think we’ve been expecting too much from the President, and I do think he’s been letting us down. Bill’s contrary view is based on the idea that the written constitution makes the Presidency a relatively weak office, and that, under it, it is not the President’s job to legislate or to take the lead in helping us to meet America’s social, economic other problems. But, I think this is a very anachronistic interpretation of the constitution which the United States has left far behind long years ago. Read the rest of this entry →