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.

By
Warren Mosler
(Reprinted from Moslereconomics.com with the Express Permission of the Author)

CAUTION: BE SEATED WHEN READING
COMMENTS BELOW:

It’s 2026, and the Debt Is Due

By N. Gregory Mankiw

March 26 (NYT)

The following is a presidential address to the nation — to be delivered in March 2026.

My fellow Americans, I come to you today with a heavy heart. We have a crisis on our hands. It is one of our own making. And it is one that leaves us with no good choices.

For many years, our nation’s government has lived beyond its means.

A rookie, first year student mistake. Our real means are everything we can produce at full employment domestically plus whatever the rest of the world wants to net send us. The currency is the means for achieving this. Dollars are purely nominal and not the real resources.

We have promised ourselves both low taxes and a generous social safety net. But we have not faced the hard reality of budget arithmetic.

The hard reality is that for a given size government, there is a ‘right level’ of taxes that corresponds with full domestic employment, with the size of any federal deficit a reflection of net world dollar savings desires.

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security.

Yes, they decided they would like our elderly to be able to enjoy at least a minimum level of consumption of goods and services that made us all proud to be Americans.

They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families.

Yes, they elected to make sure everyone had at least a minimum level of actual health care services.

But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income.

The real cost of this ‘expansion’ (which was more of a reorganization than an expansion of actual real resources consumed by the elderly and consumed by actual health care needs) may have consumed an increasing share of real GDP, but with continued productivity this would have been at most a trivial amount at current rates of expansion.

Today, most of the large baby-boom generation is retired. They are no longer working and paying taxes, but they are eligible for the many government benefits we offer the elderly.

Yes, they are consuming real goods and services produced by others. The important consideration here is the % of the population working and overall productivity which he doesn’t even begin to address.

Our efforts to control health care costs have failed. We must now acknowledge that rising costs are driven largely by technological advances in saving lives. These advances are welcome, but they are expensive nonetheless.

Still no indication of what % of real GDP he envisions going to health care and real consumption by the elderly.

If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided. But no one likes paying taxes. Taxes not only take money out of our pockets, but they also distort incentives and reduce economic growth. So, instead, we borrowed increasing amounts to pay for these programs.

At least he gives real economic growth a passing mention. However, what he seems to continuously miss is that real output is THE issue. Right now, with potential employment perhaps 20% higher than it currently is, the lost real output, which compounds continuously, plus the real costs of unemployment — deterioration of human capital, broken families and communities, deterioration of real property, foregone investment, etc. etc. etc.- are far higher than the real resources consumed by the elderly and actual health care delivery. Nor does he understand what is meant by the term Federal borrowing — that it’s nothing more than the shift of dollar balances from reserve accounts at the Fed to securities accounts at the Fed. And that repayment is nothing more than shifting dollar balances from securities accounts at the Fed to reserve accounts at the Fed. No grandchildren involved!!!

Yet debt does not avoid hard choices. It only delays them. After last week’s events in the bond market, it is clear that further delay is no longer possible. The day of reckoning is here.

This morning, the Treasury Department released a detailed report about the nature of the problem. To put it most simply, the bond market no longer trusts us.

For years, the United States government borrowed on good terms. Investors both at home and abroad were confident that we would honor our debts. They were sure that when the time came, we would do the right thing and bring spending and taxes into line.

But over the last several years, as the ratio of our debt to gross domestic product reached ever-higher levels, investors started getting nervous. They demanded higher interest rates to compensate for the perceived risk.

This is all entirely inapplicable. It applies only to fixed exchange rate regimes, such as a gold standard, and not to non convertible currency/floating exchange rate regimes. This is nothing more than another rookie blunder.

Higher interest rates increased the cost of servicing our debt, adding to the upward pressure on spending. We found ourselves in a vicious circle of rising budget deficits and falling investor confidence.

With our non convertible dollar and a floating exchange rate, the Fed currently sets short term interest rates by voice vote, and the term structure of interest rates for the most part anticipates the Fed’s reaction function and future Fed votes. Nor is there any operational imperative for the US Government to offer longer term liabilities, such as 5 year, 7 year, 10 year, and 30 year US Treasury securities for sale, which serve to drive up long rates at levels higher than otherwise. That too is a practice left over from gold standard days that’s no longer applicable.

As economists often remind us, crises take longer to arrive than you think, but then they happen much faster than you could have imagined. Last week, when the Treasury tried to auction its most recent issue of government bonds, almost no one was buying. The private market will lend us no more. Our national credit card has been rejected.

As above, the US Government is under no operational imperative to issue Treasury securities. US Government spending is not, operationally, constrained by revenues. At the point of all US govt spending, all that happens is the Fed, which is controlled by Congress, credits a member bank reserve account on its own books. All US Government spending is simply a matter of data entry on the US Governments own books. Any restrictions on the US government’s ability to make timely payment of dollars are necessarily self imposed, and in no case external.

So where do we go from here?

WE DON’T GET ‘HERE’- THERE IS NO SUCH PLACE!!!

Yesterday, I returned from a meeting at the International Monetary Fund in its new headquarters in Beijing. I am pleased to report some good news. I have managed to secure from the I.M.F. a temporary line of credit to help us through this crisis.

This loan comes with some conditions. As your president, I have to be frank: I don’t like them, and neither will you. But, under the circumstances, accepting these conditions is our only choice.

Mankiw’s display of ignorance and absurdities continues to compound geometrically.

We have to cut Social Security immediately, especially for higher-income beneficiaries. Social Security will still keep the elderly out of poverty, but just barely.

We have to limit Medicare and Medicaid. These programs will still provide basic health care, but they will no longer cover many expensive treatments. Individuals will have to pay for these treatments on their own or, sadly, do without.

We have to cut health insurance subsidies to middle-income families. Health insurance will be less a right of citizenship and more a personal responsibility.

We have to eliminate inessential government functions, like subsidies for farming, ethanol production, public broadcasting, energy conservation and trade promotion.

The only reason we would ever be ‘forced’ to make those cuts would be real resource constraints- actual shortages of land, housing, food, drugs, labor, clothing, energy, etc. etc. And yes, that could indeed happen. Those are the real issues facing us. But Mankiw is so lost in his errant understanding of actual monetary operations he doesn’t even begin to get to where he should have started.

We will raise taxes on all but the poorest Americans. We will do this primarily by broadening the tax base, eliminating deductions for mortgage interest and state and local taxes. Employer-provided health insurance will hereafter be taxable compensation.

He fails to recognize that federal taxes function to regulate aggregate demand, and not to raise revenue per se, again showing a complete lack of understanding of current monetary arrangements.

We will increase the gasoline tax by $2 a gallon. This will not only increase revenue, but will also address various social ills, from global climate change to local traffic congestion.

Ok, finally, apart from the revenue error, he’s got the rest of it sort of right, except he left out the part about that tax being highly regressive.

As I have said, these changes are repellant to me. When you elected me, I promised to preserve the social safety net. I assured you that the budget deficit could be fixed by eliminating waste, fraud and abuse, and by increasing taxes on only the richest Americans. But now we have little choice in the matter.

Due entirely to ignorance of actual monetary operations.

If only we had faced up to this problem a generation ago. The choices then would not have been easy, but they would have been less draconian than the sudden, nonnegotiable demands we now face. Americans would have come to rely less on government and more on themselves, and so would be better prepared today.

What I wouldn’t give for a chance to go back and change the past. But what is done is done. Americans have faced hardship and adversity before, and we have triumphed. Working together, we can make the sacrifices it takes so our children and grandchildren will enjoy a more prosperous future.

N. Gregory Mankiw is a professor of economics at Harvard.

And no small part of the real problem we face as a nation!

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

Congratulations to the folks at UMKC for giving us a new addition to the deficit aviary. Until now the media only had mind space for “deficit hawks” and “deficit doves.” Deficit hawks include folks like Mike Pence, and Judd Gregg, who insist that the Government run deficits only for wars, and tax cuts for rich Americans, but insist on paying for extensions of unemployment insurance, health care reforms, infrastructure, jobs programs, educational programs, transportation projects, and any Government spending for regular folks with taxes.

Deficit doves include folks like many, but not all, Democrats in Congress, Paul Krugman, Joe Stieglitz, Dean Baker, and all the signatories of this recent Sir Harold Evans, "Stimulus Now" petition, who want to run deficits to end the recession but who say:

"We recognize the necessity of a program to cut the mid-and long-term federal deficit…"

Now, on the occasion of a letter from Paul Davidson, James K. Galbraith and Lord Robert Skidelsky, in reply to the Evans petition, also signed by many very prominent “deficit dove” economists, the UMKC folks say:

”A number of bloggers on this site were asked to support their deficit-dove petition. We declined, and so did the three wise owls who wrote the following statement, which first appeared at New Deal 2.0.”

The wise “deficit owls” supported “the central objective of the letter — a full employment policy now, based on sharply expanded public effort.” But they disagreed profoundly with the idea that there is any medium, or long-term deficit problem at all. Because:

”. . . apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no "necessity [for] a program to cut the mid-and long-term deficit.”

”On the contrary: If unemployment can be cured, the deficits we presently face will necessarily shrink. This is the universal experience of rapid economic growth: tax revenues rise, public welfare spending falls, and the budget moves toward balance. There is indeed no other experience in modern peacetime American history, most recently in the late 1990s when the budget went into surplus as full employment was reached.”

The deficit owls say that rapidly increasing health care costs are a problem, but one faced by both the private and public sectors whose solution is a matter of health care policy and not budget policy, and they object to cutting the public costs alone as “. . . just a way of invidiously targeting the elderly.” They also say that Social Security is an extremely successful “. . . transfer program and indefinitely sustainable as it is.”

They also say that:

”The long-term deficit scare story plays into the hands of those who will argue, very soon, for cuts in Social Security as though these were necessary for economic reasons.”

And then finish with:

”We call on fellow economists to reconsider their casual willingness to concede to an unfounded hysteria over supposed long-term deficits, and to concentrate instead on solving the vast problems we presently face. It would be tragic if the Evans letter and similar efforts – whose basic purpose we strongly support – led to acquiescence in Social Security and Medicare cuts that impoverish America’s elderly just a few years from now.”

This exchange defines very clearly the distinction between “deficit doves” and “deficit owls,” as did the recent exchanges here and here, between Paul and Jamie Galbraith, supported by Scott Fullwiler, L. Randall Wray, Marshall Auerback, and one “chartalist,” and also by Warren Mosler and myself elsewhere.

Deficit owls, believe that there is no structural deficit, and that most of the present deficit will go away when the recession ends. They also believe that in times of unused productive capacity like these, deficits are caused by the state of the economic system and that explicitly managing them by taxing more or spending less will not improve its condition, but only result in a downward economic spiral making conditions still worse. On the other hand, if real economic problems like unemployment, alternative energy capacity and production, infrastructure renewal, education, and industrial innovations are addressed through Government spending, then aggregate demand spurring private sector business activity ending the recession will result, and the deficits will largely go away except for those resulting from excessive private sector saving in the economy. In addition deficit owls believe that in a fiat money system, where there is no debt in foreign currencies, and no “peg” to such currencies, solvency is never a problem for the Government, and that while inflation partly caused by Government deficit spending can become a problem in such a system, this can only happen when full employment is achieved.

So, now we have three clear deficit hawk, deficit dove, and deficit owl positions that have very different implications for public policy. Until now, our friends in the MSM have recognized only the first two positions in discussing budget policy. But now that the third “deficit owl” position finally has an evocative name that is easy to remember, maybe our very busy MSM columnists and editorial writers will add “owls” to their narratives about hawks and doves in budget policy debates. After all, a narrative including “owls” outsmarting both “hawks” and “doves” may enliven their budget stories enough to get people to read, listen to, and watch them. In fact, it may even make the subject interesting enough that they themselves can begin to see that both hawks and doves make big, big, economic messes, and only owls can be trusted if we want policies that will bring back economic opportunity and hope to most of the American people.

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

In my previous three posts analyzing the June 26th AmericaSpeaks Community Conversation event I attended in Falls Church, VA, I presented the steps in the decision process used for the event, and discussed the pre-conference phase and the first four steps. These reflect a strong and consistent bias toward socializing participants into the idea that there is a deficit problem and that it has to be treated by cutting expenditures and/or raising taxes. The bias was reflected in many little ways in the materials used for the meetings and in the way the first four steps were carried out. The framing of exercises in the decision process continually restricted choices to ones that bring participants back to the supposed problem of a deficit and debt crisis. The web-streamed talks about national conference proceedings and orientations, and the brief constricted discussions of major values issues all worked to fit participants’ thinking to the ideas and frames presented in worksheets and the Federal Budget 101 presentations. Lines of discussion that would have led outside of the intended framing were politely aborted by the facilitators, pleading limited time, and the need to get through the agenda, and give everyone a chance to speak, so that any person developing counter-themes to the major narrative did not have a chance to develop these counter-themes and counter-narratives in the context of the supposedly unbiased process. In this post I’ll continue with my examination of step five of this process.

Working through the Options Workbook and arriving at decisions about what cuts in Federal Expenditures or tax increase to make in order to cut the projected Federal Budget. Reporting to the group about the choices made by each participants and something of the reasoning behind these choices. Summing up by facilitator highlighting the most popular choices of options for reducing the deficit.

The options workbook continues the process of fitting participants to the framing of AmericaSpeaks. The introduction says, in part:

”This workbook is designed to provide a wide array of revenue and spending options for reducing the federal budget deficit. These options represent the types of decisions facing policy makers and their implications for the American people, although they surely do not encompass all of the options that policymakers could consider. Participants in the national discussion will have the opportunity to add additional options as part of the process . . . .”

And later it says:

”Your challenge is to focus on the year 2025, when the annual deficit of 9% of GDP will translate into $2.46 trillion, and choose spending or revenue options, or both, to reduce it by $1.2 trillion. The year 2025 is a good one on which to focus – it is far enough into the future to show how much the gap between projected revenues and spending will widen, but not so far as to seem unthinkably far away.”

And a bit later:

”Reducing our deficit to a sustainable level is a long-term challenge that will not take place all at once. When our nation last eliminated its annual deficits in the late 1990s (smaller than the deficits of today), our leaders had to repeatedly cut spending and raise taxes in order to turn those large deficits into record surpluses.

”In that spirit, we will ask you to choose a series of policy changes that begin to take effect in a few years – after the economy has fully recovered from the recent recession – and that will significantly reduce the deficit by the year 2025.

So, that’s it. The task for us was to choose options for reducing spending, or raising revenue, by introducing new taxes or changing the tax structure, in order to reduce the projected 2025 deficit by $1.2 Trillion. We could choose any of 42 options to do this, and theoretically we could add new options. But in my community conversation, it was difficult to include any additional options. When they were introduced there was no space for them on the sheet provided to record the choice of options. There were no blank lines on “the scorecard” where a participant could name an option and put a savings number on it, so that others in the group could become aware of the option and vote on it themselves. It would have been easy to provide additional space on the scorecard to make it easy to add new options. But since this wasn’t done by AmericaSpeaks, it’s not surprising that not a single new option was included in the final results that were going to be reported to AmericaSpeaks. New options were listened to by the facilitators in the conversation I attended, but they were not acted upon. It was as if they didn’t count.

On the specifics, in my own community conversation, many people were dissatisfied with the choices provided in the list of options. One person suggested 50% cuts in defense spending for example, while the workbook provided for a maximum of 15%. Another suggested that for purposes of FICA taxes all caps on earnings be removed, while the workbook proposed caps including only 90% of wage earners.

Also, the options workbook community conversation made much of the four categories in which options for spending cuts were presented fell: Social Security. Medicare and Medicaid, non-Defense spending and Defense spending. However, a fifth category, interest expense, which was 21% of the 2025 projected expense summary was very conspicuously left out of consideration. I repeatedly suggested that money could be saved by stopping debt issuance, and pointed out that this would save roughly $1.4 Trillion, almost all Federal interest expense in 2025, meeting the “challenge” with only this one change. But my proposal wasn’t included as an option for people to vote on or discuss along with the other official options.

Nor, again, was a sixth category of options on “growing our way out of the deficit” included in the options workbook. The Federal Budget 101 booklet and video both discouraged this idea by saying that most experts on the economy thought it was impossible to do that. Nevertheless, the dismissal of this as a category of options was peremptory and shows a clear bias. First, because all economic experts don’t agree on whether it’s possible to grow our way out of projected deficits, and historical data shows that there is every reason to believe that we can. Second, because “most experts” have been wrong about major aspects of economic forecasting very frequently in our history, and they are quite likely to be wrong again this time. Third, whether we can grow our way out of the deficit is not an all or nothing question, or, at least, phrasing it that way glosses over the issue of how much of the projected deficit we can grow our way out of. If the challenge is to save $1.2 Trillion by 2025, perhaps this can be achieved by cutting $600 Billion in interest expenditures and raising $600 Billion more in tax revenue by growing the economy, for example, without changing anything in the remaining categories. Or alternatively, if we saved $1.4 Trillion on interest expense, and increased revenue by $1.1 Trillion with growth-oriented and full employment policies, that would create a projected surplus in 2025. This shows that any substantial amount of additional revenue that might be raised through policies that will facilitate growth between now and 2025 is just as important, and perhaps more important in reducing projected deficits, as savings and revenue raised in the categories included by AmericaSpeaks included in the workbook and in the meetings? Could it be that AmericaSpeaks isn’t interested in having its participants consider full employment policies because its major financial supporters prefer policies that remove all possibility of demand-pull inflation regardless of the effect such policies have on working people

What about the selection of 2025 as the target date for option selection? AmericaSpeaks claims it selected 2025 because that year “. . . is a good one on which to focus – it is far enough into the future to show how much the gap between projected revenues and spending will widen, but not so far as to seem unthinkably far away.” In other words, 2025 was a good year because AmericaSpeaks’s projections show a very large deficit that will persuade people of the seriousness of the deficit problem, yet it’s not so far off in time, that people would say why worry about this now. Does this choice indicate bias? I think it does, because there’s a very good reason to have selected a date that is much more proximate in time.

That reason is that a projection of deficits 15 years out is certainly going to be subject to huge errors. CBO knows this because it doesn’t even claim reliability for its ten-year projections, much less for any 15 year projections based on them. On what basis does AmericaSpeaks think that its own projections of expenditures and revenues for 2025 which are just extensions of CBOs are at all realistic. Has CBO even been able to accurately project 3 years out? If the answer is no, as I think it is, how can we accept the projections provided to participants as anything but very bad science fiction? But the issue here, is not even the unrealistic nature of the projections 15 years into the future. Rather it is that AmericaSpeaks, did not warn participants about that unreliability, and provide alternative projections that might be just as likely for 2025. I’ve talked about an alternative here. Why didn’t AmericaSpeaks talk about alternatives and let participants discuss them during the proceeding?

Perhaps the most important aspect of bias in the options workbook and ensuing discussion, and in the whole design of the decision process, was excluding the topic of whether an activity aimed at choosing revenue raising or spending cut options for the purpose of reducing the deficit is a legitimate exercise at all? In not asking this question, AmericaSpeaks is implicitly taking a policy position. It is saying that an important aspect of Government activity must always be to manage the deficit, the national debt, and the debt-to-GDP ratio and that this is the meaning of fiscal sustainability and fiscal responsibility.

However, there is a counter-position to that policy position. It is that for a government that is sovereign in its own non-convertible fiat currency, in the sense that it has the constitutional authority to issue an unlimited amount of it without the need for any commodity backing and also that it has no external debt in foreign currencies, there is no solvency risk from the simple fact of Government expenditures, and no Governmental Budgetary Constraints (GBCs) that are not self-imposed, beyond constraints that arise from the effects of Government Spending such as employment levels, economic growth, price stability, environmental and climatological outcomes, national security outcomes, education outcomes, etc. The deficit, national debt, and debt-to-GDP ratio are not important in themselves, and should not be viewed as policy concerns or policy targets. They are not indicators of anything that ought to be managed, or constrained, or otherwise influenced. They are a distraction from the real issues which are the real outcomes of Government spending such as those listed above.

This policy position was not considered in the supposedly neutral, non-partisan, and unbiased decision process run by AmericaSpeaks. Had it been considered, the option conversation wouldn’t have been about options for reducing the deficit in 2025. Instead it would have been about options for creating a new economy by 2025, and options for creating greater equality of opportunity in American society, or options about creating a new energy foundation for our economy. In other words, it would have been an entirely different conversation. And its message for The National Commission on Fiscal Responsibility and Reform would have been:

“Fiscal Responsibility is about Government spending money and taxing to create good outcomes. In recent years, the Government of the United States has spent and taxed in such a way that it has benefited a relatively small proportion of Americans and disadvantaged almost everyone else. You are viewing your job as one of figuring out how we can meet certain debt-to-GDP ratio targets by reducing deficits and perhaps even reducing the national debt. This is not fiscal responsibility. It is fiscal irresponsibility. What you need to be doing, instead, is examining Government programs assessing their impact and making recommendations to expand those that are achieving public purposes, and you also ought to be considering new policy options that are likely to achieve public purposes. The test of fiscal responsibility is whether Government is achieving public purposes. Not whether it is meeting some abstract standard, ungrounded in any coherent economic theory, about what level of public debt-to-GDP ratio ought to be maintained. Here are some options we have come up with to help recommend new options.”

And then the options most frequently chosen by meeting participants should have been listed, along with other less popular options emerging from the meeting.

That’s enough for now. In my next post, I’ll continue analyzing step 5 and particularly the specific options in the options workbook, to reveal the biases used to try to fit the participants in the AmericaSpeaks meeting to the deficit reduction purposes of the meeting designers.

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

This one is a deconstruction of a piece in the Detroit Free Press by a gentleman in the MSM who’s decided to join the Peter G. Peterson/Catfood Commission echo chamber. (My thanks to Sisterkenney for calling it to my attention.)

“Basic math — and logic — says you can’t keep spending almost $2 for every $1 in your pocket. However, neither rules in Washington, where our national government now adopts budgets that authorize spending more than $1 trillion beyond tax collections and has accumulated a debt in excess of $13 trillion, a simply incomprehensible number.”

Comment: True. You are an individual and a user of money that your Government creates. But your Federal Government, unlike your State or local Government or any corporation, or any business or non-profit, isn’t just a user of US Dollars. It is the maker or creator of US Dollars. It creates money whenever it uses Government authority to spend money. The way it creates money is mostly by crediting or marking up the bank accounts of others. When it marks up these accounts it adds to the US Dollar savings in these accounts. Ron is telling you that the US Government has issued $13 Trillion in debt instruments. But what he doesn’t tell you is that this money also is $13 Trillion in Non-Federal Government savings, so that if the Government ever paid back this “debt” by taxing and is so doing doing marking down the bank accounts of others it would also be removing that same $13 Trillion for those non-Government (mostly private) bank accounts.

Is that something we want to happen? Do we really want the Government to remove all the accumulated US Dollar savings since the inception of the Republic from private bank accounts in an effort to repay that national debt? I don’t think so. Think about it. The only issuer of currency in the United States is the US Government, because only it has the authority to make dollars. That national debt is nothing but the net number of dollars created by the Government since the beginning of the United States. If we paid it back dollar for dollar, without issuing new money, which can only happen through Federal spending, we’d have no dollars left. Again is this really something we want for ourselves and our children? Shouldn’t we instead want the Government to spend/create more money, as long as each of us got our fair share?

Yes, I know you’ll ask whether this creating more money won’t cause inflation? Well, the answer to that question, is that it would cause inflation if the Government spent so much that the aggregate demand created, exceeded full employment and the US’s productive capacity. However, 20% of our labor force is either under- or unemployed right now. So more Government spending won’t lead to excessive demand and inflation for awhile. When it does we can always cool demand by raising progressive (“fair) taxes.

Please note, also, that by raising the question of inflation, which is an important question because we want price stability, as well as full employment, we have now raised a different issue than the one raised by Ron. He raised the issue of whether the US Government can continue spending what it’s now spending indefinitely. The answer to that question was “yes,” because our Government is the maker of US Dollars and therefore it can never become insolvent as long as Congress doesn’t order a default by refusing to increase the debt limit, and also refusing to appropriate more funds for programs. But the inflation issue is an entirely different one, and asks whether the Government can keep spending without the consequence of inflation. The answer to that one was “no” it can’t spend whatever it wants to and expect to avoid inflation, but it can spend whatever it has to, to create full employment and help the US use all its productive capacity, and also expect to avoid it.

“Interest payments are running us $200 billion a year, much of which goes to China, holder of $895 billion in Uncle Sam’s IOUs, and Japan, holder of another $785 billion in bonds. We’re even on the hook to Brazil for $164 billion, and to Caribbean banking centers for $148 billion.”

Comment: $200B sounds like a lot, but it’s roughly 5.7% of the Federal Budget, which is, historically, a low figure. Until just two or three years ago we were paying more than that, and during the Reagan, Bush 41, and Clinton Administrations, it was routine for that number to be as high as 13-15% of the Federal Budget.

Also, even though most people don’t know this, the Federal Government, if it wanted to, and if Congress would allow it to, could spend money without issuing debt instruments. It could cease to issue long- and medium-term debt instruments, and then its Government spending, by flooding bank reserves in the non-government sector would drive short-term interest rates down to near zero. We’ve seen this process in Japan where the interest rate is very close to zero, even while the public debt-to-GDP ratio is about 190% which is, roughly three times our own ratio. Of course, if the Federal Government followed such policies, it would over time drive its interest costs down to near zero. This would not be good for wealthy investors and foreign countries who buy our debt instruments, because they would make little or nothing. But, the truth is that we don’t need their money. They really don’t pay for our spending, and there is no good reason to pay them interest on their US Dollar holdings when we can always make more US Dollars by Government spending.

“This can’t go on; it’s a formula for collapse. But what to do about it is a knot of Gordian scale as more and more people depend on government programs, contracts and bailouts. Promises have been made that ought to be kept. And politics figures big time in any decisions about federal spending.”

Comment: This is just plain wrong. Government spending can go on indefinitely as long as we have no inflation. So the issue of the debt and the deficits is a false issue. There is no “gordian knot” because there is no issue. The real issue why is our Government and Congressional officeholders are refusing to eliminate unemployment, re-build our economy, provide enhanced Medicare for All, reconstruct our educational system, and do all the other things they need to be doing, and instead are wasting time on a non-issue? The real gordian knot we have to untie is the one that prevents our political system from working in the interest of the people and keeps it bailing out financial and corporate interests at the expense of regular people. That’s the real issue. The deficit and the debt is just another of “the look over there” issues our leaders use to avoid their own accountability for failing to make the political system work for us.

“You can participate Saturday

"So earlier this year, President Barack Obama set up a commission to come up with a course of action — to be considered after the November elections. And as part of that process, this Saturday there will be an unprecedented national discussion of the situation in which thousands of Americans will be asked to help set priorities for spending, cutting and taxing. The results will be shared with Obama’s National Commission on Fiscal Responsibility and Reform, of which U.S. Rep. Dave Camp, a Midland Republican, is a member.”

Comment: The purpose of this meeting seems to be to build support for either raising taxes or cutting expenditures. But what is not being discussed is whether or not running deficits or having the national debt or the public debt-to-GDP rise to higher levels is in itself a problem that must be met with a long-term strategy to either balance the budget or at least reduce the debt-to-GDP ratio. Instead it’s being assumed that: “of course, this is a crisis that we must handle, and also that the growth of these numbers is out of control.” The alternative question is: Why is this a problem? And what if these numbers continue to go up, why should we worry about that at all, rather than the problems named earlier? To put this another way: ‘What if we ignored deficit considerations entirely and just focused on what Government ought to be spending to end the recession, secure full employment, and meet our other problems, then what would be the consequences of this and why would it be bad for us?”

“The 19 group sessions will run 11:30 a.m.-5 p.m. One will be held in Detroit, at Wayne State University’s McGregor Conference Center, with a mix-and-match group of about 85 invited participants reflecting the area’s economic, geographic and social diversity. But AmericaSpeaks, the nonpartisan, nonprofit organization putting the program together, says anyone can get involved in a smaller-scale meeting or participate individually online.”

No comment,

“You can find out more at USABudgetDiscussion.org or by calling 866-755-6263.

”But really, why would you bother devoting any part of the first Saturday of summer to a conversation about a $13-trillion problem that may take 20 years or more to just get under control?”

Comment: This framing assumes that the $13 Trillion national debt is “a problem.” But is it?

“Well, maybe you’re on the receiving end of some of the government benefits that could be at stake in the debt-bates (that’s a debate about the debt) to come. Or maybe you’re on the brink of being eligible for Social Security or Medicare. Perhaps you’d like to know whether your children or grandchildren can expect any kind of social safety net from their country, or how much the annual budget deficit could be reduced by pulling out of Iraq and Afghanistan.”

Comment: Right, but you’d only be concerned because there’s a group of people considering cuts in benefits or tax increases, or cuts in other expenditures because it thinks that there’s a potential solvency problem for the Federal Government, when there is none.

“Why you should be interested

”Anyone who is concerned about what kind of country we are going to be in the near and long term should be interested. And, since we’re all now in the hole for about $43,000 each on our national debt, maybe you’d like to volunteer to pay off your share.”

Comment: Again, only because you’re starting a national discussion about doing something to solve a fantasy problem of your own making in such a way that it may be very damaging to the nation. Btw, we are not “all now in the hole for about $43,000 each on our national debt. . . ". Rather, the truth is that the savings built-up in the non-Government sector since the inception of the Republic are now $43,000 per person. Unfortunately, however, these savings are not equally distributed. We would be much better off as a nation if they were.

“Seriously, there will be lots of information available and all sorts of options presented in what is promised to be a very neutral way. No agenda beyond trying to learn what the American people want to do about this collective problem.”

Comment: We’ll see if these meetings are really neutral. If, indeed they are, then they should be prepared to entertain and seriously discuss the view that the deficit and the national debt are not problems we ever have to be concerned about as long as we retain sovereignty in our own currency.

"Bringing together thousands of diverse Americans from across the country simultaneously to discuss the nation’s fiscal challenges holds the promise of spurring an even broader national dialogue to help build the urgency and political will necessary to tackle our deficit and debt," said Robert Gallucci, president of the MacArthur Foundation, which is underwriting the national conversation along with the Peterson and Kellogg foundations.”

Comment: And this statement shows the bias of the organizers of this event. They assume there’s a problem and that we have to build a sense of “. . . . urgency and political will necessary to tackle. . . “ it. Why are they wasting their money and everyone’s time on this non-existent problem? Why haven’t they organized a national dialogue about how we might secure full employment, and end the recession and meet all of the rest of our many, many problems in a nation that is de-evolving and de-industrializing, and becoming more and more like a third world nation. That’s what we need to have a national dialogue about.

“This seems to be one case where national decision-makers really do want to know what America thinks because, quite apparently, they don’t have a clue what to do or how to get it done. If they did, wouldn’t they have done it by now?”

Comment: This is bull-puckey. They know every well what they would like to do. The problem is that they need to build support for it. So this “dialogue” is about testing the waters to see if there is space for them to go through their plan to push budgeting reforms through a lame-duck Congress after the election.

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

We’ll see many policy analyses and evaluations of Nancy Pelosi’s compromise health care reform bill as it gets closer to a final vote. This one won’t be thorough, since the bill is one of daunting length (1990 pages) and complexity, and I haven’t had the time to do a really detailed analysis. But I’ll do the best I can now, because enough detail is available to get a general impression of the bill, and evaluations that are timely are sorely needed, if only to feed the very essential debate that must go on before such a consequential bill becomes final.

The thing that sets this bill apart from most, is that it specifies two distinct periods in which the legal structures created by the bill will be different. The first period is from January 1, 2010 to the date in 2013 when the exchange, the public option, the mandates, the subsidies, and the outlawing of denials due to preexisting conditions become relevant, and the period thereafter, when most of these conditions take effect, and when eligibility for the exchange and the public option will be gradually expanded.

I’ll begin this analysis and evaluation with the first “band-aid” period. Speaker Pelosi’s office has conveniently produced a list of 14 provisions that take effect immediately. There are three categories of provisions: those mainly focused on addressing the problems of coverage and cost we see in the present system, provisions which provide “goodies” to Medicare recipients, and provisions providing miscellaneous “goodies” to sub-groups in the population, or address long-term but not the current central issues of health insurance reform. Read the rest of this entry →

Chris Matthews asks: “What happened to the Obama message machine.” And Dee Dee Myers and Tony Blankley dutiful provide various off the mark answers about fear and insecurity. But, also, it’s clear to all three that Obama’s message on health care doesn’t have the same clarity as his message during the campaign, and they attribute that to his vagueness in the absence of a specific proposal for reform that he is advocating. In short, the failure of “the Obama messaging machine” is not due to a deterioration in the messaging machine, but to an absence of specific content that people can understand and organize around, and that Obama can deliver and repeat again and again. That content must be something that people can easily understand and that is resistant to the Republican lying machine. Read the rest of this entry →

This post is a comment on an exchange with Jason Rosenbaum appearing as replies to ralphbon’s blog post entitled “Seniors Already Have A Public Option. Does It Keep Private Insurers Honest?” Here is the exchange:

LetsGetItDone:

“ralphbon, Thanks for a very good analysis. Jason, in view of Paul Krugman’s recent analysis of the health insurance “market,” and the constraints placed on eligibility for the public option in HR 3200, can one reasonably anticipate that, even if HR 3200 is enacted without major change, it will have an appreciable impact on health insurance costs and price inflation over the next six years?”

Jason:

“Six years? I don’t know. I’d have to look at the graphs again, but I’m not sure you saw a big differentiation between Medicare prices and everyone else’s prices in six years. However, those differences did emerge, as will these. Especially because I’d expect the public option to work so well that the Secretary of HHS would exercise her right to expand the exchange (and therefore the public option) in 2015.” Read the rest of this entry →

Last night, it occurred to me that the public option idea is a disingenuous approach to health care reform. Here’s the argument.

Talking to other progressives, I’ve noticed that they all freely say that single payer will work better than a public option, and that it is the best alternative they know. And then they also go on to say that they are supporting a public option, rather than single payer, because it’s more politically acceptable and will result in a single payer system anyway after a number of years, since everyone will switch to the public option. The question is: would these progressives support a public option, if they thought it would not result in a single payer system? I don’t think so, even though their counterparts in the US Congress are currently fixing to do just that as a recent post by Kip Sullivan (thanks to ralphbon for the reference) shows. Read the rest of this entry →

WaPo op eds are getting increasingly irritating with the passage of time. Yesterday, this formerly great American newspaper in free fall ran an article by Matt Welch and Nick Gillespie called “What’s Next Mr. President – Cardigans?” Welch and Gillespie think that Obama’s less than stellar results thus far suggest that he may be reviewing the history of past Democratic administrations to find a “road map” out of his difficulties, and also that “he seems to be skipping the chapter on Bill Clinton and his generally free-market economic policies and instead flipping back to the themes and comportment of Jimmy Carter.” In this way, they begin a transparent framing exercise suggesting that Obama is at a turning point, and that he must stop “running government as a perpetual crisis machine,” and “. . . stop doing harm. Throwing money all over the economy (and especially to sectors that match up with Democratic interests) . . . “ And also that: “. . . there’s no question that Obama’s massively ambitious domestic agenda is at a fork in the road: One route leads to Plains, Ga., and early retirement, the other to Hope, Ark., a second term and the revitalization of the American economy.” And later they say: Read the rest of this entry →