Here’s the next group of Ryan’s follies from his answer to the President’s 2011 SOTU.

On bureaucracy and innovation:

”Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.”

That may be. But depending on the big banks and big US corporations to either get lending going again, or to bring innovation and jobs to the United States also won’t work. What will work is for the Government to increase aggregate demand by deficit spending in areas of the economy we want to grow.

“Bureaucracy” is just a scare term. The big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. The dirty little secret of the social sciences is that bureaucracy comes with large size whether we’re talking about private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he loves so much, he really ought to shut up about “bureaucracy,” because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.

If we don’t like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might create functioning markets and be able to shrink the Federal government too. But this kind of solution is off the table for Ryan and Romney since regulation is a no-no from the standpoint of their ideology.

On other nations acting soon enough when they rising debts:

”Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.”

First, I’ve heard just about enough of the mindless comparisons of Greece and Ireland to the United States and other nations that are sovereign in their own currency. Greece and Ireland use the Eurozone’s currency, so they have solvency risk not shared by nations like the United States. They can be driven into insolvency by the bond markets. Currency-wise Euro nations are like the states of the United States, and not like the Federal Government which is the creator of US currency. These cannot avoid insolvency by simply creating Euros, because they have given up their power to issue currency. We, on the other hand, can spend dollars, and in the act of spending create high-powered money in private sector accounts.

Second, Ryan may say that the British Government was forced into its austerity measures. But this is nonsense, no one forced it into its austerity moves. It just decided to follow the policies that Ryan wants for us here. And what’s happened to Britain since they introduced austerity policies should be a lesson learned for every other nation in full control of its currency that decides to ape Euro austerity.

Contrary to Ryan’s neoliberal economic theory, austerity has created economic contraction in the UK, since the fourth quarter of 2010. The UK National Accounts show a decline of 0.5% in real GDP growth in that quarter, a little over 6 months after the new coalition took office and passed its austerity program. That decline was prior to the implementation of some of the heaviest austerity measures, and reflected the attempts of UK households to anticipate the bite of austerity. The UK VAT was then increased by 2.5%. And its impact has been another decline in GDP caused by the Government’s removal of private sector financial assets through the increase in the VAT, and its spending cut policies since the Spring of 2011.

Everyone in America should be watching Europe very carefully. Ireland and Greece had the choice of austerity or withdrawing from the Eurozone. They chose austerity. Both economies continue to struggle with Greece on the brink of collapse, and Ireland still mired deep in depression. In addition, Spain, Italy, and Portugal are also choosing austerity, and all of them are in trouble as the Euro crisis treated with austerity policy, gradually kills the economy.

In the UK, the British public is suffering from the stubborn Tory-liberal experiment in austerity, with the ruling parties continuing to deny facts obvious to everyone about how their experiment is working out. Let’s hope that the deficit hawks and doves in this country watch that carefully, so that they can see that austerity won’t work, before they subject Americans to one of their variety of unnecessary long-term deficit reduction plans.

On endless borrowing and spending cuts:

”We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.”

I believe that business as usual has to end too. For the past 30 years or more we’ve heard nothing but economic theory that confuses the Government with a household or other economic units that cannot create their own currency. And we’ve heard all through that time that we cannot keep borrowing, and that spending cuts must come first, while we’ve kept borrowing largely to provide lower tax rates for wealthy people, in the hopes that greater disposable income for them would trickle down. Ryan and Romney are giving us that same ideology again.

If endless borrowing is really not a strategy, than why won’t Ryan work to restore the marginal tax rates of the 1960s and close all loopholes? We all know why; because he doesn’t believe in shared sacrifice; only in sacrifices by the poor and the middle class so he can further enrich his supporters. Congressman Ryan, the Republican’s young guru is exactly the same as their old gurus. His one prescription for everything is to leave the poor little rich people alone, so they can, out of the goodness of their hearts, leave the rest of us a few scraps.

Apart from this however, while ending borrowing and cutting spending may increase the well-being of a private sector household, if everyone does that in the private sector, then there will be rapidly declining demand, and as surely as night follows day there will be a double-dip recession harming everyone, unless Government spending takes up the demand slack coming from the private sector.

The Government can borrow endlessly if it wants to, as long as its accompanying Government spending doesn’t cause demand-pull inflation. Or, alternatively, if Ryan and Romney are as bothered by the debt as they claim, then they can work to repeal the Congressional mandate forcing the Treasury to issue new debt when it deficit spends. That way, the debt will gradually be reduced to zero as time passes and they won’t have to worry about it anymore.

Even better, if Ryan and Romney hate the debt so much, they can propose that the Executive cause the US Mint to issue a $60 Trillion proof platinum coin, deposit it at the Fed in return for electronic credits which will end up in the Treasury General Account. With the $60 T in credits, the debt subject to the limit can be paid off entirely as it falls due, leaving $44 T in credits to use for deficit spending over the next 15 years or so. Romney and Ryan will never do this however, since if they did and also implemented this plan, then they’d have no excuse for cutting Federal spending that benefits the poor and the middle class.

The more important point is that cutting the level of Government deficit spending is not what ought to be done when we have an economy that is operating so far below its full capacity. If we do that and move to balance the budget as Ryan/Romney want us to do, then we will take financial assets out of the private sector, reduce aggregate demand and further decrease our use of the economy’s productive capacity. That is, we’ll have greater unemployment, greater suffering, and much less growth.

That’s because Government deficit spending, other things equal, increases net financial assets in the private sector; while Government surpluses decrease net financial assets. There’s just no getting around that macroeconomic identity. So, spending cuts and budget balancing are a strategy that won’t effect the Government’s capacity to spend at all, but it will impoverish the private sector.

If that’s really what Ryan, Romney, the Republicans, and a variety of Democrats, as well, want to do, then let them try to do it. But I guarantee that sooner or later the American public will have its revenge for their bringing back Herbert Hoover’s nightmare.

(Cross-posted from Correntewire.com.)

For me this is simple. We have a giant problem in this country. It’s the elephant in the room! We’re a Democracy on the edge. We’re in great danger of transitioning to a plutocracy: a society, economy and polity controlled by the rich.

Image: Donkey Hotey / Flickr

Corporations and rich Americans buy elections, by flooding the air waves with ads that are largely lies or distortions. They buy elections by flooding the coffers of candidates with contributions on the tacit understanding that these contributions will buy them access or even obesiance to the interests of the contributors. They buy the marketplace of ideas by funding think tanks, periodicals, newspapers and TV and cable stations to ensure that the public is bathed in propaganda. They manipulate the vote by buying State legislators and influencing them to pass voter suppression bills disguised as anti-voter fraud laws. They influence politics by running for the highest offices themselves openly promising to legislate policies that will net them additional millions of dollars. They commit control frauds in the banking system and in running big businesses, costing millions of homeowners their homes and their dreams. They manipulate interest rates all over the world costing borrowers hundreds of billions, perhaps trillions of dollars. They protect themselves from punishment and enforcement of the rule of law by using their political connections to prevent investigations, indictments, and convictions. They influence pubic policy to ensure that Federal policies will maintain high unemployment. They influence it to prevent passage of Medicare for All, against the will of the majority of Americans and condemning many, many thousands to dying quickly after they get ill. And finally, when they make errors in their own business affairs they influence the Federal government to practice lemon socialism by bailing them out, all the while insisting that the Government must avoid the moral hazard of bailing out people who work for a living.

This transition from democracy to plutocracy is the broader context of our times and of the current Presidential campaign. Now comes Mitt Romney, a very rich man, who became so rich by engaging in business activities whose ethics are at best questionable, and, at worst, disloyal to the broader interests of almost all American employees of whatever class, and he effectively says to us:

I largely refuse to disclose my tax returns to you, the American public, because I don’t think it would be good for me to give the Press and yourselves a chance to evaluate them and draw your own conclusions about my business and political activities based on what they reveal.

Nevertheless, I still want you to trust me to be a President who will represent you and will act in your interest rather than in the interests of the very, very rich people like me and the large corporations and financial interests I have been so closely connected with for my whole life. That is, I don’t trust you to evaluate me fairly; but I still ask that you trust me to act in your interest and be your President for at least four years, during this critical time of possible transition from a democracy to a plutocracy.

I can be trusted to see to it that we do not complete this transition, and that when my presidency is finished you will still have your democracy, not only more prosperous than it is today; but also more free and more democratic.

Do you believe that Mitt Romney can be trusted to deliver on such a promise or not? I don’t believe it. There are many reasons why I don’t.

A big reason why is that he won’t trust we, the people, to see and evaluate those tax returns. He is already “dissing” us.

Read the rest of this entry →

Rick Perry’s loose talk about Social Security being a ponzi scheme, is generating a lot of contrary ink, or electronic bits as the case may be. Cullen Roche has provided an excellent analysis, accompanied by a great discussion which begins this way.

”First of all, let’s get the definition of a ponzi scheme right. According to the SEC, a ponzi scheme is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Quite simply, a ponzi scheme involves the promise of future payments that current returns do not justify.”

So, a ponzi scheme is:
– an investment opportunity
– whose promoters mislead prospective investors or “marks.”
– whose investment organization makes payments to existing investors from funds paid into the investment pool by new investors
– whose promoters promise future payments that current returns on investment do not justify.

However:

– Social Security is neither an investment opportunity; nor an investment. “investments” are private sector voluntary business transactions involving risk to the investor and offering the possibility of returns on one’s investment, while SS is a public sector program requiring payments from members of a specified proportion of their income. In return, they become participants in the program and are promised a particular level of benefits, correlated loosely to the amount of their payments, when they retire at a specified eligibility age. The level of benefits they are due is cost-of-living adjusted throughout the period of their participation in the program. There is no economic risk involved in any of this; though there is political risk, since politicians may welsh on their promises and commitments to participants.

– In addition, SS is different from a ponzi scheme in that its “promoters” don’t intentionally mislead participants in the program. The details about SS are very transparent, and are recorded in great detail on its web site. Lies about the program and fraudulent claims about its benefits are wholly absent from its web site.

– Next, SS payments are not made to recipients from new funds paid into the program. There is no such operational connection between payments and FICA collections. Payments go to retirees from the Treasury General Account (TGA). FICA collections also end up in that account, but are in no way connected to SS payments. The Treasury issues bonds to the Social Security Administration in the amount of its FICA collections, and these bonds can be redeemed by SSA when needed.

– Lastly, unlike ponzi schemes, SS “promoters” do not “promise future payments that current returns on investment do not justify.” This is true first, because there are no “returns on investment” for SS, since it’s not an investment in the first place. But second, even if one chooses to erroneously consider current SS benefit payments as “returns on investment,” it’s very clear that the history of SS benefit payments since the inception of the program under FDR does fully “justify” expectations that future payments will occur as projected by the SSA and the Federal Government. Since the program’s inception, every participant has received the benefits due to them in consequence of their participation in the program. The history of this performance is now more than 70 years. This is not the pattern of a ponzi scheme; but one of a Government entitlement program whose benefits are guaranteed by the full faith and credit of the monopoly currency issuer in the United States.

Some will look at what I’ve said, brush aside the logic and the very important contextual framing and will remark. as a commenter did in reply to Warren Mosler’s fine analysis of why SS is not “in ponzi.” The commenter said:

“You are splitting hairs. What will happen when the the money being paid into the SS system is depleted by the money being paid out to people who have previously paid in but now are recipients? The exact same thing that happened to the participants of a Madoff style ponzi scheme. The system wile tank. That’s close enough.”

Comments like this assume that SS is a fund that can be depleted, that the Government requires USD in “the fund” to make its payments, and that the fund can only be augmented by FICA receipts. This assumption is wrong, but it leads to claims that SS must be “reformed” by raising the Salary Cap for FICA payments, or by raising the full benefits retirement age, lest SS is rendered unable to meet its obligations. This is a false problem however, because it ignores the capability of the US currency issuer, the Government to create the currency necessary to pay its obligations at will. Professor Stephanie Kelton has put the real issue very well.

“Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.

In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”

It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”

I think this really underlines how arbitrary the projections of financial doom from the Peterson crowd, CBO, other Government agencies, and people like Rick Perry, Paul Ryan, and Mitt Romney are. Apart from the silly and unreliable SS projections as far out as 25-65 years from now, the predictions of doom are really based on provisions in law that Congress can change at any time, in an afternoon. Which means that just like the fake national debt crisis, the fake Social Security solvency crisis is Congress’s fault.

But this brings us to an even more central issue. Assuming for the sake of argument that SS is a ponzi scheme, then who are the “ponzi schemers,” — the managers who want to structure things so that the promised returns are eventually not paid to “the marks” — the retirees in the program, and who also want to use the bonds issued to the program to enrich private sector managers, rather than the retirees?

I think the answer to this last question is plain. The very people who are questioning the sustainability of SS, and other entitlements, and, in particular, Rick Perry, Mitt Romney and the deficit hawks who are making claims of insolvency, are the people proposing “reforms,” that will break SS’s promises to retirees and future retirees, while failing to ensure that SS can always make its payments, and can never be “in ponzi.” They are the “managers” who are scheming to put SS “in ponzi” so that they can enrich their campaign contributors and the financial elites and deliver the financial outcomes to those elites that they think they are entitled to. These elites complain that working people and regular Americans aren’t entitled to social safety net benefits, and they speak scornfully about the right of the rest of us to a decent life free from want and fear. But it is they whose entitlements to get richer at any cost to the rest of us need to be denied and rejected. They are not entitled to sacrifice the rest of us on the altar of their greed, and we must not allow them to swindle us out of Social Security and other safety net benefits. Let us now join the battle. It is the second New Deal or serfdom for us. Let us fight the good fight and put the plutocrats and the ponzi schemers in their place. Let us take our democracy back, and this time see to it that we never come close to losing it again!

(Cross-posted from Correntewire).