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Peterson/CBO Beat for Austerity Goes On!

6:53 pm in Uncategorized by letsgetitdone

Recently, I’ve been writing about oligarchs advocating for entitlement cuts and austerity. I’ve discussed attacks on entitlement benefits for the elderly from Abby Huntsman (of MSNBC’s The Cycle) and Catherine Rampell (a Washington Post columnist), both the children of well-off individuals. These posts have come in the context of the English language release of Thomas Piketty’s Capital in the Twenty-First Century, and the more recent pre-publication release of a study by Martin Gilens and Benjamin I. Page using quantitative methods and empirical data to explore the question of whether the US is an oligarchy or a majoritarian democracy. They conclude:

”What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”

With this as a backdrop, today I want to de-construct a recent statement by Michael A. Peterson, President and COO, of one of the centers of American oligarchy, the Peter G. Peterson Foundation (PGPF), and the son of the multi-billionaire Peter G. Peterson, commenting on the CBO’s Report earlier this month, on its updated budget projections for 2014 – 2024. Read the rest of this entry →

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 →

The Village Still Ignores the Most Important Point

8:48 am in Uncategorized by letsgetitdone

In recent posts I reviewed two commentaries by Abby Huntsman on Social Security and other entitlements, also noting points made in other critiques of her narratives. Abby’s commentaries are here, and here, and my critiques are here and here. The most important point I emphasized in my two rebuttals is that there are no fiscal solvency or sustainability issues related to Social Security, or other parts of the safety net, but that the issues involve only the willingness of Congress to appropriate entitlement spending, and either the removal of current constraints on Treasury to spend appropriations such as the debt limit, or the willingness of the Executive Branch to use its current legislative authority either to a) generate sufficient seigniorage from platinum coins to spend such appropriations; or b) use a type of debt instrument, such as consols, which aren’t counted toward the debt limit.

The day before I posted my second reply to Abby Huntsman, Richard J. Eskow and WeActRadio posted this video clip from Eskow’s radio broadcast. In his critique, Richard shows that Abby Huntsman’s treatment of Social Security and entitlements is full of misleading information and hews closely to the narrative offered by Alan Simpson, Pete Peterson, and organizations supported by Peterson funding, and he calls for the MSNBC producers of “The Cycle” to issue statements correcting the facts, and to give Abby’s co-hosts on The Cycle a chance to reply to her about social security. Read the rest of this entry →

When You Really Look, Financial Quicksand Turns Into Oligarchical BS

9:09 pm in Uncategorized by letsgetitdone

Why do you say that the Government will have a solvency problem?

Abby Huntsman’s first rant about entitlements soliciting generational warfare got a lot of pushback from defenders. I reviewed the main points made in defense of entitlements, and then added “the most important point of all” as well. Abby made a second try, however, this time singling out Michael Hiltzik’s reply to her to respond to and adding a few more points, while withdrawing a bit from her claim that life expectancy has changed very much for seniors since the New Deal period. Hiltzik took issue with that one too. Let’s review Huntsman’s reply to Hiltzik by analyzing the MSNBC transcript of her second rant against entitlements.

Abby Huntsman:

. . . the need for entitlement reform. there was a firestorm of reaction. an article in the ” l.a. times” went as far as to say i want to lead my generation into poverty. come on, man. this isn’t about me. it’s about the major problem.

Read the rest of this entry →

The Most Important Point of All Was Ignored

8:43 am in Uncategorized by letsgetitdone

On Abby Hunstman’s right wing Petersonian “Fix the Debt” rant

MSNBC’s right wing representative on The Cycle, Abby Huntsman, got a lot of pushback from Social Security defenders after her rant last week. They made points similar to the following in countering Huntsman:

– SS is not bankrupt now, it has $2.6 Trillion in Treasury IOUs in the SS “trust fund” accumulated because Treasury has used FICA collections to “pay for” other Federal spending since 1983, when the Government began to collect more from workers and employers than was paid out to beneficiaries. The accumulated IOUs, projected interest on them, and future FICA collections are projected as being enough to “cover” 100% of SS benefits until 2033, and then 75% of benefits thereafter. 100% of benefits could be “covered” from 2033 on, if the payroll tax cap on Social Security were to be removed.

– Huntsman’s claim that seniors have longer life expectancies than when SS first was enacted is greatly exaggerated, because life expectancies at birth have improved due to improvements in infant mortality rates. But they haven’t improved nearly as much at age 65 and older, and apart from that, the improvement that exists after age 65 is reached is primarily concentrated among certain social groups, and that the poorest and most needy groups in our population, who need SS the most, have either seen little improvement in life expectancy, or even a decline in life expectancy in recent years.

– Savings of seniors now average very little more than is needed for them to cover Medical expenses due to aging and there is precious little left over for living expenses beyond what SS spending will cover.

– Huntsman is conflating the SS “Trust Fund” running out of money in 2033, with SS running out of money. The first is happening as it was always planned to happen when the Reagan Administration and Congress agreed to raise FICA payments to almost double the amount previously paid, for the boomer generation to cover its retirement benefits; but the second depends on what Congress will do in the future to close the gap between current projected FICA revenues and projected benefits.

These two are different because the Government can do various things to close that gap. Huntsman mentions only cutting benefits or moving the SS retirement age to either 70 or even 75, so that enough will be left in the fund to close the revenue/benefits gap. But there are other ways of doing this easily; most notably removing the payroll tax cap so that the well-off, or those who are prospering, will pay the same share of their income into Social Security as most of the rest of us, and/or there can also be gradual small increases in the employee and employer contributions that will close the projected gaps indefinitely.Other points of less importance, and moral arguments, which from my point of view are among the most important, about the right to a decent secure retirement for the elderly are made, as well.

But, there is one point, the most important one of all, which is not made in all these “progressive” push back arguments against Abby Hunstman’s right wing Petersonian “Fix the Debt” rant. That is the point that there is no entitlement crisis and no emergency, and neither an increase in payroll taxes, nor robbing from “future generations” is necessary to close the projected gap after 2033 because Congress can pass legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.

That’s done now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice using similar legislative language can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. End of story. Once that is done, no gaps between SS revenue and benefits can be projected by institutions, such as CBO, under current law.

You may doubt this solution by pointing out that legislation like this just pushes off Huntsman’s Social Security solvency problem to the Treasury at large, rather than its being SS’s problem, but it doesn’t solve the real insolvency problem. Only it does, because the Government as a whole has no fiscal solvency problem, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues.

The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, and getting the Fed to place an equal amount of reserves in its accounts. But, there is another way it can be done under current law, and still other ways open to Congress, if they want to pay all the SS benefits they would have guaranteed by the proposed change in the law that would solve this faux problem.

The way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. As many of my readers know, I’ve explained how this would work in my e-book. But, the basic idea is that coin seigniorage can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing.

So, this capability coupled with Congress providing for annual automatic funding would end the Huntsman, Peterson, Bowles, Simpson, Ryan, and Obama revenue gap problems with Social Security and all other entitlements, for that matter, without these poor folks having to worry about taxing the rich, like them. And, if Congress doesn’t like that alternative way of placing reserves in Treasury’s accounts so it can spend Congressional appropriations, then it can always just go ahead and place the Fed within the Treasury Department, giving the Secretary the direct authority to order the Fed to fill its accounts with enough reserves to cover any revenue shortfalls, without either raising taxes or issuing more debt instruments.

So, these are the easy ways to end the faux crisis which won’t befall us anyway until 2033. Why won’t the “progressives” pushing back against Abby Huntsman mention solutions like these? Why do they, instead, always propose solutions that will raise taxes on the wealthy? Are they afraid to let the people know that the Government isn’t like a household and doesn’t have the same financial problems they have, just written large? Are they so insistent on solutions that will tax higher income and wealthy people, because they must kill the two birds of full employment and greater equality through taxing with a single stone?

Moving toward greater economic equality is a focus we ought to prioritize very highly, but getting that done is a separate issue from defeating deficit terrorism by taking the deficit reduction and faux entitlement crises off the table so full resources can be devoted to strengthening the safety net and legislating programs essential for getting millions of Americans on their feet again and contemplating the future with hope. That, in itself, will lessen inequality.

And after that is done, we can then turn our attention to programs primarily focused on creating greater economic equality. But until it is done, let us focus on stopping the bleeding of working and middle class Americans and restoring them to the economic health and sense of economic opportunity, that we’ve always thought was so important to American life.

(Cross-posted from New Economic Perspectives.)

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What Now?

8:34 pm in Uncategorized by letsgetitdone

Today, John Boehner bowed to the inevitable logic of the impending political season and placed a “clean” debt ceiling increase bill on the floor of the House. At this writing, the bill passed with 28 Republican and 193 Democratic votes. Now it moves on to the Senate, where it is expected to pass in time to allow the Treasury to keep issuing debt instruments.

So, now we have had agreement on a budget partially rolling back the sequester, and the Republican leadership appears to have decided not to have another debt ceiling crisis. I wrote a post called “What Happens Now?” just after the Government shutdown ended last October. There I analyzed the political situation and made a number of predictions about the short-term future. Here’s how I answered the question: “Growth and Jobs or Shutdowns and Debt Ceiling Crises?” Read the rest of this entry →

The New Populism Needs to Get This Straight

11:12 am in Uncategorized by letsgetitdone

Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:

The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.

Pop!Tech 2008 - Juan Enriquez
The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.” Read the rest of this entry →

Off the Debt Limit Hook for at Least the Next Four Months

10:21 am in Uncategorized by letsgetitdone

(photo: L. Marie)

Provided that the Senate and House follow through on the scenario now on the table, it looks like the game of chicken worked for the Democrats this time. We’re off the hook on default and Government shutdown for now, and Washington village pundits are in full-throated cries of celebration.

Congress is off the hook too. They don’t have to offer any solutions to real, rather than manufactured, problems.

The President is also off the hook, he won’t, for now, need to exercise any of the options, like minting the coin, using consols, or premium bonds, or asset sales to the Fed, or others available to him to render the debt limit legislation impotent. So, he gets to preserve debt limit threats from the Republicans as a negotiating tool they can use to “force” him into entitlements cuts later on.

In fact, as I write Jay Carney is already talking about the President taking “a balanced approach” to future negotiations of fiscal policy so that the burdens of sacrifice will fall on everybody fairly. And, a bit later, there’s Nancy Pelosi echoing the Administration line on future negotiations. That, of course is also the Pete Peterson, Bowles-Simpson, catfood line for justifying further victimization of food stamp recipients, seniors, children, and the people who have paid the price for the Crash of 2008 and the neoliberal period in American fiscal policy beginning in 1977.

However, the deal that looks like it will happen isn’t a solution, but just kicking the can down the road including built-in pretty good possibilities for future Government shutdown and debt ceiling crises in just three – four months, if Congresspeople have the guts to subject the American people to this nonsense again in an election year.

Here’s Annie Rose-Strasser’s outline and analysis of the deal at Think Progress:

– Government funded through January 15 at sequestration levels

– Debt limit extended until February 7, subject to vote of Congressional disapproval, which Obama can veto

– A budget conference established to come up with long-term spending plans by December 13

– Income verification for recipients of subsidies under Obamacare’s newly-established exchanges

– Backpay for furloughed workers

Also, notably, here are some of the demands that Republicans have made in the last few days, but that are NOT in the bill:

No repeal of the “extraordinary measures” provision that allows the Treasury to do accounting tricks to avoid default

No ‘Vitter Amendment‘ that would have taken away employer contributions from the health plans of Congressional staff

No provisions related to birth control access

No flexibility in how government agencies make budget cuts to their programs, as they are required to under sequestration

No repeal or delay of the medical device tax

No repeal or delay of the reinsurance tax

No repeal, replacement, or delay of any aspects of Obamacare’s exchanges or individual mandate

It might look like this is overall a good deal for Democrats given the number of things that Republicans aren’t getting. It is good: It reopens the government and lifts the debt ceiling without doing any major additional damage to existing programs.

The word “additional” is the key here, since enormous damage has already been done to people and programs due to the various compromises made to avoid shutdown and debt ceiling threats since August 2011. These deals have placed increasing fiscal drags on the American economy and, increasing Government austerity that is preventing full recovery from the Great Recession. The current “deal” already involved a pre-surrender by Democrats to Republican proposed CR spending levels. Annie Rose – Strasser recognizes this.

But it’s important to remember that the baseline for negotiations wasn’t exactly even: Democrats accepted the major budget cuts of sequestration (slated only to get worse on January 15, the same day their budget deal expires), and their only demand was actually the status quo: Keeping the government running and having the country fulfill its financial obligations. They didn’t request to restore the funding sequestration took away, they didn’t demand any new programs or initiatives that Democrats support. And if the previous budget conference is any indication, the one established under this deal has the potential to blow up in Democrats’ faces, leading to more cuts instead of an actual, long-term budget. In that sense, while it is the best, cleanest deal we can get, the Democratic party has been pulled slightly from center to right, not from left to center.

Meanwhile, Republicans threw everything but the kitchen sink into their negotiations. It’s no surprise they’re taking a lot of losses.

Yes, we will have the Government open and the debt ceiling temporarily raised to get us through a few months, and the President is saved from going outside his comfort zone and giving the teahadists an excuse to try to impeach him, but the fundamental problem of the gradual imposition of increasing levels of government austerity creating economic stagnation is not being addressed, and, in addition, the even more serious problem of having laws in place that give a small minority in Congress the possibility of holding both the US and world economies hostage to their ideology is also neither being addressed nor solved.

So this is no victory, and no cause for celebration. The conditions are still there supporting a Great Betrayal, and another slide into recession, along with the possibility of another Global Crash due to financial manipulations in the mortgage international derivative markets.

Meanwhile, what can we look forward to? A brief respite from budget battles and then a rush through a manipulated membership budget conference designed to produce a Bowles-Simpson austerity “solution” to be completed by December 13, to be voted up or down, and with a good likelihood that this Conference will either fail to come up with a result, or that its results will be rejected by teahadists or fellow travellers who will never accept tax increases, and by progressives who will be unwilling to vote for entitlement cuts in the face of upcoming elections.

Meanwhile, the drag on the economy and the unhappiness of the 99% will continue with no real relief in sight because no in either party has the courage to repudiate the dogma that a sovereign fiat currency nation like the United States can have a long-term debt problem requiring a long-term deficit reduction solution. Truly, everyone in Congress needs to be replaced by people who understand the Modern Money Theory (MMT) approach to economics and who are willing to explain it to their constituents and to advocate for fiscal policies based on it.

(Cross-posted from New Economic Perspectives)

Photo by L. Marie under Creative Commons license

Rationalization and Obligation, Part VI: What He Ought to Do, What He Probably Will Do

6:46 pm in Uncategorized by letsgetitdone

This is Part V of a six part series replying to a claim by the President at his recent White House News Conference. Part I covered the News Conference and the first two (the selective default, and the exploding option) of seven options the President might use to try save the US from defaulting in the face of continued deadlock in the Congress on raising the debt limit or repealing the law enabling it in its entirety. Part II discussed Platinum Coin Seigniorage, invoking the 14th amendment to justify continuing to issue conventional Treasury debt instruments, and consols. Part III discussed premium bonds, and Treasury sales of the Government’s material and cultural assets to the Federal Reserve. Part IV, then evaluated all seven options in light of variations among them in likely degree of legal difficulties they might face, and also the likely impact of each on confidence in the bond markets, if used. Read the rest of this entry →