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by selise

Marshall Auerback: Worse than Hoover

10:25 pm in Uncategorized by selise

[x-posted with permission from New Economic Perspectives -- selise]

Worse than Hoover
By Marshall Auerback

It’s actually a bit over the top and unfair to compare Barack Obama with Herbert Hoover – unfair that is, to the memory of Herbert Hoover.  The received image of the latter is the dour, technocrat who looked on with indifference while the country went to pieces.  This is actually an exaggeration.  As Kevin Baker convincingly argued in his Harper’s Magazine piece, “Barack Hoover Obama”, President Hoover did try to organize national, voluntary efforts to hire the unemployed, provide charity, and sought to create a private banking pool. When these efforts collapsed or fell short, he started a dozen Home Loan Discount Banks to help individuals refinance their mortgages and save their homes.  Indeed, the Reconstruction Finance Corporation, which became famous for its exploits under FDR and Jesse Jones, was actually created by Hoover.  Often tarred with the liquidationist philosophy of his Treasury Secretary, the establishment of the RFC was, as Baker suggested, “a direct rebuttal to Andrew Mellon’s prescription of creative destruction. Rather than liquidating banks, railroads, and agricultural cooperatives, the RFC would lend them money to stay afloat.”

Hoover’s tragedy lay in the fact that whilst he recognized the deficiencies of the prevailing neo-classical laissez-faire nostrums of his day, he could not ultimately break with them and accept that the economic tenets which he had grown up with were deficient in terms of dealing with the huge unemployment challenges posed by the Great Depression.  By contrast, Roosevelt was himself instinctively a fiscal conservative throughout much of the early stages of his political career (and campaigned as a gold standard man during the election of 1932), but ultimately had the vision (or, at least, excellent political instincts) to recognize the need to cut himself off from the dogma of the past and try something new in a persistent spirit of experimentation. Not everything FDR did worked, but his lack of rigid ideology and his bold spirit of economic experimentation ultimately did much to reduce the scourge of unemployment, even though such policies brought him into significant conflict with the economic royalists of his day.

Barack Obama’s style of governing largely reflects an acceptance of the status quo. His “economic experts” also reflects this preference.  As Baker argued, “it’s as if, after winning election in 1932, FDR had brought Andrew Mellon back to the Treasury.”

To the extent that he displays any kind of radicalism, it is to roll back the frontiers of the New Deal and Great Society, in effect gutting the Democratic Party of its core social legacy.  This assertion will no doubt inflame the diminishing Obama supporters, who insist the president would never cut Social Security or Medicare, that he’s merely been exploring every possible route to a deal with the GOP.  But the evidence increasingly suggests otherwise.

Perhaps, as Salon.com’s Joan Walsh suggests, the president sincerely believes that the intense polarization of American politics isn’t merely a symptom of our problems but a problem in itself – “and thus compromise is not just a means to an end but an end in itself, to try to create a safe harbor for people to reach some new common ground”.   One finds further support for this view within Barack Obama’s own writings. A major theme of his 2006 book The Audacity of Hope is impatience with “the smallness of our politics” and its “partisanship and acrimony.” He expresses frustration at how “the tumult of the sixties and the subsequent backlash continues to drive our political discourse.”

There appears little question, then, that the President values compromise, indeed appears to enshrine it as the apex of all great Presidencies (ironically citing Lincoln’s compromise on slavery as a perfect illustration of this ideal).  But the problem with Walsh’s supposition is that the President’s accommodation with his political enemies, his apparent infatuation with a “third way”, suggests that he is being forced to compromise on a particular set of ideals and principles which he has hitherto embraced dearly.

But what is this President’s ideal? The only time in our national discussions where Mr. Obama has evinced any kind of passion has been during the debt ceiling negotiations.  He has, since the inception of his presidency, elevated budget deficit reductions and the “reform” of entitlements as major transformational goals of his Presidency (rather than seeing deficit reduction as a by-product of economic growth).  As early as January 2009, before his inauguration (but after the election, of course), then President-elect Obama pledged to shape a new Social Security and Medicare “bargain” with the American people, saying that the nation’s long-term economic recovery could not be attained unless the government finally got control over its most costly entitlement programs (http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011504114.html)

In other words, Obama has been on about this since the inception of his Presidency.  Recall that it was Barack Obama, NOT the GOP, who first raised the issue of cutting entitlements via the Simpson-Bowles Commission.  The President has also parroted the line of most Wall Street economists as he has persistently characterized our budget deficits and government spending as “fiscally unsustainable” without ever seeking to define what that meant.  One of his earliest pledges was to cut the deficit in half by the end of his first term, in effect paying no heed to the economic context when he made that ridiculous assertion.

In essence, the debt ceiling dispute is not forcing a compromise on this President, but is instead is viewed by him as a golden opportunity to do what he’s always wanted to do. That also explains why he won’t ask for a clean vote on the debt ceiling, why he has ignored the coin seignorage option, and why he has persistently avoided the gambit of challenging its constitutionality via the 14th amendment, even though his Democrat predecessor has already suggested that this is precisely what he would do: Bill Clinton asserted last week that he would use the constitutional option to raise the debt ceiling and dare Congress to stop him (http://www.nationalmemo.com/article/exclusive-former-president-bill-clinton-says-he-would-use-constitutional-option-raise-debt).

It also explains why President Obama remains infatuated by bigger and bigger “grand bargains”, which seem to take us further away from averting the immediate economic catastrophe potentially at hand, which is to say national default.  The Administration, then, is not going for a bipartisan compromise, but going for broke on something which the President apparent holds sacrosanct.  In reality, true compromise would start with the notion of a clean vote on the debt ceiling or, at the very least, a minimal series of spending cuts that would avert the immediate risk of a default, whilst creating less deflationary pressures.

Have you actually seen the President ever get angrier than he was at his press conference announcing the collapse of the negotiations on the debt ceiling extension? Not even on health care “reform” can we ever recall seeing Obama this engaged, and manifesting something close to real emotion as he has here.  That does suggest something beyond mere political calculation; it hints at core beliefs.

And to what end? Neither he, nor the Congress appear to recognize the downward acceleration in GDP triggered when the spending limits are reached if the automatic stabilizers are disabled because they are no longer funded as a consequence of the debt ceiling limitations (again, a LEGAL, rather than operational constraint – the debt ceiling reflects an UNWILLINGNESS to pay, rather than an INABILITY to pay).

So spending will be further cut, debt deflation dynamics will intensify, sales will go down more, more jobs will be lost, and tax revenues will collapse even further. Which will set the whole process off again:  more spending is cut, sales go down more, more jobs are lost, and tax revenues fall more, etc. etc. etc. until no one is left working. All are radically underestimating the speed and extent of the subsequent damage.

Unlike President Hoover, who inherited the foundations of a huge credit bubble from the 1920s and found himself overwhelmed by it, this President is worse.  He is, through his actions, creating the conditions for a second Great Depression because of his misconceived belief that too much government spending “crowds out” private investment, and takes dollars out of the economy when it borrows. And therefore, goes the perverse logic, when the government stops borrowing to spend, the economy will have those dollars to replace the lost federal spending.

And so after the initial fall, Obama believes, it will all come back that much stronger.

Except, that as my friend Warren Mosler insists, he is dead wrong, and therefore we are all dead ducks.

As Warren notes, have you ever heard anybody say ‘I wish they’d pay off those Tsy bonds so I could get my money back and go buy something.’

Of course not! Notes Warren:

“Treasury borrowing gives dollars people have already decided to save a place to go. Dollars that came from deficit spending- dollars spent but not taxed. If they were spent and taxed, they’d be gone, not saved.

Treasury bonds provide a resting place for voluntary savings. They are bought voluntarily. They don’t ‘take’ anything away from anyone.

For example, imaging two people, each with $1 million. One pays a $1 million tax. The other doesn’t get taxed and decides to buy $1 million in Treasury bonds.  Pretty obvious who’s better off, and who’s still solvent and consuming.”

Someone please explain this basic economic tenet to the President so that he can effect a genuine compromise, not a destructive “grand bargain” which will suck trillions of demand out of a still fragile economy. The predictable result is of his current stance is that, even as he claims to recognize the interlocking nature of the problems facing us and vows to “solve the problem” once and for all via a “grand bargain”, Obama is in fact tearing apart most of the foundations which were tentatively initiated under Hoover, but which came to full fruition under FDR. If he continues down this ruinous path, $150 billion/month in spending will be cut. Such economic thinking isn’t worthy of Mellon, let alone Herbert Hoover.

by selise

Dear Representative McGovern [Update: Message & Book Delivered]

9:03 pm in Uncategorized by selise

Please see update below. — selise

************      ************      ************

The Honorable James P. McGovern
438 Cannon House Office Building
United States House of Representatives
Washington, DC 20515

Dear Representative McGovern,

My name is xxxx xxxx. I am writing to ask you to take a leadership role in resolving the unnecessary federal budget debt limit crisis.

Thank you for your statement, “any cuts to Social Security, Medicare and Medicaid should be taken off the table” and also for recognizing the grave risk an unnecessary default poses for our Country.(1)

However, it is past time for you to do more. An unnecessary crisis has been allowed to develop that threatens not only Social Security, Medicare and Medicaid, but also the economic well being of our entire Nation.

The current debt limit crisis is unnecessary because the Administration has the power to prevent a default. There are at least two mechanisms by which the debt limit deadline can be circumvented: President Obama can invoke the 14th Amendment, a method former President Bill Clinton has endorsed(2), or President Obama can instruct the Treasury to mint a $1 Trillion dollar platinum coin to be deposited at the Federal Reserve.(3)

The current debt limit crisis is based upon false premises about the nature of Federal Government deficits. Many innocently false statements have been made and these statements must immediately be corrected in order to properly and accurately inform both your Colleagues in Congress and the American People of the basic economic facts. Read the rest of this entry →

by selise

James K. Galbraith: The Implications of Rising Resource Costs for Economic Systems

6:15 am in Uncategorized by selise

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Posted below, with kind permission of the author, is the transcript (see note below) of James K. Galbraith’s talk to the Association for Evolutionary Economics (AFEE) session of the Allied Social Sciences Association (ASSA) meeting on January 9, 2011. Please see the source link at UTIP for the audio, which I highly recommend. — selise

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This is joint work with Jing Chen and it’s work in progress addressed to a question that we believe has not be adequately dealt with, in fact barely dealt with at all, in any major tradition — neither in the mainstream nor in the Keynesian or progressive responses to the crisis so far.

The question that we are addressing, that we would like to address, is to the implications of rising resource costs for economic systems in general and for the structure of economic society.

Our approach is to treat the economy as having the same form as a biophysical system — something that it obviously does — insofar as economic life is part of human life and involves interaction between organized society and the natural world.

The meaning of this idea, in essence, is that you have to be able to get more value out of your environment than it costs to extract it. Otherwise, you cannot live.

That is true for any form of living organism and it ought to be true, certainly is true, for society as a whole.

The key to extracting resources in an efficient way is to make an investment, that is to say, to build up that part of the economic system which works on the basis of essentially fixed physical resource costs.

And the appropriate analytical framework for thinking about this issue is therefore very much akin to the Marshallian theory of the firm and its treatment of diminishing and increasing returns — topics which seem to have dropped out of economic thinking in modern times but which were, of course, very much alive in the early days of the Keynesian revolution with Allyn Young and Nicholas Kaldor talking about, in particular, the importance of increasing returns.

A system which operates with a high level of fixed costs, that is to say, with a substantial prior investment can achieve a high level of efficiency at a high rate of utilization. To get there you have to have a perspective that involves thinking ahead for a long duration, that is to say, making plans and investments in systems that are expected to last a long time. And for that you have to have a reasonably low uncertainty about the implications of making those investment decisions.

These systems reach their maximum profitability when resource costs are relatively low and thus we think it is not accidental that the Keynesian era debuted in the 1930′s and was able to be pursued for 30 or 40 years without significant interruption because this period occurred in the moment in world economic history when the cost of resources fell by an unprecedented extent. That is to say, we had massive discoveries of cheap energy, of oil and other resources as well as the addition of other ways of extracting energy from the environment, provided you made sufficiently high front end investments.

On the other hand, systems of this kind are quite fragile and vulnerable to rising resource costs. Why? Because physically they require the same level of resources and therefore the cost of operating them rises proportionately to the cost of extracting the energy, the underlying resources, in real terms.

Systems which operate with very low fixed costs and a much higher proportion of variable costs are, on the other hand, more flexible, they’re more resilient. They can contract and expand with the changes in the cost of resources. And therefore they are more likely to survive in a form that is recognizably similar to what they are presently in the face of rising resource costs.

But, they are much less efficient and they operate at a much lower standard level of living.

It is not a smooth transition to move from a system that is built up on the basis of high fixed cost to one which does not have those high fixed costs. It is, on the contrary, abrupt, brutal, and may well involve the disappearance necessarily of a large part of the population supported by the system.

You can think about this in practically any context that you can imagine, and Jing Chen is very ingenious in coming up with examples so I will not tread on that territory by giving too many of them.

But, just as a very simple and intuitive matter, think about transportation systems. You have a network of trains or a network of aircraft that require certain functions to be performed on a continuous basis in order for the system to operate. Such a system will be vulnerable to disruption in the face of relatively small increases in the cost of resources, or for that matter, diminution in the expenses necessary to keep the system going, such as de-icers in airports, for example, in the face of a storm, something which I think everybody with recent experience in Europe probably has some acute and unpleasant memories of in the not very distance past.

On the other hand, if the transport system is built on low fixed cost, say based on animal transport, something you can still observe on the island of Cuba incidentally, you will find that it is not that vulnerable to disruption. On the other hand, it does not provide you with anything like the extent of the services that you can extract from one which has been built up on a heavy investment.

To take an example from an almost seemingly entirely different sphere, consider the dynamics of human reproduction. We have made it very expensive to raise children. The investment required to bring them up to a functioning standard in our society is very, very high. It involves a massive education, massive adaptation to the various systems that we have created, in order to function at a high level in that society. For many people, it is not worth it.

Is it therefore a surprise that many people choose to have fewer and fewer children, or none at all? You can have a much higher living standard if you are not raising a kid — still higher if you are not raising four kids, as some of us are.

On the other hand, in low fixed cost societies, the economics are entirely different and we argue that is a reasonable first approximation explanation for the demographic dynamics in which richer societies have much lower reproduction rates than poorer ones.

Think about the problem of system collapse. It becomes possible within this framework to conceptualize what has happened, and what is happening on an ongoing basis, in the last 30 years in a single unified way. The first major full scale system collapse of the modern era was the USSR in 1991.

Why did it happen? We have become accustomed to not thinking about it, to conceptualizing it, if we think about it at all, as an ideological matter.

But, we would argue, it makes much more sense to consider that the USSR was a single integrated high fixed cost industrial system which operated with very little flexibility in the face of rising resource costs. And given the inefficiency with which resources were extracted and the cost of doing so, it is not surprising that it was very, very fragile.

The question of the Japanese lost decade or two has been extensively explored, but not from this point of view. It was always an article of faith of my generation that Japan was the example of the society — of the proof — that you didn’t need to have access to resources in order to be a prosperous society.

But that was true in a period when resources, the real cost of extracting them, was much lower than it is now. And Japan, not having its own control of resources, has to pay the market price. And one plausible argument is that in a society which is built up and very advanced, the rising cost of resources put such pressure on profitability that even though living standards didn’t collapse in Japan, profitability did. And you get the indicators of a long term and uncorrectable, effectively, economic environment.

What are we going through in Europe and in the United States as we speak?

Is it possible that we are facing, to some degree, a very similar environment in which the conflicts associated with higher real costs of resources are beginning to be played out in the political system? Is there any evidence for this? Well, one of things to remember is that just in advance of the financial crisis, there was a period for a number of months when the oil price went up to $140 a barrel and that had to do with the fact that the swing producers were in a position to control the price, essentially in conjunction with speculative traders in the financial markets.

And so they were able to bring what appeared to be a resource that was running into its physical limits to a point where the price was essentially out of relationship to the current cost of production.

And at the time, in the spring and summer of 2008, those of us who were fully aware that there was an impending financial crisis, for reasons related largely to the fraudulent character of American housing finance markets, were also practically equally concerned about the economic consequences of the run up in oil prices. That tended to have gotten lost in the subsequent history because the oil price came back down again. But there it is.

What are the policy choices when you think about the problem in these terms?

Well, it seems to me basically there are three broad ways of approaching it and then I will stop and let Jing Chen give you a little more depth of the argument we have been trying to make.

The first way to approach it is to break the system, to try to move from a high to a low fixed cost environment. The way you do that, of course, is by destroying the institutions that support the system: government, the social welfare system, the infrastructure. The way you do that is by cutting its budget.

It seems to us that it is obvious that there is a very powerful movement, perhaps of overwhelming power going on right now, to do precisely that in every advanced country that you can think of, in the UK, in the United States, in Europe.

Why?

Is it going to be our argument that this is entirely based upon an ideological predilection or stupidity? It seems to me, that is not necessarily adequate. One has to understand, perhaps, that this is one approach which would preserve, at least, the predatory profitability of certain parts of the private system. Although the cost is forcing everybody to live at a much lower standard and the system effectively being able to support far fewer people.

The second way to approach it, which we might call the Chinese model, is to run the system at a loss. The Chinese industrial system largely runs at a loss. Vast numbers of enterprises continue to operate although they have never made a profit, that wouldn’t know how to make a profit, and their losses are absorbed by the banking system which is supported by the state.

The difficulty of that system, something the Chinese authorities understand very well, is that it gives you no control over the rents that are earned by the people who control the scarce resource, namely energy.

What is the approach of China in the face of that? It is to put as much energy as possible under long term contract. Something which they are doing as systematically as is possible in order to make the system continue for as long as it can.

And the third, which might be called the Nick Stern approach, or the approach of progressive, environmentally conscious economists, is to try to rebuild and reconfigure the system to make the long term investments that would be required to keep the rising costs of resources under control by moving from higher cost resources to lower cost resources and by conserving the resources you have available to the maximum extent possible and dealing, not incidentally along the way, with the deferred cost of resources associated with climate change.

That is a hugely demanding agenda. It is being presented to us by our friends at the Union of Concerned Scientists. I heard Nick Stern talking about this two nights ago — to an audience of economists. It is very clearly what they have in mind. But, you have to ask what institutional and policy frameworks can conceivably get us from here to there.

It is not something which can, in the ordinary course of events, yield high private profits unless institutions are created which make it profitable for private actors to do so. And it is not something which can easily be done in the face of private control over large parts of the energy supply sector because, once again, pressure on that sector generates rents which cannot, under those conditions, be turned to the problem of investing. It’s not something that’s going to happen in an environment of uncertainty and doubt about the potential effectiveness of the scheme.

If there is a fourth option, I’d be happy to hear it.

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Further Reading:

Chen, Jing and Galbraith, James K., Institutional Structures and Policies in an Environment of Increasingly Scarce and Expensive Resources: A Fixed Cost Perspective, (2011), forthcoming in Journal of Economic Issues.

Chen, Jing and Galbraith, James K., A Biophysical Approach to Production Theory, Working paper, (2009).

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NOTE: Remarks above were transcribed from the audio file at UTIP. All errors are mine. — selise

x-posted from my blog — selise

by selise

Social Security: The Real and The Unreal

7:07 am in Uncategorized by selise

Stephanie Kelton

YouTube clips and transcript quotes are from last year’s Fiscal Sustainability Teach-In and Counter-Conference. Complete audio, video, transcription and presentation materials are available at the link.

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Q: Why is there even a debate about “fixing” Social Security when it’s not broken?

A: Because the focus of the debate is on problems that are unreal.

Focusing on unreal problems makes no sense. Unreal problems are NOT REAL!

Let me explain what I mean here by real as opposed to unreal problems with an example of each:

  • Unreal = “We can’t afford to pay for Social Security because the Trustee’s report says that costs will exceed payroll tax receipts”
  • Real = “We can’t produce the goods and services needed by our nation’s seniors to keep them fed and housed”

The unreal problem is about the availability of dollars. Our federal government is the monopoly issuer of the nation’s currency. We’ve been off the gold standard for almost 40 years and we have floating exchange rates. Therefore, the availability of dollars is a political issue. Tax revenue is not required, borrowing is not required — unless Congress chooses to impose those constraints.

The real problem is actually not a problem. It could be, but it’s not. As Warren Mosler said during his Teach-In presentation, “The Deficit, the Debt, the Debt-To-GDP ratio, the Grandchildren and Government Economic Policy”:

We’re producing 8000 calories per person per day; there’s no reason to limit the intake of our seniors.

We have a housing problem, which is vacant homes in record numbers; there’s no reason to have them out on the streets.

Worse, by focusing on unreal problems, we come up with unreal solutions! “Solutions” that are no solution and will, in fact, make matters worse, as Bill Mitchell explains in this YouTube clip from his Teach-In presentation, “What Is Fiscal Sustainability?

From Bill Mitchell’s presentation:

slide 26 (typos and bold are mine):

  • The concept of fiscal sustainability is intrinsic to the ageing population — intergenerational debate.
  • But not in the way that the public things about it.
  • There is no financial crisis ahead with respect to increasing health care and pension entitlements.
  • The government will always be able to afford to pay these bills
  • The actual issue is about real resource availability
  • By focusing on the financial we are undermining the real capacity to deliver these goods and services.
  • … the intergenerational debate is the sort of long-term attack on fiscal policy. So even though we were quiet for a little while, while the governments were bailing the economy out and putting a floor into the collapse of spending, what’s emerging out of that – and this is sort of the way in which the mainstream work – they were so discredited by this crisis.

    It’s absolutely amazing that for the first few months, right-wing colleagues that I know just wouldn’t talk, they just went and hid in their rooms, so discredited and embarrassed by it. But the reasonable ones come out now and say, “Oh yeah, we really did have to have a bit of fiscal intervention, we understand that now, but the problem’s worse than you think, because we’ve got these long-term structural pressures that are going to blow the budget out of the water and make it unsustainable.”

    What are they talking about? Providing pensions to our elderly, providing a bit of health care to people who might need a few hip replacements. And what I tell them is, “Look, the only issue is whether there’s enough titanium available to put in our hips and our knees. And if there is, the government’s going to be able to buy it no matter what. And if the government wants people to have a pension, then all they need to do is type a few numbers into a computer and that’ll send some money to the bank. And the only issue is whether the pension check that the pensioners get will be able to buy anything.”

    And the irony of this whole debate about the – we call it the intergenerational debate in Australia, it’s more generally known as demographic debate – the irony of it is that everything that the mainstream wants us to do now about it will actually undermine our capacity to deal with it in the future. So the absolute irony is that the way in which fiscal austerity plans are implemented is – in our country and elsewhere – is to attack higher education and secondary schooling, and not realizing that investing in education is the way you get productivity growth and the way you deal with rising dependency ratios in real terms. It’s moronic.

    So, what are we going to do? Should we fire teachers and increase class sizes? Cut Social Security? Increase taxes? If we do it will be only because our politicians — and we — don’t understand the meaning of some numbers on a spreadsheet. Or are we going to invest in the kinds of things that will increase the real productive capability of our economy for the future: education, the environment, health and R&D?

    **********

    My favorite solution is to abolish the payroll tax altogether and have Social Security benefits paid out of general revenue…. just like we pay for wars. No more fear-mongering or worries about projected shortfalls in Social Security revenue. Abolishing the payroll tax has additional benefits: the payroll tax is regressive, unfair (only payroll, not all income) and is a large tax burden on both workers and employers that makes it more expensive to employ Americans.

    However, when a partial payroll tax cut was announced last year as part of the tax bill compromise, progressives were not cheering… and I’m not sure exactly why that is, other than, perhaps, it is feared that it would somehow undermine support for Social Security. But is that even true?

    One argument is that Social Security is an earned right — money is owed to the people who have paid in and that benefits are tied to the amount that has been paid in — and that is a necessary source of political support for the program as a whole because it is seen as a retirement program and not a welfare program.

    But, if this is true, why then is it that no one (to my knowledge) has suggested that the approximately quarter of Social Security beneficiaries who are non-worker (have been collecting payments not tied to having paid in) should stop receiving benefits? (Please, don’t anyone start advocating that!). It seems to me that such a large number of non-worker beneficiaries undermines that argument entirely.

    Another argument is that the payroll tax holiday will give Peterson and all the deficit hawks more ammunition to weaken Social Security. Is this true? We have some evidence it may not be from Stephanie Kelton (see YouTube at the top of the post):

    Stephanie Kelton: I think this comes back to what we’ve been hammering at all day long which is that there are all kinds of self-imposed constraints. If you say that you’re only going to fund Social Security out of the payroll tax and you use, you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we’re not going to clear the checks at the level that’s been promised then we’re only going to be able to meet 77 percent, or so, of promised benefits after some date. I was rereading, I was telling Warren yesterday, I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI, the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund. [Trustee's report -- selise]

    Those are both projected to go bankrupt at some future date. In the 2009 Report, the day of doom is now 2037 on those two programs. Health Insurance Trust Fund, the Medicare care side is also projected to blow up. That’s supposed to go bankrupt. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. As far as the Trustees can see, 75 years and beyond, there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments, hospital benefits, and Social Security to the availability of the funds in the Trust Funds. And so, I mean it’s crazy, it’s right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. It’s as simple as that.

    I don’t see Peterson et al. making a big deal about Medicare Parts B and D.

    If a compromise “fix” is needed, let’s go with this one from beowulf:

    There is hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of:
    the taxes imposed by subchapter A of chapter 9 of such Code with respect to wages (as defined in section 1426 of such Code), and by chapter 21 …as determined by the Secretary of the Treasury by applying the applicable rates of tax under such subchapter or chapter 21.

    http://www.law.cornell.edu/uscode/42/usc_sec_42_00000401—-000-.html

    … the simplest fix for the expected 20% shortfall in 2043 and thereafter is for Congress sometime between now and 2042 (no rush), to amend the above code section to read, “amounts equivalent to 100 120 per centum of”. Problem solved.

    And then let’s move on so we can focus on dealing with our real problems.

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    UPDATE: for anyone who’s read this far and is game for more, i highly recommend lets’ new diary, The Fake Social Security Solvency Crisis Is Congress’s Fault!

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    Further Reading:

    Social Security: Truth or Useful Fictions? by L. Randall Wray

    If You Really Care About Social Security, Stop Capitulating to the Left by Stephanie Kelton

    Reality Check: Why Truth Will Protect Social Security by Marshall Auerback and Randall Wray

    Cut the Payroll Tax to Save Social Security by Marshall Auerback and Randall Wray

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    x-posted from my blog — selise