By L. Randall Wray
(Cross posted from economonitor.com/lwray)
In a powerful piece, Paul Krugman blasts Alan Simpson as an ignoramus when it comes to federal government budgets. He rightly wonders why anyone takes this nutter seriously:
Simpson is, demonstrably, grossly ignorant on precisely the subjects on which he is treated as a guru, not understanding the finances of Social Security, the truth about life expectancy, and much more. He is also a reliably terrible forecaster, having predicted an imminent fiscal crisis — within two years — um, two years ago…. So what is it that makes Simpson the figure he is? Clearly, it’s an affinity thing: never mind his obvious lack of knowledge, his ludicrous track record, reporters trust and idolize Simpson because he’s their kind of guy.
Precisely. The nonsense that comes out of the mouths of reporters is simply amazing.
I am only disappointed that Krugman did not include Simpson’s Siamese twin, Erskine Bowles. After all, the dumb and dumber National Commission on Fiscal Responsibility and Reform created by President Obama was headed by these two (presumably hand-picked by Pete Peterson). Bowles was selected to create the patina of bipartisanship necessary to gut Social Security and Medicare (the real purpose of all the deficit hysteria). It is important for the Democrats to share the blame for this mess. Indeed, since Republicans have always opposed any spending to help ordinary folk, these programs have always relied on the goodwill of Democrats. Unfortunately, the party of FDR has abandoned all principles. They serve only Wall Street, too.
See my piece from August 2011, where I laid out the purpose of the fiscal cliff .
Simpson claims that Social Security recipients are little more than new born calves, seeking to suckle the teats (he says tits, apparently confusing his cow with his wife) of our hard working cows down on Wall Street, who’d like to destroy Social Security so they could manage and lose retirement savings in the next big bubble
Now, wait a minute. About three quarters of all Social Security recipients are retirees—those who have worked hard all their lives, contributing to American production. They gave us the living standard we now enjoy. Since 1935, government has held out the promise to all workers: work hard and long and you will enjoy a decent retirement. How can we possibly compare that to suckling the teats (or tits) of 310 million cows? The other quarter of recipients are dependents—widows, children, and people with disabilities. Is the metaphor appropriate?
Social Security, Medicare, and Medicaid—the greatest remaining New Deal and Great Society programs—together comprise our most important safety net. Indeed, Social Security has contributed more than any other government program to poverty reduction, and it is the most important source of income for the majority of American seniors. It is an intergenerational promise, our most important one: if you work hard during your working years, tomorrow’s workers will take care of you in your old age. And if you should become disabled or should die, your co-workers will take care of you or your family. And if you can survive to age 65, you finally get decent health care coverage.
To be sure, such a promise is precisely that—no more, no less. We cannot hold future generations to such a promise. But we can sure as heck protect Social Security, Medicare, and Medicaid today from those who want to dismantle it.
The countdown is nearing the fore-ordained conclusion, March 1 when the automatic cuts begin to suck $600 billion out of domestic spending plus another $600 billion out of the military. With luck, the coming cuts to air traffic control and airport security won’t lead to deadly crashes, but they sure will create havoc at the airports. From the point of view of Bowles-Simpson, the more chaos, the better. All the more fuel to the Peterson flaming of Social Security. The buzzards are readying to circle the kill.
Make no mistake. The President as well as both houses of Congress are solidly aligned to gut these programs. That is what the Rube Goldberg machinery is all about.
It is time to get out the pitchforks to destroy the doomsday machine Washington is creating for us.
Last night I gave the Steinhardt Lecture at Lewis & Clark College in Oregon. The title was: “Fiscal Cliffs, Debt Limits, and Unsustainable Deficits: Can the US Really Run Out of Dollars?”. I understand that the video of the talk will soon be available. I think you already know the answer to the question posed in the title!
You need to look up the pronunciation of the word teat. There’s no confusion of cows and women.
But the larger point is that such badmouthing and personal attack only weakens your argument.
are you serious? tit, teat, who gives a shit? these rat bastards want to see us in misery, they are relentless. do you think that simpson or bowles care about you or your family? thank you randy for the work you do, and never ever give up.
Yes, I’m serious. That’s the point. If you make a big deal about how he (correctly) pronounces a word that has no bearing on the gist of the argument, you’re wasting your own time and diluting your own message. Stick to the message, and abandon the ad hominem attacks, and people with no skin in the game are more likely to listen to you. I would prefer that Randy’s economics would win the day, I just think throwing in little things like this are unnecessary and not helpful.
Uhhm Golfer Dude: i could care less about pronunciation. I grew up with cows. No one ever confused a cow’s teat with a human mother’s tit. It was a disgusting statement no matter what his confusion over the difference between his wife and cow might have been.
golferjohn? If Simpson refers to teats as tits isn’t he being a bit belittling towards women? Of course this piece was not about that but the essence of the article is right on the money. Simpson’s reputation outweighs his intelligence.
If we listen to fools we learn nothing.
If we listen to opinions fostered by those with a vested interest, we’re no better off.
If only Republicans AND Democrats would speak the truth about money, debt created or fiat created, we all might begin the long process ahead of solving real problems and ignoring the nonsense.
Social Security is a social contract. It should not be broken by liars trying to privatize it for their own personal gain. Think about where we’d be if SS had been privatized by Bush as he proposed in 04 campaign and attempted to begin doing in 05.
My question to wall streets would have to be if enough is never enough, why?
“the essence of the article is right on the money”
Exactly. So why pollute it with adolescent name-calling.
One round of demonstrative domestic drone attacks will make quick work of that whole “pitchforks” notion. Our otherwise Manly Second Amendment Remedies Contingent will be nowhere to be found.
I’ve been sharpening my dinner fork, hoping to get invited to help the buzzards pick over the carcasses. Up close it will be hard to tell the pickers from the picked.
As a lawyer, that has always been my point, but for an entirely different reason. If the second amendment is the anti-tyranny amendment, as most lawyers and judges think, then how do you fight tyranny with the military equivalent of pop-guns? I’d be heading for the hills too if that is all I could fight tyranny with. In order to have a real anti-tyranny threat, we would need the kinds of weapons that our outlawed already. I’d want a stinger missile or two, and anti-tank gun for starters, and maybe the kind of military rifle that could take someone out at a couple of thousand yards.
And I have never owned a gun (I’m 62), and my parents didn’t either. But given how the police state is quickly morphing into a military state, I find myself on the side of those who want to own guns. I think one thing we could do that might satisfy the second amendment is bring back the concept of private community armories. Store the real nasty weapons there (assault rifles included), but have them accessible in case the drones and tanks start flying and rolling.
You’d be dead before sundown (or by week’s end at the outside). This is not Syria. It’s potentially MUCH more asymmetrically lethal — and would be overtly were push to come to shove.
I take no joy in saying that.
Expect no decency from Washington. The’ll keep hitting us until we fight back.
The good feature of the sequester is that 9% will be cut from military expenditures. it is an opportunity not to be wasted.
With regard to Social Security, there is in reality no need for it to be pre funded, since nothing else the government does is pre funded. The reason that Roosevelt ring fenced the SS fund was to stop future administrations from raiding it for other purposes. And actually the 15% collected by FICA taxes on earned income are a way of placing a heavier burden on wage earners, rather than dividends and capital gains mainly paid by the rich.
“The good feature of the sequester is that 9% will be cut from military expenditures. it is an opportunity not to be wasted.”
Call me cynical, but I don’t believe our military expenditures will be cut one penny, especially as Obama’s glorious pivot to Asia rolls on.
“The reason that Roosevelt ring fenced the SS fund was to stop future administrations from raiding it for other purposes.”
The explanation I’ve seen is that Roosevelt did it that way to make it appear to be an earned benefit rather than a welfare payment, so that it could be accepted without shame, and not be attacked as a government handout.
“To be sure, such a promise is precisely that—no more, no less. We cannot hold future generations to such a promise.”
Can you elaborate on this “cannot” please?
There is nothing a current Congress can do to stop future Congresses from changing the law. And nothing you personally can do after you’ve died. Future generations will make their own decisions.
Good answer 🙂
Seems to me that you’re saying the decision to change the law/promise is political and not financial. I’d agree with that.
For me, “We cannot hold future generations to such a promise” had connotations of “We’re running out of money,” which as I understand it, comes out of The Church Of Pete Peterson and not MMT.
Hence the request for clarification.
Not entirely correct. The law should consider SS to be a vested right that can not be taken away without due process of law. A social security claimant who has paid into the fund has both contract rights and rights to just compensation for the taking of property under the fifth amendment. If you have never paid in, an argument can be made that you have no rights, but once having paid, you acquire property rights (contractual promises are property rights).
Congress does have the right to change benefits. But changing benefits is not the same as eliminating them. And at some point, reducing them way too much might also be considered and infringement on vested property rights.
If your analysis is correct, then even the proposed chained CPI could fall under contractual promise rights. I suppose Congress could get around this issue by simply zeroing out SS for anyone not already in the system, but then it would have to come up with payments for those already vested. Back to the High Value Platinum Coin Seigniorage anyone?
And how about the sterling financial record of Erskine Bowles
— founder and director of Wachovia bank taken over by Wells Fargo to avoid bankruptcy presumably because of overexposure to in MBS, CDS and CDO’s.markets.
— board member of Morgan Stanley from 2005 a big player in the subprime game until 2008 when it was saved by belatedly granted FDIC protection. His job was to see that the company was not making foolish investments.
— director of GM from 2007 – GM – sometimes referred to as an investment bank that made cars – owned 49% of GMAC at the time. GMAC saved by the government in 2009 due to subprime exposure.
On Sept. 29, the Federal Deposit Insurance Corporation announced that it had brokered a deal under which Citigroup purchased Wachovia’s banking operations for a fire-sale $1 a share. But on Oct. 3, in a stunning and sudden reversal, Wachovia announced that it planned to be acquired by a rival bank, Wells Fargo & Company. Wells Fargo offered a deal worth $15 billion, or seven times what Citigroup was offering.
Thanks for the excellent post, Dr. Wray.
Hopefully you’ll provide a NEP link to the video of your Steinhardt lecture (readers are more likely to check this site than Lewis & Clark’s).
On framing, a suggestion: Lakoff and Wehling’s _The Little Blue Book_ (re “safety net,” for example, see p. 117). To be sure, the book’s imperfect–given what’s happened to the Democratic Party, for instance, the subtitle should be “The Essential Guide to Thinking and Talking democratic”–but definitely useful.
Alan Simpson is not the only “simpsoleton,” after years of brain-washing most of the nation is finding it impossible to get beyond the notion that money can only ever be a “simplistic” or crude balance sheet accounting phenomenon.
Thanks, Mr. W., for another great article!!!
It’s good that Krugman is occasional correct on something, perhaps he is evolving?
Peterson, appointed to the Peterson Commission on Foundations to circumvent their investigation (the force which was behind it originally, the greatest populist to ever come out of Texas, the monumental Rep. Wright Patman, who laid the groundwork with his investigation into foundations and trusts), would later be appointed to by Clinton to his commission “to end welfare as we know it” ! ! !
For more on Peterson, please see that wonderful article at Source Watch:
And for the latest and most interesting report on the economy from the GAO, please see this:
Thanks for the low-down on Erskine Bowles involvement in leaving a trail of debt behind him but now deemed competent by Obama because he runs an organization called “Fix The Debt” and would apparently have therefore benefited from his earlier experiences. What hokum inhabits Congress!
The White House too, since Obama appointed both S and B.
The example of Alan Simpson shows how far down hill the education standards of this country have gone. One would think that the likes of Mr. Simpson would be able to fire up a search engine connected to the Internet and read about Money Theory as explained at this web site and at Bill Mitchell’s web site. http://bilbo.economicoutlook.net/blog/
However, the blinders of personal world views is at work here also and if one really believes that a dependency on other people shows weakness then all of the human race stands condemned by that world view. We have been totally dependent on our neighbors and social connections since before Mr. Simpson’s mother gave birth. In fact the social nature of the primate family is a well established biological and evolutionary fact. Perhaps what is really at work here is Mr. Simpson’s own feelings of vulnerability especially since he seems to want to discuss imbibing mother’s milk.
The billionaires are going to use this to break the millionairs and buy the millionairs assets for pennys on the dollar. Especially in the defense industries.
People shouldn’t be so hard on poor Al Simpson. After all he has been totally senile for at least 20 years, and comes from a state where the majority of the population suffer from the same incapacity.
No, you really should direct your comments at President Obomber, the person who appointed the Deficit Obfuscation Committee with the intent of legitimizing the most egregious attacks on the inadequate social assistance system that still survives in the USA so he can sell a “compromise” that sends it to the dustbin.
Everyone should read Nancy Altman’s testimony in 2011 about social security to the Senate Finance Committee. Social security does not add to the deficit and, by law, is not allowed to add to the deficit. Nancy Altman is an expert on social security and clearly describes how it works. It’s just another area of Simpson’t ignorance.
During the payroll tax holiday we had transfers from the general fund to meet SS funding in the trust fund.
How did this _not_ add to the deficit, considering those transfers weren’t funded by any tax measures?
I don’t think that your assertion is correct. The Social Security trust fund contains $2.7 trillion invested in interest bearing specially designated Treasury bonds. The fund also has a substantial revenue stream from the 15% FICA tax collected on all earned income up to $110,000 per year.
I suppose you could say that the US Treasury therefore owes this $2.7 trillion to the contributors to the fund and therefore contributes to the US Treasury deficit. Very confusing isn’t it ?
In fact all Treasury bonds, which are government debt) represent someone’s savings in our debt based monetary system.
No debts = no money
Frank, the $2.7 trillion of bonds in the SS trust fund are counted as part of the $16 trillion+ national debt, even though it is government agency to government agency debt, so in that sense your second paragraph is correct. This is so even though the money has been “per-paid” by workers and employers, because the FICA surplus is transferred to the Treasury General Account and used to pay for current gov. operations when the special bonds are purchased. Presumably the bonds will be redeemed by the Treasury as they come due, but this is basically the promise Randall is referring to.
Yes, approximately half of the $16 trillion US Treasury debt is inter governmental. What a farce !
The FICA contributions ( I hesitate to call it a tax) is in fact a de facto savings account, held by the workforce. We are often exhorted by various pundits, that we do not save enough as a nation. And now these same talking heads are claiming that these self same savings are a debt weighing the government down. If Social Security payments to beneficiaries are reduced, then the economy shrinks, since it would be a reduction in the money supply. It seems that this is what the Republican party is advocating, but I suspect that their motivation is really to destroy the social safety net, so that private interests can take advantage. George W. Bush wanted to privatize the SS trust fund and have the money routed to the US stock market, to cause another boom and bust bubble.
The whole debt/fiscal cliff engineered crisis is in fact totally unnecessary. We need to move from a debt based currency, which is created by private banks to debt free US Treasury issued money as outlined in the Kucinich Bill HR 2990 before Congress.
(16) A debt-based monetary system, where money comes into existence primarily through private bank lending, can neither create, nor sustain, a stable economic environment, but has proven to be a source of chronic financial instability and frequent crisis, as evidenced by the near collapse of the financial system in 2008.”
But somehow this will escape Dr. Wray’s postulation of a solution.
Fortunately, the Lords are now running left of the progressive heterodoxy of MMT.
Interesting times, indeed.
Yes, I was pleasantly surprised to read the article you linked that Adair Turner, chairman of the FSA (Financial Services Authority) proposes using UK government issued debt free money instead of borrowing from the provate banks. This possibly comes about because the UK government owns approximately 82% of the Royal Bank of Scotland and someone figured out that this bank creates money out of thin air 😉 Turner is also Scottish I think.
Nevertheless, I doubt whether this will be taken up by the mainstream media, which is in the control of very few corporations, including the dreaded Rupert Murdoch.
Typo. Should be prepaid.
That $ 2.4. Trillion fund are really just taxes that the top one percent did not have to pay. Workers have been subsidizing them. Now that we may have to use that fund to pay benefits, well, it is time to do something. Now,the one percent would be happy if we just increase the tax or the cap so that there is once again a surplus. But if we cut the benefits in some way, that is even better.
BTW that fund is something the one percent wants to get its hands on to manage it for us. Lots of fees and such for that job.
This is a tax . It is a little worse than other taxes bc it is regressive. We should just transfer the tax from the treasury to the fund every year and in just enough to keep the fund where it is today. Then working people would have more income to spend and so would businesses.
The IRS collects the FICA tax and transfers it to the US Treasury, which then issues interest bearing Treasury bonds to the Social Security trust fund.
The fund is now paying out slightly more than it receives from FICA, because so many people are unemployed. This could easily be addressed by raising the present cap of $110,000, above which no contributions are made.
The most important reason to protect social insurance programs is the below graph:
Yet another residual effect of saint Ronnies’s so-called revolution. With less than 10% of today’s workers having a defined benefit employer provided pension plan, there is no alternative but to maintain a collective retirement program through the government.
The market fundamentalists and all the parasites on wall street must NEVER be allowed access to our collective retirement program funds.
Your blog is very interesting. You write about very interesting things. Thanks for all your tips and information.