Dear Mr. President,
Over the past 3 years you’ve returned again and again to the idea that Social Security has a long-term solvency problem, and therefore needs “reform,” even though, as of the end of 2012, the “Trust Fund” had nearly $2.7 Trillion in it. In spite of this healthy trust fund asset balance, SS Trustee projections, say that the trust fund will be down to zero by 2033 and that thereafter, until 2086, SS will be able to pay roughly only 75% of scheduled benefits without either cuts or increased sources of revenue.
As time has passed, your favorite entitlement reform proposal continues to be the “chained CPI”, which, you claim, is a better measure of cost of living changes than currently used, but which would cut SS benefits by using a new COLA formula which makes SS cost-of-living adjustments smaller and smaller over time, as seniors adjust to price increases in commodities they buy by shifting to less pricey goods. Smaller cost of living adjustments translate to lower benefits paid out and to more years of projected “solvency” for the SS program. The objective for achieving projected “solvency” is 75 years.
Critics have replied to this proposal by pointing out that “Chained CPI” is a less accurate measure of the real cost of living for seniors than the current COLA. As many have remarked, the chained CPI will say that the cost of living for seniors has decreased when they try to protect themselves from price increases in salmon by shifting to cat food instead. So, this measure makes attempts by seniors to adjust to inflation by lowering their standard of living work against them by ensuring that they will get less money in the future to cope with inflation.
I’m sure you will agree, when you think about it, that this chained CPI measure is blatantly unfair to seniors. It is not an accurate measure of actual cost of living increases, as you and others in your Administration and in the media have contended. What makes this proposal to “reform” SS even more unfair is that many think that there is no impending SS solvency problem at all, and we wonder why you claim that there is.
Indeed, if you think that lack of full Social Security solvency after 2032 is really a problem, and you also really want to “strengthen Social Security,” then we wonder why you don’t just do this?
— Direct the Secretary of the Treasury to open a separate spending account at the New York Federal Reserve Bank on behalf of the Social Security Administration.
— Direct the Secretary of the Treasury to use his authority under 31 USC 5112(k) to have the US Mint create a $3 Trillion proof platinum coin, and deposit that coin in the Mint’s Public Enterprise Fund (PEF) account.
— Once the Fed credits the PEF with that deposit of legal tender, sweep the Mint’s account for the nearly $3 Trillion in seigniorage reserves resulting from the deposit and crediting by the Fed of the Mint’s account, into the Treasury General Account (TGA), the primary spending account of the Federal Government.
— Then transfer the $3 Trillion into the new Treasury spending account established on behalf of the SSA, giving it a balance of $3 Trillion, and direct the Secretary to invest the money in Treasury Securities, in such a way that the redemption of these beginning in 2033 will cover the projected spending beyond projected revenue.
— If projections continue to show a lack of full 75 year solvency as the years go by, then a future President can once again use a platinum coin to extend the solvency period.
This proposal has the following advantages.
First, it doesn’t involve a benefit cut to a group many of whose members have seen the collapse of two of the “three stools” (private sector pensions and home ownership related savings) of their retirement plans.
Second, Democrats won’t have to risk defeat in 2014 by supporting you in concluding a “grand bargain,” part of which involves a very unpopular cut to Social Security. It will be hard to blame such a cut on the Republicans when you have been the one persistently advancing the idea of the “chained CPI.”
I suspect you think that might not matter because the Republican position on SS is even worse than yours has been. However, if you think back to 2010 you must remember that pointing out that the Republicans are worse than Democrats was not enough to avoid a disastrous Republican sweep, resulting in deadlock at the national level, austerity at the State level, and widespread gerrymandering, creating mountains for Democrats to climb in future elections. I doubt that blaming Republicans will be enough in 2014, when the public will think that the party it voted for, in part because it said it would protect entitlements, becomes the party that sold out SS.
Third, this proposal involves no tax increases on anyone.
Fourth, you can implement this yourself. Congressional action isn’t necessary.
And fifth, doing this will have no inflationary impact. The SSA won’t be spending any of this money until 2033 and beyond, and even then it won’t be spending any more money than it is currently scheduled to spend. So, the fear of inflation need not be a concern in this decision.
Downsides?
Well, you’d be using Platinum Coin Seigniorage with high face value coins in the Trillions. No one’s ever done that before. You’d be right up there with Lincoln’s greenbacks; but you’ll get lots of blowback, both political and legal from the Republicans. I’ve discussed and evaluated the legal issues at some length in this new Kindle e-book, as well as the political problems involved in using High Value Platinum Coin Seigniorage (HVPCS) involving coins with face values of $30 Trillion and above. I’ve explained why I don’t think either of the two classes of problems is significant in the book.
The legal situation is a bit different here from what I’ve previously discussed. Those in opposition to the President’s action might object that he had no right to fill the Treasury’s purse with seigniorage earmarked for SS spending when Congress has yet to make appropriations for spending those funds. I don’t think this argument is a good one however, since there’s no prohibition in the Constitution or in legislation preventing the Executive from filling Treasury spending accounts with seigniorage, and that’s all that Treasury would be doing here. The account established for the seigniorage funds would still be a Treasury account at the Fed, just like the TGA is. It would still be up to Congress to provide the authority to spend the funds going into that account on SS payments beginning in 2033.
The political problems are also a bit different here, and are probably somewhat less. Doing this to avoid any cuts to SS would, I think, be enormously popular. When you explain that no taxing and no inflation are involved, the reaction from most people will be “what’s not to like?” There may be a few cries of “printing money.” But you can easily counter these by repeating that none of the money will be spent for 20 years, and then what will be spent is only what is scheduled for SS benefits anyway.
Of course, the Republicans will be very angry that you’ve done this. But if they complain, then they get charged with not wanting to save SS without inflicting hardship on people. That’s a losing argument!
In my book, and in the past, I’ve argued that incremental Platinum Coin Seigniorage of this type doesn’t really produce a solution to austerity politics; and I’ve proposed using a $60 T coin to change the overall political climate surrounding fiscal policy. I haven’t changed my mind about this. It would be far better to pay off the national debt over time, and cover deficits for 15 – 25 years, so that people could come to understand that our government has no solvency constraints, but only inflation constraints, and that we can always create the money we need to allow the Federal Government to enable us to solve all of our current problems. That understanding would certainly also lead, in short order, to a system of automatic funding for all entitlement programs, not just SS.
The more incremental action of minting a $3 Trillion coin I propose here would be a great way to “strengthen Social Security.” But, it wouldn’t solve the problem of austerity politics. In addition, if you acted on it, it would create a Republican and corporatist priority to repeal your platinum coin seigniorage authority at the earliest opportunity.
On the other hand, the lesson would also not be lost on Republicans that any further debt ceiling hostage tactics, or other budget negotiation hostage taking, might well be met with more platinum coin seigniorage in the low trillions of dollars, or perhaps even with HVPCS itself and a $60 T coin, ending the whole game of pleading poverty as an excuse for imposing austerity on the American people.
I hope you’ll agree that this would be a wonderful result of an action on your part using platinum coin seigniorage to remove any further irresponsible talk of a long-term SS crisis. And I hope, also, that you will choose the course I’ve outlined and recommended here, rather than the course of joining with the Republicans to further impoverish seniors and the middle class by cutting Social Security.
Respectfully,
Joseph M. Firestone
(letsgetitdone)
Joe, here is a PS to add to your letter.
PS, Mr. President, since the Republicans are constantly wailing about Democrats only wanting to raise taxes to spend more, you could also mint a second coin and deposit it in the SS Trust Fund and at the same time resume the SS tax holiday, thus cutting taxes for working Americans and helping jump start the ailing economy.
Thanks, Sun. I thought of that, of course. But I was targeting this one just at SS cuts, and I didn’t want to complicate the discussion, or multiply the negatives. I’ll continue to push the HVPCS alternative in my book, which includes getting rid of FICA taxes. But for right now I just want to shine the spotlight on Obama’s ability to remove any perceived need for SS cuts almost effortlessly.
Why bother with the platinum coin ?
It is merely a distraction that will be held up to ridicule. Far better to have to US Treasury create US Treasury notes debt free.
We’ve been over this and over it. There’s a limit on issuing Treasury Notes in the hundreds of millions of dollars. So, they won’t do the job. Platinum coins can have face values specified by the Secretary. No limit at all.
I know the platinum coin is your baby, and I agree it should be used, however …
If you just want to defuse the “SS is going broke” thing and avoid benefit cuts, why not have the President propose to Congress that they pass a law directing Treasury to issue $3T of zero-coupon bonds, maturing in 2033, into the SS trust fund?
There is no impact on the real economy or the Federal budget, now or ever, from this action. All the positive arguments for your plan also apply to this one. Real SS benefits in 2033 will still have to be paid from 2033 GDP. The issue is whether we want to keep our promises to the seniors of 2033, or (partially) default on them. The issue is not whether some fictional account balance is below zero, but whether the economy in 2033 can sustain that level of benefits. And it can, because the burden on the economy of non-working people is going down, not up. The population of children is falling faster than the population of seniors is rising.
The platinum coin would advance the cause of MMT, but so would this plan, and without disruption to our current institutional arrangements, and without repercussions from those who would raise legal and other arguments against the platinum coin. Who in Congress could oppose this plan, which renders SS “solvent” without benefit cuts or tax increases?
Won’t work, golfer. First, it needs Congressional action, and the House won’t do it if Obama proposes it. Second, it requires lifting the debt ceiling, which the rethugs won’t do without other concessions. Third, I want the legal issues raised, because it’s important that we get institutional and not simply maintain what we have now. And fourth, why use a debt instrument, when we want to get people used to the idea of Treasury issuing Dollars, rather than just the Fed? The $3 T coin does that; but the zero coupon idea doesn’t.
Chained CPI requires Congressional action, and Obama is proposing that. The Senate gets a say, too, and can add the appropriate debt ceiling provision.
Obama has rejected the platinum coin already. Why do you think he would change his mind now?
If your objective is HVPCS, and you’re just using this SS issue to advance your cause, then I understand. For people who want to fix the SS issue, I think provoking a conflict over platinum coins only adds unnecessary opposition. Using the existing institutional structure is the path of least resistance.
That’s true. But since Obama will be blamed if SS is cut; the Rs may well agree to chained CPI. On the other hand, they will not pass anything that lets him look good by bailing out SS painlessly.
I don’t. I think he will move further on his present course. But my purpose is to show that he need not do so, and he could easily have done something to take SS off the table; namely the above! In other words my purpose is to educate readers and to remove Obama’s mask. It is not to persuade him to do what is right. Like you, I think that is pretty hopeless.
There will be very little conflict over the platinum coin. Only the wrath of some silly Republicans and Fox. No money is being spent. Nothing is changed except the actuarial projections.
Yes, there will be lots of noise about this. But, if he does it, it will be very popular and involves no danger of splitting people off from the D Party. Cutting SS creates that danger; make no mistake about it, because after the defeat of the Ds in 2014 over this; the party will have severe internal conflicts.
Frank and GJ, the problem with both your solutions is that they require action by Congress, where PCS only requires action by the President. Gofer John, you ask who in Congress could oppose this plan. Well, the Republicans will say it increases the debt in 2033 when the bonds will have to be redeemed so it’s just kicking the can down the road again. Getting agreement from Congress is the big obstacle.
It is. They’d probably just turn it down because Obama proposed it and also because they want SS to remain in trouble until they concessions that threaten its existence. Remember, their agenda is to kill entitlements.
“Republicans will say it increases the debt in 2033 when the bonds will have to be redeemed so it’s just kicking the can down the road”
They might say that. Depends what is said in support of the plan before their rebuttal.
We’re already pretending that the taxes collected from 1983 until 2008, while SS had a surplus, are paying part of the benefits from now until 2033. That’s nonsense. Any Congressman who would believe that would also believe that these extra bonds are a cost today, not in 2033. Instead of putting in $3T all at once, you could add $150B a year for 20 years. Chump change, in Washington. Then you can say it’s picking up the can today, stepping up to the problem now, instead of waiting until we reach the “crisis” in 2033.
The choice is to keep the promise or not. Congress has to act to do chained CPI, too. Give them something more attractive to act on. Pretend that having a trust fund really matters, and say that this plan addresses the problem today, in a fair and responsible way. Use their strength against them, like jujitsu.
And a strong argument can be made against cutting benefits now, in particular. Forgetting MMT for a moment, people working from 1983 to 2008 were paying “extra” SS taxes to build up this “trust fund” to pay for their own retirement benefits, in addition to funding the benefits for their parents (pay as you go). Now you want them to take a benefit cut, after they’ve already paid more than their fair share?
Obama has already rejected the platinum coin. I don’t think he would find this issue, which comes to a head in 20 years, more compelling than the debt ceiling or the fiscal cliff.
The debt ceiling will, like the proverbial bad penny, return in a few months, so Obama is going to have to face the same arguments and select from the same options again, and again, etc. With the Republicans trying to extract their pound of flesh, perhaps PCS will look more attractive this time; especially if its couched in terms of saving SS only. As for an extra $150 b/yr. being chump change, then what the hell is all the fuss about around the sequester (only $85 b)? Since the bonds held by the SS Trust fund are counted as part of the “national debt”, any bonds added now will bump up against the debt ceiling and will raise the hue and cry of burdening our grandchildren, even though they would be the likely beneficiaries.
When it actually happened, the $85B was no big deal. All the Armageddon talk was just hype by lying politicians. Yes, it’s bad for the economy, but compared to what? The Fed removed $89B in interest income from the private sector last year, and will do even more this year, and nobody outside these blogs even knows it. The 2% payroll tax hike on Jan 1 was worth twice that, and nobody is noticing.
But it’s true, Obama could change his mind. And another debt ceiling hassle might be just the thing to do it.
Obama also has a new Sec. of the Treasury, but the same old Ben at the Fed.
” increases the debt in 2033 when the bonds will have to be redeemed”
Just noticed this math error. It increases the debt today, when the bonds are issued. Redeeming bonds reduces the debt. And maybe by 2033, we will be able to buy back those bonds without taxing or selling more bonds 🙂
You’re right the debt increases right away with the issuance, which is why it bumps up against the ceiling. I was referring to the complaints that reducing the debt would be kicked down the road.
Hey sunflower…good to see you again….hope you are doing well
Once again, I have to agree with you and Joe here….sorry GolferJohn
Besides for the actual benefits of funding SS…..the next set of real benefits of the PCS are that it will prove, definitively, that the Govt is not revenue restrained and it will force people to start questioning their previous false beliefs and assumptions about the nature of Govt spending and taxing. It might take decades until enough people (and ultimately enough lawmakers) accept the reality of MMT to have it applied in a congressional way….dispelling the myths once and for all. But if the President could just advance those same goals right now and all by himself…..he would be advancing our cause by leaps and bounds.
For me, this is the argument that seals it on whether or not we should wait for Congress to take up MMT or have the Pres do it unilaterally.
Concerning Social Security, I wish that leaders of courage would simply state that nothing is needed for Social Security and nothing will be done.
There is no crisis. There is no threat. It’s all political clap-trap.
Every since S. S. was implemented, opponents have been trying to kill it. It’s the greatest social program in the recorded history of mankind. Leave it alone.
I think we should double benefits, since so many have lost homes, are underwater, or have had their pensions grabbed by corporate raiders or business failures. There’s no three-legged stool anymore. For most it’s just SS. which, as I said needs to be doubled, so seniors don’t end up in poverty.
As for just asserting there’s no problem. MMT people have been doing that for years. Guess what? It’s true, but it doesn’t work. People still come back with the idea of insolvency. The advantage of using the $3 T coin is that, once it’s in that separate Treasury account. No one will say that there’s a solvency problem.
“As for just asserting there’s no problem. MMT people have been doing that for years. ”
And trees have been falling in the forest for years, and nobody hears either of them.
MMT is not that hard a sell. It just needs wider exposure. MSNBC won’t hack it.
Doubling for everyone, or with means testing? Lots of seniors will just leave their additional benefits to their heirs, if you double them.
golfer
you need to learn something about the actual finances of social security… and the people who get social security. otherwise your opinions are just for the fun of expressing yourself.
more to the point, people pay for their own social security. a lot of people are confused by the “pay as you go” financing. but that is essentially no different from putting your money in a bank at interest, except that in the case of SS the “guarantee” is much, much better. except of course for the political lies… which an ignorant public is forced to believe because no one is telling them the truth.
Bank account? Give me a break. If you think Social Security is like a bank account, you need to learn more about bank accounts.
My Dad paid the taxes all his life, and never collected a cent. If he had a bank account, the bank wouldn’t have confiscated it when he died, it would have gone to his kids. Not much of a “guarantee” for him. Or are you saying that the political liars faked his death, and he’s still alive somewhere collecting his “guaranteed” Social Security benefits?
His Dad barely paid any FICA tax, and got a pension for the rest of his life.
If you want a private sector analogy, a fixed annuity is more like it. Except that if I had put my FICA taxes into a fixed annuity all my life, I’d have a lot bigger pension than SS. And maybe life insurance to boot, so that my heirs would collect on it if I didn’t.
If you think people pay for their own SS benefits, or even their parents’, you need to learn some more MMT. The government doesn’t need tax money to pay SS benefits, and doesn’t need to borrow the currency it creates.
But that’s not the point of my comment. It’s about Warren Buffett, and anyone else with the means to live more than comfortably without government support. Why does he need his benefits doubled?
golfer
i can’t address the whole nature of social security in one phrase. i WAS addressing the problem people have with understanding that “pay as you go” does not mean that you are paying for someone else.
as for the rest of you comment, the simplest thing to say would be “SS is more like insurance.”
it is entirely possible you could have gotten better returns from some other investment or insurance vehicle, though even the enemies of Social Security admit, when they think they are alone, that they cannot offer as good a product, so they have to lie about it. but what is certain is that the great majority of workers cannot get as good returns from other investments or insurance as they get from Social Security. and I am afraid I cannot prove that in a short comment.
Buffet does not need his benefits doubled. but about fifty million Americans will (because by then the amount (not percent) they pay in will double, because their wages will have doubled, and that will be the new “standard of living”) and the way Social Security works is that it collects a “premium” from everyone who gets a paycheck. And pays benefits based on how much they pay in. Buffet only gets back what he paid in plus about two percent real interest. A poor person might get back what he paid in plus about ten percent real interest (the insurance feature).
But you would actually have to know something about Social Security to understand this.
I’m sure Joe meant to double benefits in real terms, not by inflation.
Long-term Treasuries would have provided a better return than SS, in my lifetime. Not so much for workers starting out today.
golfer
you are ignoring the insurance factor. a low earning worker is going to get about a ten percent REAL return on his “investment.”
the doubling of benefits over the next seventy years will be REAL dollars, not inflation, it is a simple consequence of “pay as you go”… the same tax on a larger income results in a larger amount of money going to benefits.
i doubt very much you have actually compared returns to SS, across income levels, to real returns to treasuries. nor have you considered the different “cost” of risk to the poor compared to the affluent. not to mention their propensity to save.
we might as well give it up. people don’t change their minds. because what they already believe sounds so good to them.
Warren Buffett doesn’t. But if we want to view SS as part of the economic bill of rights, as I do; and if we also want to recognize that a government sovereign in its own fiat currency has no solvency problems, then there is no reason not to pay Warren his stipend. It represents very little increase in his consumption power and will probably not have any impact on the economy.
Dale Coberly,
Great to see you over here! I remember you well from my “Angry Bear” days. Are you still a regular commenter over there with Kimel and company? I found these MMT sites 3-4 years ago and most of my time has been consumed here but I still read some of the Angry Bear posts.
Hope you come back and comment frequently. You have much to add and I think you might start to see things in a little different light.
Another site, which is sort of an MMT spinoff, called Monetary Realism offers some very interesting topics of discussion as well but the authors are former MMTers who take a little different view now. There is much they dont disagree with but they would call themselves more “private banking centric”. There was a recent post there on SS that was a good expose on the accounting realities…… check it out;
http://monetaryrealism.com/social-security/
Talk to ya later
Greg
greg
thanks.
if the folks who like MMT can’t convince me, they can’t convince anyone, except those who want to believe in a free lunch.
and you can’t convince me, or much of anyone else by saying, “read this.” people won’t. you have to convince them with your own words. at least enough to make them want to “read this.”
meanwhile… i am not here to dis MMT. I don’t know enough. I can only respond to what people here say about it. I AM here to try to convince people that telling congress “we will pay for it ourselves” is the ONLY way to save SS at least until you can enter the MMT promised land.
I wouldn’t say accounting reality; because JKH uncritically accepts the very questionable projections of the SSA trustees about when SS’s credit balance will run out.
i don’t know who jkh is. and i never worry about the trustees projections. they are the professionals assigned to the job. and it is their projection that has caused all the hysteria because people are too stupid to do the arithmetic and discover that 8 Trillion Dollar Unfunded Deficit! is the same as “raise the tax one tenth of one percent each year the Trustees report short term actuarial insolvency (that would be about one year out of four over the next eighty years). and the same projections show wages rising over one full percent per year in ALL of those years.
I am only trying to solve the problem presented, not create my own predictions out of the future out of my own little head.
Dr. Wray has a paper on this, but if I recall it says the trustees make three projections, based on three different sets of assumptions about the future. I think the middle one is the only one widely quoted, but if the more optimistic assumptions are used (e.g., unemployment is 4.5% instead of 5.5%, and productivity is 1.98% instead of 1.68%, etc.) the “trust fund” never reaches 0. His suggestion is that we make sure growth is higher, so that unemployment is 4.5% or less.
If that is the objective, then cutting taxes, not raising them, would be the better policy.
yes, improving the wages of workers is the best policy. but the building is on fire and we haven’t got time to rebuild the foundation. one tenth of one percent per year raise in the tax would pour water on the fire.
cutting taxes has been tried for the past thirty years. it does not lead to more growth.
the other two sets of assumptions are highly unlikely. they involve assuming every factor breaks either to the best possible result, or in the other assumption to the worst possible result. i don’t play the “assumptions” game. that’s their job. all i do is the math: the 8 Trillion dollar 75 year “unfunded deficit” can be funded by raising the payroll tax one tenth of one percent per year for some of those years while incomes are going up (same projections) by over one full percent per year every year. that fixes SS. if you can get something else to work, fine. but by the time you get it done, SS won’t even be a memory. god help us, no one remembers what it is now.
When unemployment is 7.8% and growth is 0.5% the building is on fire, and raising taxes is throwing gasoline on the fire, not water. The SS “trust fund” has 20 years to go, during which we can prevent the fire there if we do it right.
the trust fund is not the problem. it is the big liars with the big knives that are the problem. and if they can’t gut it with Obama doing everything he can to help them, they will gut it with the next president, because “everyone knows” it needs to be “fixed.” but not, of course, actually paid for. that eighty cents you know. it would be just so unfair for the people who will get the benefits to have to pay an extra eighty cents to cover the costs.
raising taxes in this economy will not hurt a damn thing. certainly not by eighty cents per week. not even raising a “deficit emergency patriotic surtax” on income over 100k.
there is plenty of money out there, it just isn’t being spent or invested. the government could tax the people that have it and spend and invest it itself.
but that might be too unconventional for you.
So, what. If you doubled them you’d only reach the level of SS of Switzerland. Why should Americans be entitled to any less?
Joe Firestone
how do the Swiss pay for this?
Probably with profits from their banking industry. Just guessing. It’s a small country with some very large banks, doing lots of international business. And they have traditionally had a very strong currency. I’m not paying real close attention, but I recall a while ago something about revaluations vs. the Euro, so maybe things have started to change.
The Swiss are sovereign in their own fiat currency; so they “pay for it” by creating money as they spend. They also destroy money through taxation. But there is no direct link between the creation of money in the spending and its destruction in the taxing.
and how is that operationally any different from taxing and spending (or spending and taxing)?
or for that matter, how is it different from what we do now? aside from the hysteria about deficits…. which is pure politics, and the politicians know it, except for the really stupid ones.
Well, because eventually (after the movie?) MMT will become the theory that informs policy, and at that point, when the economy is in full employment with price stability, any increase in spending policy without an offsetting increase in taxing would tend to cause inflation. The government budget posture would be just as the neoliberals say it is now.
So, at that point, it would be valid to consider whether every expenditure is “worth it”, compared to the tax it costs people, and implement only the ones that serve public purpose.
Would you then double Warren Buffet’s SS check, or spend that money on medical research instead? Or not increase taxes at all?
Another argument, which I won’t try to refute but haven’t bought into, is that inequality of wealth and income is bad for society and bad for the economy. Raising Warren Buffett’s income, even if the Swiss would have given him that money, would increase inequality. And even if it were harmless, it won’t do any good, and it doesn’t seem fair to tax someone else, with lesser wealth and income, in order to do it. It is important to social order that the government is perceived to be fair, mostly.
if you doubled Buffets SS check, you would increase it from maybe 2000 a month to 4000. and he would have increased his contribution from … about 2000 a month to about 4000.
all in “present value.”
the fact is that Buffets contribution is what “funds” the “extra” that the poorer SS recipients get over what they paid in “taxes.”
you need to really understand this or you end up talking nonsense.
Again, Joe was talking about raising ONLY the benefits, and specifically NOT raising the taxes. And not over time due to higher incomes or inflation, but BANG! right now, double everyone’s check and don’t touch the taxes. (Or eliminate them altogether.)
My only point was that it would be better to do this only for SOME recipients, not for the billionaire recipients.
John
I guess we could not raise benefits on all those billionaires….but you got to keep in perspective the nominal number of the wealthy. How many people are in the top .01% of taxpayers…like 150,000 households. Even if you saved $1000 a month for every wealthy household….we’re only saving ~$150 million a month….thats less than nothing….$1.8 Billion a year…thats less than .025% of the budget. Personally, I’d pay .025% of the budget to maintain equality in the program. Hell, I think everyone receive the same amount of dollars in benefits. Of course, I also believe we should have a flat tax, after the first $50,000 in yearly income…up to $20 million per year, after which there is a 90% tax.
Yes, it’s more symbolic than budgetary.
I like your tax structure, but I would make it just a little more complex and avoid really high rates.
If we keep all the other taxes and just change the income tax, I like a your $50K zero bracket amount, but would put additional brackets at maybe $200K, $1M, $10M, $100M topping out at maybe 40%. I don’t want Tiger playing even fewer tournaments than he plays today, because he won’t make any money after expenses even if he wins.
If we were to do away with employment taxes, I like a smaller zero bracket, maybe 2000 hours times the JG or minimum wage hourly rate, and a very low rate, maybe 5%, up to $50K. It’s important for the average citizen to have some skin in the game. And important for there to be some records to discourage the underground economy. With low rates for average people, we don’t need to discriminate based on marital status, so that even defuses a little of the “gay marriage” controversy. And with either a high zero bracket or a low tax rate, there’s no real need for itemized deductions, or many of the exclusions and credits.
If we keep all the other taxes and just change the income tax, I like a your $50K zero bracket amount, but would put additional brackets at maybe $200K, $1M, $10M, $100M topping out at maybe 40%. I don’t want Tiger playing even fewer tournaments than he plays today, because he won’t make any money after expenses even if he wins.
If we were to do away with employment taxes, I like a smaller zero bracket, maybe 2000 hours times the JG or minimum wage hourly rate, and a very low rate, maybe 5%, up to $50K. It’s important for the average citizen to have some skin in the game. And important for there to be some records to discourage the underground economy. With low rates for average people, we don’t need to discriminate based on marital status, so that even defuses a little of the “gay marriage” controversy. And with either a high zero bracket or a low tax rate, there’s no real need for itemized deductions, or many of the exclusions and credits.
Hey John….we ran out of reply space below so this reply is actually to you comment below.
(G1J) “If we keep all the other taxes and just change the income tax, I like a your $50K zero bracket amount, but would put additional brackets at maybe $200K, $1M, $10M, $100M topping out at maybe 40%. I don’t want Tiger playing even fewer tournaments than he plays today, because he won’t make any money after expenses even if he wins.”
Why do you want to have progressive taxation when we don’t need the money?
Its probably important for me to have included the following stipulations in my preferred tax structure:
1. Universal health care with a 100% coverage for all approved procedures, check-ups etc with a copay (maybe $20 if your income is below a certain level up to whatever…….just to minimize completely frivolous visits)
2. A minimum standard of living at retirement or for adjudicated disabilities (~$3000 a month in today’s dollars and adjusted for inflation etc….but of course I’m open to any number depending on how the math works out.
With a base standard quality of life set, I see no reason for progressive taxation…..Set the rate at whatever is needed to collect enough revenue as a % of GDP to avoid inflation given the Govt’s spending levels.
The only reason I have for including the 90% marginal rate is to put a ceiling on upward distribution of money. Just like before the top rates started to get cut under Reagen, it will no longer be financially viable to pay out so much income to the top earners….forcing businesses to either invest that money in capital improvements or in rising wages for workers. I have yet to see someone make a compelling case for why this reduction in the top rates has not contributed to the ever decreasing share of national income that is going to workers (of course in some combination with globalization, declining labor unions and roboticization).
I do like your point about Tiger not playing in any more tournaments…its a good illustrative example. As always, I am opened to being proven wrong……but IMO I think the market would take care of something like this. I could only imagine that the PGA tournaments wouldn’t want Tiger to stop attending tournaments so they would adjust their prize pools accordingly….but if it works out that the top rate could only be 75% on $50Million….whatever, that would be fine also….its more about driving up wages at the bottom anyway….although I do think it is bad for societies to allow aristocracies and the like through the means of unlimited wealth accumulation….but thats just me.
Another good point is the no tax below $50,000 even if just for the psychological aspect of everyone ‘contributing’ (although I view everyone as contributing just by the nature of working to produce the output and wealth of the nation….and yes, I realize this is maybe an overly idyllic interpretation). I like the idea of a minimum number of hours or days worked…I might go so far as to even agree with a 5% tax or something….If the Govt ever contacts you and me to help write the legislation….then we can dig into the different options a bit further : )
“Why do you want to have progressive taxation when we don’t need the money?”
Fairness. Although different people have different ideas about it. Yours is progressive, too, just with less granularity. I think there is some amount of taxation needed to avoid inflation, especially at full employment, so we should try to balance efficiency, fairness, and incentives.
Ronald Reagan said he only made 2 movies a year in the 1950’s, because he’d get only 9% of his pay for any more than that. Today, a small business owner might do things like shut down for the summer, if he were in a 90% bracket. Not good for the economy, much less for his employees.
Tax rates affect incentives. You’re willing to do different things for $1000 than you do for $100. The higher the rates, the greater the distortion. I’d tax all income the same, except for maybe my old favorite provision from my youth, when I could exclude all $20 of my interest income. Everyone should be encouraged to be a capitalist, up to a point.
Looking forward to working with you on the 2015 tax code, after the MMTers win the election 🙂
@golfer
One other good reason to have progressive taxation is to more equitably distribute income and wealth. Not only would the economy work better, since your spending is my income and vice versa, but since great wealth confers great political power and the power to corrupt the government, it should be be restrained by limiting the amount of wealth any individual can accumulate to ensure a more democratic ideal.
um, Tiger doesn’t play for the money. Michael Jordan didn’t either…in fact, he played minor league baseball for a pittance, even though he obviously sucked at it and was already rich as Croesus–that’s how competitive he was. Had the maximum salary for pro basketball been 80,000, Michael Jordan would have played exactly as he did his entire career. That’s just who he was… Look at chess champions throughout history (until the last couple decades), who barely eked out a living while displaying genius-level skills in the most complex mental game known to man…
This is the Ayn Rand Myth (ARM) from Atlas Shrugged: It is an inescapable fact of human nature that talented people won’t use their talents unless they can wring vast amounts of income out of doing so. But it’s a myth–there is a huge amount of evidence against it, and the putative evidence for it is invalid, because of the likelihood that those talented people who do seem to care about making vast incomes do so only because they have been raised in a society that allows them and encourages them to do so. Raised in a different society that encouraged all to do what they enjoy doing for reasonable recompense (and Tiger enjoys playing golf a lot more than he would being a janitor or a shoe salesman), the evidence is overwhelming that they would be willing to do so for a reasonable standard of living (not one vastly above average.)
I am well aware that most people don’t believe this…but then most Americans don’t believe that astrology is hogwash, don’t believe in evolution, don’t believe in MMT… Lots of false beliefs out there to combat, so little time… 🙂
paul boisvert
i agree with you about the ayn rand myth, and i even agree with you about astrology and evolution. but i haven’t seen any reason to believe in MMT yet.
what is strange here is that your friend seems to think it’s up to me to convert myself. after all, it is the holy truth, and if i have doubts its not because his explanation is inadequate (or wrong). it can only be because of something wrong with me.
No, Tiger doesn’t play for the money, but he only plays the majors and WGC events and a few other “special” events, ones with strong fields and tough courses or important sponsors. And the Ryder Cup and President’s Cup, where they all play “for free”. He passes up twice as many tournaments as he enters. Apparently he has other things to do with his time that are more attractive to him than tournament golf. He does go to Dubai, though, for huge appearance fees, which are banned on the PGA Tour. If his marginal tax rate were 90%, maybe he’d stay home for some of the ones he plays now, and do those other things he likes to do instead, or go overseas for appearance fees more often. He gives up a lot of time and puts a lot of effort into preparing for a tournament when he does play, and he doesn’t do it just for fun.
Phil just recently put his foot in his mouth talking about moving out of CA because of state income taxes, and his combined marginal rate is only about 53%.
As for the message of Atlas Shrugged, I didn’t get this at all : “talented people won’t use their talents unless they can wring vast amounts of income out of doing so.” In the book, the talented people ended up in their own community happily exercising their talents for very little income. They just refused to have the fruits of their labor confiscated by corrupt politicians bribed by rich people who had no other will to support themselves than by bribing corrupt politicians.
In fact, the message of Atlas Shrugged is more like what you say is true: “they would be willing to do so for a reasonable standard of living”, as long as they were not abused. And that’s exactly what they ended up doing in the book.
G1J) “Today, a small business owner might do things like shut down for the summer, if he were in a 90% bracket. Not good for the economy, much less for his employees.”
Now John……I know you didn’t just claim that a SMALL business owner would ever get into the $20 million salary per year range and thus have to pay the 90% bracket…..because that would be just a little ridiculous….comparing someone who makes over $20M\yr to the folks running the corner store or restaurant is not exactly the best argument you could make…..
Again the purpose is to help maintain a somewhat equitable distribution of our national income…..spending power by the masses is what drives the economy….anyone who says anything different is engaging in wishful thinking.
Giving Buffett his SS stipend is unrelated to draining away money through taxation to constrain inflation. Eventually we would have to do that. But there would be no direct tie to the amount of the SS stipend. Of course, I agree that the wealthy ought to pay more in taxes and economic inequality reduced in this way as well as by doubling SS benefits.
My impression was that the White House had effectively killed/rejected the PCS idea in all its forms a few months back.. are you aware of any continuing discussion of these routes inside the beltway, Joe?
No, I’m aware of no further discussion. But do you always take no for an answer? I don’t. I pressure again and again and again, until it makes a difference. HVPCS is an idea whose time has come. Now we must do all we can to see that it eventually gets used.
I think MMT might be a pretty hard sell. It sounds too much like something for nothing.
Meanwhile, the “actuarial insolvency” projected by the Trustees could be resolved by raising the payroll tax one tenth of one percent in some years while the real income of the workers who pay the tax, and will get the benefits, is projected by the same Trustees to rise over one full percent per year every year.
This means that the people who get the benefits will pay for them, as Roosevelt insisted, and at the end of the day will have more than twice as much money in their pockets AFTER paying the “tax”, and will have paid for a longer retirement (they are going to live longer but not want to retire later), at a higher real benefit (keeping up with the rising standard of living they help to create) than today’s retirees.
I shouldn’t think anyone would have any trouble understanding this, but it seems everybody is looking for a free lunch.
“It sounds too much like something for nothing.”
Absolutely NOT! The something is increased real output and higher standard of living, and the payment is WORK. There is nothing for nothing.
that’s good to hear. but it still SOUNDS LIKE something for nothing. as far as I am aware, in order for it to work, it has to be introduced into an economy that is performing below capacity, and in a way that “stimulates” production. i thought that was what we were already doing… if badly.
meanwhile, i think most people can understand SS.. they pay for what they get. well, they COULD understand that if they weren’t being lied to.
Dale,
I think I was a little harsh above. Keep reading about MMT. Monetary economies ALWAYS operate below capacity. If people save any of their income, they are not buying all that they have produced, and there is unemployment. The unemployed are the labor buffer that prevents inflation. MMT enables full employment with price stability, via the job guarantee.
I recommend the 7 Deadly Innocent Frauds, at moslereconomics.com.
SS is designed for people to think they understand, at least to the point of “I paid in, so I get back”. In the 1930’s, the elderly were the poorest demographic group. Now they are the richest. The early recipients got back lots more than they paid in, on average (that is, the ones who lived to a normal life expectancy). They didn’t fund their own benefits, even if you think the benefits are funded by taxes.
golfer
i know a little more about SS than you do. but first, the idea is that if people “save” the money is “invested” and that creates more wealth. you only get “savings” that go dead when the economy is not investing… mostly because the bankers are spooked. at that time, the government can “borrow” or even “print” money and put it in the hands of people who will spend it, or even “invest” it. Without reading your book, I would guess that that about covers “MMT”, though the way you put it still sounds like you are expecting something for nothing.
as to the SS early recipients. try to think of it this way. there was a terrible problem. the old people had lost their savings. the country created Social Security to prevent that in the future. but what to do about the then current old. Simple: apply the “savings” of the still working to the “benefits” of the old. The working people would still get the full value of their “savings” plus interest when they retired, because the following generation, etc, would be paying in their “savings.” This may look backwards to you, but it works. And the fact remains, that everyone paying into Social Security is paying for their own benefits.
I would think that a Magical Monetary Theorist could understand this.
Should probably read Mosler’s book before proclaiming MMT to be magical thinking. Your description of MMT indicates you imagine it to be equivalent to Keynesianism. It’s not.
It’s not my book, though I’m flattered. You should read it before you form an opinion.
It talks about savings and investment, too. It’s not what you think.
Roosevelt agreed to calling it a tax because that’s the only way they could get it passed: Congress holds the singular right of setting taxes. The Supreme Court Chief Justice gave that hint to Roosevelt’s Secretary of Labor at a tea party; he told her that if they call it a tax he could preserve it in court. Read the SS history.
So Roosevelt set a 1% or 3% tax as a “useful fiction” as Warren Mosler calls it because the poor in those days coming out of Depression had their pride and didn’t want to get something for nothing. What that bank lobbyist, Alan Greenspan, did in 1983 was saddle every worker who earned under (now) $125,000 with an 8% tax, and every small business with the same. Anyone who earns more than $125,000 doesn’t have to pay into it equally but they get the highest SS checks. So who’s getting the free lunch?
The fact is that SS is paid out of general revenues. Nobody gets a check from the Social Security Trust Fund. It simply says US Treasury.
What you don’t understand is the macroeconomic benefit of paying MUCH higher SS premiums to seniors in light of the huge Millennial population coming online, and it is light years less than what the govt gave away to the banks. FOR FREE. The economy has to be able to sustain the Millenials’ production. Increasing what the seniors get helps with spending (aggregate demand). Just as the gravy given to the banks was simply “keystrokes,” not taxpayer money, according to Bernanke on 60 Minutes, providing for seniors at a much higher level than we are doing now is the sign of an advanced society and civilization. Your thinking is antediluvian, short-sighted and mean.
Furthermore, Dale, we have a fiat currency. Do you know how that works?
MRW
you seem to be filled with a great deal of misinformation. but the fact is that people do pay the tax, and they do get the benefits… based on the tax. i do know some of the history, including the story about “the taxing power,” but your version of it is a little garbled… at least “different from” the way i heard it.
i can’t do much with antediluvian. i understand SS. i do not understand financial fairy tales. those much higher benefits will have to come from much higher production, which means someone is going to have to work for it. the traditional way of keeping track of all this is “paying for what you get.” i have no doubt that deficit spending can work at times. i doubt you can build an economy on that basis permanently.
I won’t argue with you, but you’ve got it backwards. The only entity that can be counter-cyclical in a dead economy like now is the federal government and it does it by spending into the economy which creates the dollars it is constitutionally required to do.
Check out Stephanie Kelton’s writings on this blog. Dr. Kelton. She did her dissertation under Wynne Godley.
There is also the excellent series at Columbia Law School on MMT and Public Purpose.
http://www.modernmoneyandpublicpurpose.com
MRW
if i have it backwards its because i agree with you: yes the government is the only entity that can be counter cyclical etc. But i disagree with you that the government can keep on doing this without limit. for everyone and every purpose.
and i agree that the economy (and government) do not work for the people. it works for the banks who control it, and the companies who own the government.
i don’t think MMT will provide the answer… even if it is “correct”… because people won’t believe it. but i do think that if the people were informed and said they would be happy to pay the extra eighty cents per week each year it will cost them to pay for their own social security… that would have a good chance of happening.
Dale
you can deny the reality of how Fiat monetary systems work all you want. People still deny evolution and anthropogenic climate change…..It doesn’t make any of less true. You see this is what we in this community are all aiming and hoping for here…..a future where people are not so hopelessly confused about money and where it comes from.
Taxes do not fund anything.
If the Govt were to stop collecting taxes tomorrow….do you really believe that the Fed (the Treasury’s bank) would have to stop clearing the Treasury’s checks (to all the regulars…I know about the overdraft rules, but I’m just trying to illustrate a point)…….of course not. All the Fed’s money comes from the same place they got the money to spend $3Trillion on bonds and mortgage debt over the course of its quantitative easing policy….they just create the money from nowhere…..this is the fundamental nature of a fiat currency.
(Dale) “But i disagree with you that the government can keep on doing this without limit. for everyone and every purpose.”
This statement mischaracterizes MMT in just the same way that all flat earthers get it wrong. There are very real limits on the how much new money the Govt can add to the money supply but none of them have to do with the Govt needing to get its OWN CURRENCY from someone else. These include:
1. INFLATION
2. INFLATION
3. INFLATION
now that I got that out of the way.
4. The Govt’s normal budgeting process
5. Foreign exchange rate considerations
Here is a good rule of thumb:
If your inflation is low => your deficit is not too high
If you have unemployment => your deficit is too small
at the intersection of these two fundamental principles is full employment AND price stability (low and predictable inflation)….These need to be the only considerations when talking about Federal budgeting…..not…”where will the money?” ….such a question is meaningless.
spare me the flat earth.
i am glad you said there are limits. now the question is “who gets the limited money the government can print?”
i have tried to say that i (think i) understand the government’s ability to “print” money. and the good it can do countercyclically. i have no opinion about “the government need to get its own currency from somewhere else..” but i also find hard to reconcile “limits” with “out of nothing.”
and of course taxes pay for government spending. taxes, money, pay for… are the way we apportion resources. the government could no doubt give up collecting taxes and just print the money…. but your paycheck would either have to be reduced by the amount of taxes you are no longer paying, or the value of the money you are getting would have to be reduced to (in the aggregate) equal the amount of production in the economy, stimulated or not by the printed money.
as for the flat earth… as long as you sound like a flat earther, the burden is on you to make sense to me. i think i have a fairly open mind.
(Dale) “spare me the flat earth.”
Spare me the Magical Monetary Theory
(Dale) “i am glad you said there are limits. now the question is “who gets the limited money the government can print?”
The money gets divided based on what society says. After all, this is the purpose of representative Govt “Of, By, and For the People”. It’s just that people would make much different decisions regarding our money if they had a better understanding of how the monetary system actually works.
(Dale) “i have tried to say that i (think i) understand the government’s ability to “print” money. and the good it can do countercyclically. i have no opinion about “the government need to get its own currency from somewhere else..” but i also find hard to reconcile “limits” with “out of nothing.”
Your inability to reconcile Fiat money issuance and the effects of that money creation are your shortcomings and have nothing to do with MMT.
If your inflation is low and stable = you have no deficit problem
If you have unemployment = your deficit is too small
(Dale) “and of course taxes pay for government spending. taxes, money, pay for… are the way we apportion resources.”
This is generally untrue. Taxes are more often not representative of how we apportion resources. For example, payroll taxes probably limit SS benefits because they give people the false sense that you are paying for your own retirement and as such, benefits need to be correlated to the amount of taxes you paid in.
(Dale) ” the government could no doubt give up collecting taxes and just print the money….”
Hey, now you’re getting it….this is the baseline….all other taxing and spending decisions should be rooted in this understanding.
(Dale) “but your paycheck would either have to be reduced by the amount of taxes you are no longer paying, or the value of the money you are getting would have to be reduced to (in the aggregate) equal the amount of production in the economy, stimulated or not by the printed money.”
This statement is clumsy and because of that it is inaccurate. The amount of inflation associated with an extra dollar in Govt spending is wholly dependent on the broader circumstances in the economy. With today’s unemployment and decreased capacity utilization, the inflation return for one extra dollar of Govt sending is almost zero. However, during the economy of the late 90’s, with its very production capacity, that ratio was closer to 1 to 1 (although I would guess that it was still not that close).
it’s like talking to a religious fundamentalist. all these things appear out of thin air… like that magical government of the people sorting out who gets the money.
too many “if’s.”
there is no difference between paying for your own groceries while you are working and paying for your own groceries after you retire.
you are looking for the big rock candy mountain.
Dale,
You say “i have no doubt that deficit spending can work at times. i doubt you can build an economy on that basis permanently.”
One emphasis of MMT is called the sectoral balance. You can see a graph here:
http://neweconomicperspectives.org/2013/02/the-spinning-top-economy.html
You don’t have to read, just scroll down about one screen. Just notice, for now, the shape of the graph: the bottom is a mirror image of the top. This is real world data, not theory.
The world can be divided into three sectors: US government, US domestic private sector, and the rest of the world (Foreign sector). Each year, there are flows of financial assets between these sectors. They all net out to zero. If one has a surplus, some other sector must have a deficit. Nobody gets financial assets from outer space, they can only come from deficits in other sectors.
In the US these days, the foreign sector has a persistent surplus, known as the “trade deficit”. Because of the foreign sector surplus, one or both of the other sectors (private and government) must have a deficit.
Private sector deficits can happen, and did around 1999 and 2006 (check the graph). But they are unsustainable. Eventually the private sector would run out of net financial assets (NFA). You will remember what happened in 2001 and 2008.
You will agree that a large economy needs more money than a small one, right? From that it follows that a constantly growing economy needs a constant inflow of money (NFA). If the private sector is to grow (have a surplus), and the foreign sector is to have a surplus, then the government must have a deficit.
And the US government can do that, because it is monetarily sovereign, whereas the other sectors are not. The US government can create dollars without limit. (European nations are no longer monetarily sovereign, so countries like Greece, for instance, who cannot create Euros, are subject to the same constraints as our domestic private sector: they cannot run deficits forever, without some inflow from outside, because they cannot create Euros, so they would eventually run out. That is what’s going on there now.)
Of course, creating “too many” dollars would cause inflation, but that is the only reason not to create all the dollars needed by the private sector to maintain full employment. There are no solvency constraints for a monetary sovereign, like there are for households, or cities, or US States, or Euro countries.
The US national debt didn’t get to $16T overnight. The last time the debt was paid off was 1835, and that was followed by the depression of 1837. Since then, we have in fact built an economy on the basis of persistent government deficit spending. Every time there has been a balanced budget or a surplus, there has been a depression or recession. Most times that there has been a significant decrease in the deficit, there has been a recession.
Now look at the 1950’s and 1960’s section of the graph. The US had a small trade surplus, but the bulk of the private sector surplus was the mirror image of the government deficit. When the government occasionally and briefly went into balance or surplus, the private sector surplus also went to near zero. Those instances were followed by recessions.
All the above are facts, not opinions.
This is not a complete version of MMT, but it’s a portion that addresses your concerns about deficits. I hope it’s interesting enough to get you to investigate more.
golfer
i don’t have much problem with that. except that you go from “the government can create dollars without limit” to “creating too many dollars causes inflation.”
the problem is who gets the dollars you can create. the way this is done now is by taxes and borrowing and a limited amount of money creation that is hopefully covered by increased production.
i would agree that “now” is being badly managed… or managed in the interests of banks and bondholders… but i don’t see how MMT changes that.
The reason, ostensibly, that it is badly managed now is that our leaders think we do have a solvency constraint. At least they say they believe that. They try to manage the government budget as if it were a household. They don’t realize, or don’t admit to realizing, that it is fundamentally different. MMT makes them aware of the difference, and what Wray calls “policy space” that is available to them that they claim is not available.
Government can create dollars without limit, even to the point of causing inflation and beyond. Even deficit hawks believe that, although they don’t think it through, and so they say things like “we’re broke”, meaning we can’t spend any more, or the bond vigilantes will force us into bankruptcy. That’s just not possible for a monetary sovereign. The inflation constraint is about how much money government should create, not how much it could create. You CAN take a whole bottle of aspirin, but it’s not good for you to do it.
“the problem is who gets the dollars you can create.”
That’s not specific to MMT, but, yes, it matters both economically and socially. My preference is that government should spend what it needs to operate, for public purpose, and tax just enough to prevent inflation. Many on this blog believe government should do (spend) much more than it already does, either to further the Progressive agenda or to reduce unemployment. What it spends on, and who and how it taxes, matters. The economic issue is much more the “how much” than the “how”, but they both count.
heck, i can’t disagree with that.
but the way you usually say it makes it impossible to sell. the people won’t believe it. and the lying politicians will keep on lying.
and at the end of the day you would still have the problem of distribution.
i don’t like giving the retirees money they did not “pay for.” It makes them the lose their self respect… and that may be even more important than you realize. in any case it makes it easier for the lying politicians to take it away from them.
It’s not my idea, it’s Joe’s. I think doubling SS payments would get us a long way toward ending the recession, so far that it might be the only significant act necessary. It is true that SS recipients as a group are not Warren Buffett, and are in the “distribution” phase of their lives, spending down the savings they built up during the “accumulation” phase, and so are more likely than most to spend their increased income. If doubling SS payments is enough to end the recession, then you’re right about other interest groups wanting their piece of the action. And you’re right about some seniors feeling that they are getting something they don’t deserve. That was a major consideration in the coupling of the tax to the benefit, and remains so for a lot of people.
There are lots of suggestions on these blogs for how to increase the deficit enough to get unemployment back to reasonable levels. The well-constructed proposals come in packages, including some tax relief, some revenue sharing (for the non-monetarily sovereign states, who, without it, can only compete for NFA with each other), some public works spending (lots of decaying infrastructure), and some increases in transfer payments such as SS, Medicare, unemployment insurance, food stamps, etc. Kind of a balanced approach, so nobody is left out, and each piece is not so large as to put the whole lot in jeopardy.
except that SS is not a transfer payment. and you are still going to get the same political liars insisting that old are eating the young and we really need to give the money to Lockheed and the big banks.
see, you pay your payroll tax. and then you get your SS benefits. the benefits are closely tied to what you paid in. except there is an insurance provision, such that if you make too little money during your life to have saved enough for an adequate (barely) retirement, you get a boost, made possible by those who saved more than enough. since it’s insurance… you don’t know in advance if you will need it… it doesn’t have the effect of welfare.
“except that SS is not a transfer payment”
Wikipedia disagrees, but I don’t care. I’ll say
“some increases in widget payments such as SS, Medicare, unemployment insurance, food stamps, etc. ”
Or however you want to label it. The label doesn’t matter.
“In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system. These payments are considered to be exhaustive because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services.[1] Examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses (firms).”
it’s true the label doesn’t matter. but if you call me a communist, the label doesn’t matter except to the 99% of the people who can’t think past the label and conclude i must be a traitor.
second: don’t take wikipedia or your economics textbook as “the authority.” in the first place they are often wrong.
third, if someone tries to alert you to the fact that the word you use is misleading in some way, try to understand what he means.
social security is not a transfer payment. you pay the tax. you get your money back plus interest. try that with any other transfer payment.
since you are a proponent of MMT you must have some inkling that putting your mind into someone else’s categories is a way to make sure you never think of anything they didn’t.
now, i have given up.
“but the way you usually say it makes it impossible to sell. the people won’t believe it. and the lying politicians will keep on lying.”
What do I say that makes it impossible to sell? And how would you say it differently?
(Trying to be constructive here, because I think selling MMT is very important.)
It’s true, some of the statements inspired by MMT, taken by themselves, are startling, but they are very much backed by facts and logic. Startling statements are attention-getters, but the listener must be open-minded for them to “work”.
golfer
i am probably the most open minded person you will ever talk to. being open minded is not the same as being simple minded and believing that if you build it they will come.
when you say the government can print money without limit, you cause people to stop listening. so they never hear when the dentist pries out of your mouth… the only limit is inflation.
meanwhile your redistributionist ideas are very unpleasant to a lot of people, including a lot of working people. welfare is fine for “emergencies.” it is not fine as a way to plan your life. sure, you can get a lot of people to sign on. everyone likes the sound of a free lunch. but what you will end up with is the government owning your soul. i am sorry if that sounds “right wing.” i actually think i am opposed to right wing, who worship money, but what drives a lot of honest working people into the arms of the right wing is the ideas from the left that we can just tax the rich, or print money, and all the people sing alleluja and nebber have to work again.
Thanks. I don’t mean to sound redistributionist. I’ll watch out for that.
We haven’t been discussing the JG, but that would reduce or eliminate the need for most welfare programs, except in case of disability that prevents work (most do not).
“social security is not a transfer payment. you pay the tax. you get your money back plus interest. try that with any other transfer payment.”
Unemployment insurance. The employer pays the tax, but since it is a cost of employing you, he takes it into account when he makes you a salary offer, so it’s paid by the worker, in the end. And if you do get to collect, you get lots more than you put in, because the vast majority put in and never collect.
BTW, SS only takes 40 quarters of work into account. You can pay in for 40 years and get the same benefit as someone who pays in for 10 years. Or get nothing, if you die first. The link between taxes paid and benefits received is very loose. Just related enough so it won’t be called welfare, redistribution, etc. It’s still a regressive tax coupled with a subsidy based on age. Not that that’s a bad thing, … but the tax just isn’t necessary and is economically harmful.
golfer
you are misinformed. the 40 quarters gets you any bene benefit at all. the benefit you get is based on 35 years of paying the payroll tax (though they refer to income, its the tax that counts). if you only got paid for 4 years your benefit will be about one tenth of what it would have been if you got paid for 40 (35) years.
i really hate to sound like this.. but you don’t know what you are talking about when you talk about social security. but don’t feel bad. neither does anyone else. except maybe the people who are lying about it. some of them are pretty smart. smart enough to fool everyone else.
now, i really have given up.
You may be interested in reading this post and following the links in it.
I have trouble understanding this, because the people who beginning to receive SS today were told 30 years ago that their FICA taxes would be doubled so that the system would be solvent for good. Now they are being asked to do more; and all when the reality is that for a government like the United States which is sovereign in its own fiat currency, there is absolutely no question of insolvency, or inability to repay debts or to keep promises like the level of SS benefits that were promised to today’s retirees. MMTers know that the debt/deficit hysteria thing and the actuarial insolvency of SS is a charade based on false neoliberal economic theory. There is no need for either spending cuts or tax increases to “fund” SS. I’ve shown that in this post. There really is no more to say, and there is no excuse for asking people to pay more or get less benefits when you know very well that is not necessary.
Joe
your lack of knowledge about Social Security, but perfect willingness to pontificate about it, does not give me a lot of hope that your faith in MMT (about which I only know what you tell me) is well founded.
The doubling of benefits that will occur in the future will occur without a doubling of the tax rate. it will occur automatically because incomes will double over that time. The tax rate will need to increase about 2%. but then those workers will be living longer, and the increase in incomes is not projected to be quite enough all by itself to cover that longer life expectancy.
the increase in the tax in 1983 was “overdue.” The low, low rates at the programs beginning were possible because only a few contributors had actually retired at the time… and both the contributor population and the economy were rising fast enough to pay the benefits then needed. By 1983, and certainly by now, the program has matured to the point where the contribution rate (tax) needs to be at a reasonable level to pay the benefits that the now larger retired population will need. but the people paying the tax will also get the benefits…. essentially everything they paid in plus enough interest to cover inflation and a slowly rising real standard of living.
the people were never told the system would be “solvent for good.” that is simply not something anyone can promise. the system will be solvent forever as long as we are willing to pay for it. so far the system is the best deal workers have. the small tax raise… 2% over the next seventy years looks like it will take care of all future “expected” benefits, including well into that “infinite horizon” the liars invented to scare people with.
assume if you can that magical monetary theory is not going to work out. then calculate the costs of a minimally decent retirement, and the best way to pay for it. if you are careful the answer you get will look a lot like Social Security.
if you are going to count on MMT tell me how you are going to make sure that retirees get the money instead of the defense department. or are you sayint the government can just print an infinite amount of money for everyone who has a “need.”
You’ve misread me, Dale. The post above advocates a $3 T addition to SS’s credited assets in the form of seigniorage placed in a Treasury spending account set aside for SS payments. In the comments, I’ve also advocated doubling SS benefits, immediately! But that’s a separate proposal. If adopted, I’d also want to add another increment of seigniorage to that dedicated account to satisfy the actuaries about 75 year solvency.
Joe
while it is always possible that I misread, I believe I was responding to your complaint that the tax was doubled in 1983 and the people were promised solvency forever…”and therefore why should they believe my claim that doubling the tax would provide solvency.
i wasn’t proposing doubling the tax rate. i was saying the amount of tax collected would double because the amount of income being taxed would have doubled. my point was that no one would feel a 2% increase in the tax over that time. and i never promise anything about the future. all i can say is that the 2% increase over eighty years DOES solve the “actuarial deficit” which is what all the hoo hah is about.
i would also suggest that if the tax ever does become too burdensome people, if they are honestly informed can sit down and decide how much of their present consumption they are willing to defer in order to guarantee how much consumption they will want in the future… as far as that can be determined. a percentage of average wages is considered a good guess.
MMT has way too many ifs in it for me… at least at this time. if MMT can work, fine. meanwhile we need to stop the Petersons… and they are extremely powerful. their Big Lie has essentially conquered the country. Making it plain that we CAN pay for the huge horrible looming deficit with a tax increase of eight cents per week in twenty of the next 80 years, ought to restore sanity to the “debate.”
“collapse of … home ownership related savings”
This is looking like, at worst, a temporary phenomena that has already significantly corrected itself back toward the prior pattern of forcing new buyers to severely overpay for housing. Many local US markets did not even see much of a correction in ’08 and are currently meeting or extending their prior peaks. Homeowners today can generally be confident that their asset, when sold, will retain sufficient value to pay for a nursing home slot, especially in combination with social security payments. If the intent of such retirement social policies is to make old age abundant enough to pay for luxury vacations, I’m not really sure those working today who cannot partake of such luxuries due to their own restricted earnings should be forced to pay for those of others.
I wonder to what extent, in this age of abundance, the effect of current levels of social security payments restrict the supply of saleable property in favour of the supply of inheritable property.
Don’t worry about the supply of homes. 43% of sales last year were foreclosures or short sales, and banks still have a lot of REO to dump, as soon as they feel it won’t crush the market again. If you think prices are too high in your neighborhood, move to Phoenix or Las Vegas, where there are still plenty of bargains.
But it’s a common complaint about SS that it taxes young people who have no savings and lower than average incomes, in order to subsidize the elderly, who have accumulated greater than average wealth (and, yes, some who have paid off their mortgages) and can now afford not to work. If it were only for the poor elderly, and/or the tax were not regressive, it would be more easily justified on economic terms, but less popular.
Why do you wonder? Do you really think there is a supply problem!
First, they’re not paying for others. That’s just a fable. Taxes don’t pay for spending. They do three things. Establish the value of the currency. constrain inequality, and constrain inflation. That is what they are for. SS payments are not taking the money of young people. That should be plain to you from this post. If the Government can mint a $3 T coin to supplement SS benefits in 2033. It can certainly pay for SS today even if completely ends FICA taxes, which btw, is what it ought to do because the tax is regressive. As for homeownership, home values lost 40% or more in many areas. Millions are still underwater. People in the Condo I live in in Alexandria, VA who bought in at the height paid $380,000 for the unit I live in. That unit now sells for $230,00o, up about $30,000 from its low point, and still $150,000 below its peak, and tis is in one of the best real estate markets in the country.
Further, the banks have been holding millions of properties off the market to prevent prices from totally collapsing. That may be good for the market in the short run. But in the longer term it means that the market will not fully recover for years, if it ever does. Meanwhile people are ready to retire and all they really have is the least generous level of SS benefits provided by any major industrial nation, and still the plutocrats come again to take away even more of this meagre support for people who cannot work any longer!
Joe
the “tax” is not “regressive.” it is not a tax, it is an insurance premium, and the payout makes Social Security highly progressive. it is insane to look only at the cost of bread and call it “regressive” because poor people pay a higher percent of their income for bread than millionaires.
maundering about “regresive taxes” is a sign of “welfare syndrome.” you believe, whether you know it or not, that “the rich” should pay for your lunch. in the first place they won’t do that. in the second place it wouldn’t be good for you if they did. there ain’t no free lunch. and most honest workers i know would feel crappy if they had to take handouts from the rich for the last twenty years of their lives.
especially when SS makes it so easy to pay for it themselves.
FICA taxes are regressive in every way. Everyone should get the same benefit when they retire.
Dale, FICA is functionally a tax. That is, it takes money out of the private sector and destroys it, just as other “taxes” do. Moreover this tax is regressive in that it doesn’t even impose a flat tax on all salaries and wages whatever their level (the cap). Therefore taken as a tax it is unfair. Now, you may want to claim that the benefits are highly progressive, and we can argue that one. My view is that they are not progressive enough because they do not replace a living wage for the retired.
joe, if you just want to make stuff up because you like the sound of the words there is not much point in my arguing with you.
FICA is a tax. FICA is not a tax. if that bends your mind, there is no hope for you.
it is a tax because the government collects it, and you have no choice. it is not a tax because you get the money back with interest when you need it most. it is not “voluntary” for the same reason speed limits are not voluntary: you can’t run the country without laws that regulate the behavior of all the little free spirits who just know they won’t run out of money when they are old. the odds of them being right are very bad. and we hate to have to step over their bodies, or provide welfare (which they do not contribute to) when their best laid plans go agly.
the reason the rich do not pay the “tax” on all of their pay is that after about a 100k or so it ceases to be a reasonable price for insurance. the rich get back a lower rate of return than the poor. this is what makes the “tax” progressive, even though the average college economics professor cannot understand that.
as long as what you want is welfare and a free lunch, the “tax” will look regressive to you. frankly, most americans despise welfare and a free lunch.
as for the money being destroyed. funny that it is handed almost immediately to someone as a “retirement benefit” who almost certainly spends almost all of it almost immediately.
the tax does replace a “living wage,” it just doesn’t give you as much as you want. it does give you the value of what you paid in (or more) plus interest.
golfer
the “tax” is not regressive, in spite of what you heard in school. the PAYOUT is extremely progressive, and you cannot, in sanity, consider one side of the coin without considering the other.
of course the young have less savings than the elderly have managed to accumulate over a lifetime. that is the “way it works.” meanwhile SS is a big part of that “savings,” for some people it is the only part.
one more time: SS is not welfare. it is a government run, but not government paid, plan for people to be able to save their own money safe from inflation and market losses, and insured against losses due to disability, death, failure to thrive, and even failure to be prudent (because it is “forced” savings.) but it is NOT welfare. the young are not being taxed to subsidize the elderly. the young are being force to save for their own old age. forced, because most of them are too stupid to do it without being forced, and unlikely to be able to protect it from inflation in any case without exposing themselves to risks they can’t afford.
Dale,
We’ve had a fiat currency since 1934. Congress guarantees one part of the Medicare program in perpetuity without anyone paying into it. It’s just there, because you are an American citizen. Social Security was mean to be the same, but the Republicans were going to challenge it in 1936 unless they called it a tax.
As golfer said, read this, but be sure you get to Part 3, the public purpose part. Because that’s what the economy is supposed to be in service to. The people. Not some damn financial index. BTW, it’s a quick read.
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
MRW
thanks. i’ll try to read. but if it’s “a quick read” chances are good it won’t convince me.
i agree about the “people. not some damn financial index.” but that’s what i’m trying to do here. you are not going to get any major changes in the way we run our economy in the short run. meantime the Big Liars are going to kill social security. we could stop them by just saying… “hey, let us pay for it ourselves, as we always have. we can cover the “actuarial deficit” with a one tenth of one percent per year tax increase.”
if you are right, that would buy you time to convince the politicians.
OK, Dale. Click on that PDF and get past the blank first page (???) and read the testimonials. That ought to convince you to read it. Or you can buy the book for $20 on Amazon. Mosler gives it out for free in this format.
One thing, Galbraith’s foreword is turgid compared to Mosler’s clear plain prose. If anything, Mosler is too brief and plain in his explanations. Mosler came to his knowledge from 40 years in the business; he saw it and made a fortune from his knowledge. THEN, he discovered economists like Wynne Godley (deceased), Abba Lerner (deceased), Randall Wray, Stephanie Kelton, and Bill Mitchell (Australian).
Here’s an interview you might enjoy. It’s Warren talking to Nicole Sandler explaining MMT: Starts at 1:31:00. Glenn Greenwald is on before that for 90 minutes. Mosler’s part is about 25 minutes.
http://radioornot.com/site/?tag=warren-mosler
Dale. And another thing, the reason why Mosler decided to come forward and explain how the federal economy *really* works is because he thought the public was getting shafted. He thought the economy wasn’t serving the people it was designed and supposed to serve. He has helped save the economies of a few countries in the world for the benefit of the people.
OK, the payout is progressive as compared to the tax paid. But the payout is not related to the income or wealth of the retiree, except that half of it might be subject to income tax. I hear Warren Buffet’s wage is $1 a year, so his SS tax is 15 cents, and he gets the max ROI, just like a minimum wage worker.
Associating this tax with a subsidy based on age alone doesn’t make it a less regressive tax. And it’s a tax on wages only, the poor man’s income. Not dividends, interest, rents, or capital gains.
Safe from inflation???? You must be too young to know what inflation is. Insured against death? Yes, all the way up to $255. The young today will never get back anything near what they paid in, unless Joe F has his way and doubles their benefits.
“of course the young have less savings than the elderly have managed to accumulate over a lifetime. that is the “way it works.” ”
That’s the way it is now, not counting SS or other income streams, just assets. It was not so in the 1930’s when SS started. The elderly were the poorest group, having lost a lot of savings in the stock market crash and retirement income when their employers went bust.
If the minimum SS benefit is a person’s only income, then I am in favor of raising it. If a millionaire apartment building owner has no income except the maximum SS benefit and the tax losses on his rentals, then, no.
If the purpose is forced savings, I’m against it. People should save if they want to, not be forced to save if they can’t afford it. Savings are bad for the economy, and one can make a case that they should not be subsidized, much less forced. If government nevertheless wants to encourage saving, they should offer a tax credit for it, so that low-income people can do it without any loss of their small and much-needed income. Or simply give people a SS credit for hours worked, instead of taxing them. That is enough to make it “not welfare”, and remove the regressivity. There are any number of ways to help people provide for themselves in times of reduced income without coercion or regressive taxation.
Disability insurance is cheap and every worker should have it. That’s the part of FICA that I can defend most enthusiastically.
golfer
if Buffets wage is 1 dollar a year, he gets NO Social Security benefit. The benefit is based on the tax paid in (or the wages upon which the tax is paid). for the first 600 dollars per month or so (on average over 35 years) the benefit is about 90% of that. pretty good. but it’s paid for by the taxes paid in by those whose earning average over about five thousand a month. those people get a benefit that is about 15% of their average earnings over about 2k.
this is still a good return because the money is “wage adjusted” which means it carries an effective interest equal to inflation plus the growth in the economy. but the difference in the rate of return for the rich is what pays for that “high” return for the poor. note, however that that poor person is going to get a benefit of about 550 a month. and the rich person is going to get about 2000 a month. less percent, more money.
but you want to go from there and turn SS into welfare. FDR knew why this wouldn’t work. and frankly, FDR was smarter than you.
the young today are projected to get back exactly what they paid in plus about 2% real interest. that is a “fact”, so forget the lie based on people’s inablity to understand “present value.” There is NO magic present value bank.
as for inflation, i know exactly what inflation is. and i know what “pay as you go with wage indexing” has meant. you don’t.
and are you really saying you want to go back to the 1930’s when the elderly were destitute… because it is so unfair that today they have more savings after fifty years than their kids have after five years?
the millionaire paid for his benefit. that is what makes SS work.
as for forced savings… people are too stupid to save enough… either to save it or keep it… that is why SS has to be “forced savings.” sorry if that offends your libertarian heart. do you ignore traffic laws too?
i am afraid the rest of your comment degenerates into wishful thinking.
Dale
I fall firmly in the camp of believing people are too stupid to save enough for their retirement. However, SS is not “forced savings” in any way. FICA is just a tax like everything else, the most that can be said for the amount of FICA taxes you pay is that they help to determine the dollar amount of your SS benefit when you retire (a wholly stupid concept IMHO).
a wholly stupid concept
that has kept old people out of poverty for over seventy years.
Dale
You need to work a little on your comprehension abilities. Nonsequitur responses are the surest sign that you are out of your depth at present. You should really spend some time reading the economic literature about MMT and the workings of the monetary and fiscal systems. Then you’ll be better equipped to contribute more relevant posts.
You would also be better served by being a little more intellectually honest. For example, no honest reading of my statement……
“FICA is just a tax like everything else, the most that can be said for the amount of FICA taxes you pay is that they help to determine the dollar amount of your SS benefit when you retire (a wholly stupid concept IMHO).”
could be interpreted to say that I think SS benefits should be lowered. You are willfully misinterpreting my statement most likely because you can’t refute any of the substance inherent in my claim.
It is a stupid idea to base someone’s SS benefit on the nominal amount of dollars they paid in FICA taxes because the people who paid in the least amount of dollars are going to need the SS benefit the most. We should set a minimum standard of living for our retired citizens. Everyone gets the same base standard of living (above poverty levels…like I should even have to say this explicitly) and if you made and saved more money on top of this….then good for you. As a corollary to the equality of benefits….everyone above a certain income level ($50,000 IMO) should pay an equal share of their income in taxes (maybe 20% as a baseline and adjusted up or down a any number of % depending on the level of inflation\unemployment). I personally think we should set an effective maximum income for a year (90% tax above ~$20 or $30 million) although I am sure many people would disagree with me on this last part……and who knows….maybe on the first 2 parts as well.
So there you have it….spelled out as plain as day for you, so that you can’t possibly misconstrue my positions on the matter.
Good luck and I really hope you’ll take some time to better educate yourself on the subject matter at hand.
Auburn
do you live in a padded cell because nobody understands you?
you called it a stupid concept. and call it a stupid comment again here. all i said was this stupid concept has been keeping old people out of dire poverty for seventy years. how is that a non-sequiter?
i may be out of YOUR depth. but i am pretty comfortable in mine.
Uh Dale….everyone here can understand just fine thank you.
Once again you have failed to comprehend or reply to any substance….non-sequitur
I agree SS is not welfare. From my point of view, it is part of the economic bill of rights and is an entitlement in the best sense of the word that every American is due when they retire. When anyone talks about taking away what I am entitled to, and making life more difficult for me, especially when my government has no solvency problems in paying the benefits specified in that entitlement program, I start thinking really nasty thoughts about what ought to happen to people who want to take away my right to a decent life. I get very pissed off at those people and very dedicated to beating them at the polls. Then when they start rigging elections I start thinking even worse thoughts about what ought to happen to them, which in the interests of civility I will not mention.
So, yes, I agree that SS is not welfare. It is an entitlement, because it is a right!
it is not welfare because you paid for it. most directly. that’s why they can’t take it away from you.
if you just had a vague constitutional right to “income in old age” that would be welfare. that is, someone else would pay for it.
i believe… not sure… most european countries do it the welfare way. and you (they) can claim they paid for it because they paid general taxes. this is not as direct as the way we do it. and in america at least, that “right” wouldn’t last one election cycle before they started means testing it, or cutting it.
Come on Joe
The only reason you don’t want to call it welfare is because of the negative connotations attached to the word. It functions just like welfare….its just for everyone and welfare is only for “those” people. I am comfortable with calling it welfare for everyone….because life is hard enough for many people without having to worry about being able to survive when they get too old to work anymore.
You’ve laid out the advantages of this proposal well. It’s a nice work-around those meddlesome constraints on Treasury “borrowing”. And a work-around the uncooperative House.
But the problems with the platinum coin persist. *Most* people will totally freak! They won’t understand it. If they understood it, we wouldn’t need the work-arounds. Congress could dispense with the pointless constraints on Treasury debt now.
The president’s never going to go for a gimmick that raises questions in the public’s mind over the validity of its currency or could undermine general confidence in the soundness of the money system. There’s no end to the parade of right wing demagogues who would assert he had done just. The House will throw a conniption fit. Fear mongers would stir up another “Inflation is Coming! Inflation is Coming” crusade. Bernanke, who himself said just days ago, “Perhaps the central insight is that the recent crisis, despite its many exotic features, was a classic financial panic, a system-wide run on hot money away from assets whose values suddenly became uncertain,” is unlikely to reassure the president the coin plan won’t unsettle things.
It’s a nice dream though. Treasury could mint enough to pay off the SS fund and enough to fund restoring the employment tax holiday, or better yet, bringing it from its former 2% to 6.2% or all the way.
One could say that Ben is undermining the soundness of the money system by creating unlimited reserves to purchase worthless assets, but the might cause a panic so let’s not say it.
The Fed doesn’t suffer a Big Price from its gimmickry due to its relative autonomy and because most of the heavy hitters who watch it most closely (eg Wall Street) usually directly benefit.
The average Joe and Jo Citizen don’t understand what the Fed does, period. They may have a vague notion that it has something to do with their bank’s interest rate offerings and that it insures their bank deposits but that’s about as far as it goes. I’m tempted to quip those who take a closer look and get all worked up about it don’t take up pitchforks-they buy gold. But I would not be entirely honest–there are enough “worked up” about the Fed to give Ron Paul a platform. And it could be argued the Republican party mainstream has paid a price they could ill afford on that front. The Occupy movement is none too happy either, but I don’t think they’re concerned over the soundness of the dollar but the about the soundness of “the system”, esp the lack accountability and reform imposed on WS.
I did enjoy the irony there.
Fed chair diagnoses the crisis as “classic financial panic” triggered by fear of toxic assets. Fed chair mends the “classic financial panic” by grabbing a number from nowhere to price them with and printing their own new money to buy them.
There, there, Dr. Bernanke says soothingly. Now we’re All Better again.
Demythify,
MMT needs a subhead: How Things Work, or How The Economy Really Works, and It Ain’t Theory.
The President and Congress remind me of the Inquisitors and Cardinal Robert Bellarmine who burned the Dominican friar Giordano Bruno in a public square for claiming that the Earth revolved around the Sun. And claiming that the universe is made up of infinite atoms. (During the six years before his burning at the stake he was accused by Fra Celestino, who deposed him for the Inquisition, of saying that if he had to go back to being a Dominican friar, he wanted to blow up the monastery and that “Christ is a dog cuckhold fucked dog; he said that the ruler of this world was a traitor, because he did not rule it well, and raising his hand he gave a finger to heaven.” From: Giordano Bruno Philosopher/Heretic by Ingrid D. Rowland, pg 247.
The situation often reminds me of stories of the hysteria (possibly exaggerated) caused by the “loss of days” upon the adoption of the Gregorian calendar, or sets me thinking about the immense and completely unpredictable scenarios probably weighing on Pope Urban’s mind when Mr. Smartypants Galileo shows up with self-evident facts kicking the legs out from under the christo-aristotelian *everything* underpinning western culture for the past 1000 years.
Change doesn’t come quickly. Usually. And when it does, it’s usually because the situation’s deteriorated so’s people don’t see much risk in change. They are no more rational, imo, in such situations. Just more salable. They’re pulled by “good sounding” ideas, be they really good or bad, and the rational “justification” for these ideas is rote-learned after.
And frankly, sadly, I don’t rest easy with the idea of the tools of MMT put in the hands of a not-so-rational populace. It’d be like giving a no-limit credit card to appease *every* special interest (and the system we have in place now at least has some clumsy braking mechanism with them vying against each other). We don’t have a solid “common good” framework for it yet, and we certainly don’t have the basic economic literacy skills in place. The “common good” as most would define it today is a manichean “greed is a good”/”rich don’t pay their fair share” cage match, one loaded with moral self-righteousness there’s No Way MMT won’t quickly become a misused toy in either of their hands.
Gotta prepare the field, is what I’m thinking. Crop won’t grow right if the groundwork isn’t there.
None of that will happen. The President would announce it one day, and say that SS is now solvent, and nothing else has changed, because no money has been spent. The Rs will grouse about it. Fox will make a fuss. Things will go on as before; but President O won’t have to talk about cutting SS anymore. This will improve things for the Dems in 2014 and that is all that will happen.
Well, this is my prediction.
If the president announced it one day, and said SS is now solvent, the Rs would kick up the same kind of dust over the president’s pronouncement as the dems did when Ryan claimed his plan made SS solvent. The seniors will get all worked up the fund’s real moneys they paid into for 20-30-40 years were switched with monopoly money. And in 2014 the Dem’s are on the ropes over questions of SS “where’s my money” and solvency rather than the Rep’s on the ropes over God planned rape babies and self-deportation.
MMT is real, real good about how money do. It has some catching up to do about how people do.
What if the president simultaneously announced that seniors would receive double the benefit. Would they be as up in arms about monopoly money ?
yes.
people understand getting what you paid for better than they understand “money.”
doubling SS without doubling the tax (or doubling the income that is taxed) would add about 700 billion dollars to the economy. fine if you can add 700 biillion dollars worth of goods and services… but that might be a bit tricky…. especially when everyone else starts demanding their share of “free money.”
OK, somebody, what’s the current size of the output gap? $900B sounds familiar, but I can’t say for sure.
It wouldn’t be all at once, it would take a year for all $700B to get paid out. In a $16T economy that’s, what, a little under 5%real growth? Seems very feasible to me.
okay. feasible. now fill in the details. include the politics.
I like Mosler’s set of proposals. You can see them on his web site
http://moslereconomics.com/2012/01/10/proposal-update-including-the-jg/
My internet is agonizingly slow now, or I’d cut and paste them for you.
mine is slow too. as am i. it is kind of you to offer it… and i will try to look at it.
but you really need to make your case without sending people “to the library.”
My proposals remain:
1. A full FICA suspension:
The suspension of FICA paid by employees restores spending which supports output and employment.
The suspension of FICA paid by business helps keep costs down which in a competitive environment lowers prices for consumers.
2. $150 billion one time distribution by the federal govt to the states on a per capita basis to get them over the hump.
3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.
Call me an inflation hawk if you want. But when the fiscal drag is removed with the FICA suspension and funds for the states I see risk of what will be seen as ‘unwelcome inflation’ causing Congress to put on the brakes long before unemployment gets below 5% without the $8/hr transition job in place, even with the help of the FICA suspension in lowering costs for business.
It’s my take that in an expansion the ‘employed labor buffer stock’ created by the $8/hr job offer will prove a superior price anchor to the current practice of using the current unemployment based buffer stock as our price anchor.
The federal government caused this mess for allowing changing credit conditions to cause its resulting over taxation to unemploy a lot more people than the government wanted to employ. So now the corrective policy is to suspend the FICA taxes, give the states the one time assistance they need to get over the hump the federal government policy created, and provide the transition job to help get those people that federal policy is causing to be unemployed back into private sector employment in a more orderly, more ‘non inflationary’ manner.
I’ve noticed the criticism the $8/hr proposal- aka the ‘Job Guarantee’- has been getting in the blogosphere, and it continues to be the case that none of it seems logically consistent to me, as seen from an MMT perspective. It seems the critics haven’t fully grasped the ramifications of the recognition of the currency as a (simple) public monopoly as outlined in Full Employment AND Price Stability and the other mandatory readings.
So yes, we can simply restore aggregate demand with the FICA suspension and funds for the states, but if I were running things I’d include the $8 transition job to improve the odds of both higher levels of real output and lower ‘inflation pressures’.
Also, this is not to say that I don’t support the funding of public infrastructure (broadly defined) for public purpose. In fact, I see that as THE reason for government in the first place, and it should be determined and fully funded as needed. I call that the ‘right size’ government, and, in general, it’s not the place for cyclical adjustments.
4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.
Here my presumption is there’s more to life than burning our way to prosperity, with ‘whoever burns the most fuel wins.’
Perhaps more important than what happens if these proposals are followed is what happens if they are not, which is more likely going to be the case.
First, given current credit conditions, world demand, and the 0 rate policy and QE, it looks to me like the current federal deficit isn’t going to be large enough to allow anything better than muddling through we’ve seen over the last few years.
Second, potential volatility is as high as it’s ever been. Europe could muddle through with the ECB doing what it takes at the last minute to prevent a collapse, or doing what it takes proactively, or it could miss a beat and let it all unravel. Oil prices could double near term if Iran cuts production faster than the Saudis can replace it, or prices could collapse in time as production comes online from Iraq, the US, and other places forcing the Saudis to cut to levels where they can’t cut any more, and lose control of prices on the downside.
In other words, the risk of disruption and the range of outcomes remains elevated.
Demythify
It can certainly not be denied that right wingers will scream from the mountain tops that the evil Govt is debasing its own currency….it logically follows that once they are done screaming and the people see that inflation still hasn’t come (just like it hasn’t come from the addition of $6Trillion in new Govt money since the crash) and maybe, just maybe at this point more people will begin to question their conventional wisdom about the nature of money. I think that every one of us in this community should welcome a real life battle between our proposals (with our predicted outcomes) and the lies the flat earthers tell about the outcomes of our proposals. You can only be proven definitively wrong so many times before you start to lose some credibility.
That’s plain unrealistic! People in DC and New York will freak. When Obama explains that he’s ensured the solvency of SS for umpteen years and there’s no more need to do any cuts in it, and there will be no immediate spending increases and therefore no danger of inflation, 99% of the people will say: great, Mr. President! I’m so glad you handled it, so we don’t have to cut SS at the next debt ceiling crisis. That’s all that’s going to happen except for a lot of Republican noise, which will be masked by the sounds of Democrats celebrating because the President finally acted like a President instead a community organizer.
Bush looted the Trust Fund in order to give tax cuts to the rich. )”It’s your money!”)
What’s to stop the same thing from happening in this scenario?
Bush did not loot the Social Security Trust Fund. There is no such thing. There is a Social Security Administration and they control a loose basket of insurance programs. But when you get your SS check it says US Treasury. That’s who writes the check. Comes out of general revenue.
Taxes do not contribute to general revenues. They are used to heat up (lower taxes) or cool down (higher taxes) the economy. They control inflation, and we are decades away from having that happen at this point.
Read “Taxes For Revenue Are Obsolete” written by the the former Chairman of the Federal Reserve Bank of New York just after the war (1946) to explain to policy makers the effect of going on fiat currency before the war.
http://www.huffingtonpost.com/warren-mosler/taxes-for-revenue-are-obs_b_542134.html
Then read this: “Taxpayers do not fund anything” by Bill Mitchell (he’s an Australian economist. It’s the same in Australia, England, Canada, and Japan, in any country that is monetarily sovereign like we are.)
http://bilbo.economicoutlook.net/blog/?p=9281
Obama needs to lower taxes, give us a full payroll tax holiday for the remainder of his term, and start spending LARGE on infrastructure, education, and research. But he doesn’t understand shit from shinola about how federal accounting works, as we all did on this board at one time, but he refuses to learn it. So it is left up to the commenters on this board to get the word out, and force people to do their homework and verify that this is the truth.
MRW writes, “Bush did not loot the Social Security Trust Fund. There is no such thing.”
Correct. There is no “trust fund.” It does not exist. It is an accounting fiction. Can anyone locate it? Point to it? Even the last of Social Security checks will vanish on 1 April 2013. Everything is by direct deposit into the bank accounts of SS recipients. It’s all just numbers in computers, created from nothing. Even the blog post above, in its first sentence, says “As of the end of 2012, the ‘trust fund’ had nearly $2.7 trillion in it.”
Huh? Where does that author get that strange number? From Paul Ryan? Pete Peterson?
When people use the mythical term “trust fund,” they sustain the illusion that money is physical, and therefore limited. This illusion of scarcity lets politicians cut social spending in order to serve the rich, who want a wider wealth gap between themselves and the rest of the population.
By the way, I disagree with you that Obama “misunderstands” how federal financing works. Obama consciously and willingly serves the rich, as do almost all politicians. That’s why they all favor austerity by cutting social programs and / or increasing taxes on the midle and lower classes. Austerity is an attack by the 1% on the 99%.
Mark robertson,
I don’t think Obama knows. I think he believed what Timmy Geithner and Larry Summer told him. I remember catching him looking beleaguered early in his 1st term asking for any ideas to fix the economy. I think the people advising him, a couple, know the drill. We know from Warren’s book that Summer doesn’t understand reserve accounting. He admitted it in front of Tom Daschle. I think that was who it was.
But you know what? This train has left the station. Maybe not this year, but by the end of next, 2/3 of this country are going to know about MMT. It is going to be a painful 2016 election time for any congressman or senator who doesn’t know how the economy works.
Mark robertson,
I am hoping against hope that the famous British filmmaker that just spent time with Warren in St. Croix and Stephanie Kelton in Kansas is Adam Curtis. If it is: game over.
MRW, I agree with your observation about Obama’s naivete. Tim Geithner is a banker, not an economist. I don’t know what Larry Summers is other than a giant ego. Obama learned about banking from his grandmother, and sees the economy as one big family budget with taxes equating to income.
I’m not sure about your assertion that by the end of next year 2/3 of the country will know about MMT. I am certain that not more than 2/10 of 1% of Congress understands MMT right now. If 2/3 of the people do understand MMT by next election, the s**t will really hit the fan, but I’m not holding my breath — just putting on a face mask and trench coat in case you’re right.
” Maybe not this year, but by the end of next, 2/3 of this country are going to know about MMT”
Wow. I hope you’re right, but how will it happen? Is there going to be a blockbuster hit movie?
Of course, “the Trust fund” is an accounting creation. But the credit totaled in the accounting books is nearly $2.7 T at this point. That total comes from the SS Trustees report I linked to above. The total represents credits to be used to pay retirees in the future. Since the Treasury has no limits in its ability to raise money by taxing, borrowing, or through seigniorage, that money will certainly be paid when it is due. The people who are worried about SS solvency are people who claim that no payments can be paid to retirees unless there is a positive balance in the SSA books. But, of course, this not true. First, because Congress always has the choice to suplement the “trust fund” in various ways. And second, because as I’ve made clear above the Executive can supplement that “fund” too by using PCS.
MRW
I thought I had read all of Mosler’s posts over a t HuffPo….That article from the Fed guy in 1946 is amazing. I am so glad that you posted that link….I’ve already got it bookmarked and I can’t wait to work that into my future arguments. I couldn’t believe how accurately he described everything…pretty amazing for a guy without a computer.
Thank you for providing that most excellent source for the class.
casino
nobody looted the Trust Fund. it’s still there. paying interest. it’s what keeps SS solvent while the Boomers are getting more in benefits than the current workers are paying in taxes. the boomers paid that money in… more than the then current retirees were getting in benefits. that is where the Trust Fund came from. that is what it is for.
the “looted Social Security” is part of the Big Lie. sadly it is a lie the left likes to tell as much as the right.
MRW below is sadly confused about the relation between SS, general revenue, the Treasury… as well as taxes and general revenues.
Dale Coberly writes, “Nobody looted the Trust Fund. It’s still there, paying interest.”
Wrong. You cannot locate this supposed pool of money. You cannot prove that it pays interest, or that it even exists – because it doesn’t exist. It is an accounting fiction. Social Security payouts are created out of nothing, simply by crediting the bank accounts of recipients. How do I know? Because each month 62,175,000 people receive direct SS deposit into their bank accounts (as of 19 Mar 2013).
Thus, the FICA tax does not pay for SS, any more than income tax revenue pays for the federal government.
And if this “trust fund” existed and paid interest, as you falsely claim, then the interest would once again be created by simply by crediting the bank accounts of interest recipients.
You have been seduced by lies and delusions, yet you claim that reader MRW is “sadly confused.” It is you who are confused.
(By the way, in the English language, each sentence begins with a capital letter. Just a thought.)
These days 97% of money exists only as book entries in bank computers. However, the Social Security Trust fund exists as US Treasury Bills that pay interest. Whether it is in the form of pieces of paper or computer book entries, I don’t know, nor do I care. When the landed gentry drafted the US Constitution in 1797, all money was issued either in the form of metallic coins or paper notes. Now that we have computers doing most debits and credits electronically, the Constitution perhaps needs amending to take this into account.
Frank
thanks. the constitution doesn’t need amending. Mark’s understanding of money needs amending. Most “money” exists only as “accounts.” Currency is just a very convenient way of keeping “accounts”….
[lord, i hope i don’t have to explain that.]
the fact that “most people” think of “money” as currency or “gold and jewels” is what enables the Liars to take their yearly trip to the Treasury and point to the “worthless iou’s” that make up the SSTF.
same “worthless iou’s” that you get when you buy a bond, or get a government check. or even get cash… another “worthless iou” except that as long as it is honored, why, as if by magic, it becomes “not worthless.”
imagine that.
It’s possible they are concentrating on the SS ploy (aside from the fact that David Rockefeller’s lackey, Peter G. Peterson has long been pushing said financial fraudster ploys) is to redirect people’s attention away from what the Dodd-Frank legislation is really about (bailouts at the clearinghouse level by both the Fed and US Treasury, away from public knowledge and scrutiny) as well as all those energy swaps being converted to energy futures, yielding greater massive potential for financial manipulation of the energy markets, while moving the control towards their InterContinentalExchange, the premier exchange for energy price speculation. (And since ICE bought the NYSE, now ICE and NYSE and DTCC own one another and are in turn owned by the banksters/oil companies, and what clearinghouse and financial exchange ISN’T owned by the banks, after all?
ICE hasn’t bought NYSE yet.
http://www.ft.com/intl/cms/s/0/409a004a-921e-11e2-a6f4-00144feabdc0.html#axzz2Oy2FtPFo
If you know who financed (owns) ICE, and the DTCC and the NYSE and the financial interlocking between them, you already know it’s a done deal — and if you don’t know, you should . . . .
sgt_doom ,
There should have been a “just” between “NYSE yet,” followed by a smiley face.
@Mark R.
Does your condescending attitude and pomposity ever end? Paraphrasing MS (RMM) does not an expert make. There are many that disagree that the USA is in reality behaving as a true monetary sovereign. Though it certainly could do so if the political will existed. Dogmatism is not conducive to the creation of viable solutions.
The idea of using a platinum coin to fund the treasury is a new one and will be viewed as merely silly, especially when linked to spending in 2033. Some will attack it as quackery. I think the proposal for the platinum coin should be put forth solely as a financial one and only to pay for the debt. Such a use immediately ends the discussion of default and the debt limit. That idea will quickly evolve into funding the deficit. But, initially, if you mix this with fiscal funding you will raise the specter of hyperinflation and full on quackery.
Naaah, Jon. Putting off any spending of the money until 2033 will remove any notion of quackery, and using it then to cover any probable shortfall in the credits needed to pay benefits will be seen as wise and cautious. After QE, and bailing out the banks with TARP, no one will think that taking SS cuts off the table using PCS is quackery, and if the Bernanke suggests it, I hope the President will reply by making the comparison and pointing out that he’s extended more than $29 T in credit facilities to the insolvent big control-fraudulent banks as of 2011, if I recall correctly. God knows what that figure is up to now.
Ok but my preference would still be not to mix the idea of the coin with fiscal funding. Use the coin to eliminate any concern over the deficit and the debt. That immediately renders the debt limit debate moot, since the treasury is authorized to pay the debts. Once that is fully understood any funding problems for other spending fall away.
On the bail outs, given what is going on in Cyprus maybe we should be happy with Big Ben and his QE. Anyway, Ben likes to walk on both sides of the street. I’ve given up trying to figure him.
This whole SSMM funding is straight up BS to me, but our leaders need something to fuss about.
I certainly agree. I’d much rather do the $60 T plan and be done with all that nonsense. That’s what my book is about. But the SS issue is coming soon. And I think it’s good to have this proposal out there. to show that Obama has no excuse for SS cuts.
One other thought on the coin. Once people accept the idea that our deficits can be funded out of thin air, the need for the coin simply disappears. If debt is no problem for the sovereign issuer of the currency, the debt limit, the need to issue treasuries, as well as the platinum coin become meaningless. So I view it as a stepping stone to educate the PTB on the nature of money. We then need to move the discussion to the real economy and available resources as the constraint on spending and deficits.
I always thought that the point of the big coin, and the only real point of the exercise, was to reveal that the truths that we know in our bones to be true, without really thinking about it, are actually lies. We don’t really need a big coin any more than we need a “fully funded trust fund” – whatever the hell that’s supposed to mean. What we need is a political, cultural, and I dare say moral climate in which those who carry water for the plutocrats are forced to explain why the coin is “silly.” And why, for that matter, a large, powerful sovereign nation with an advanced industrial economy cannot allocate the resources necessary to meet the most basic needs of all its citizens.
Unfortunately, what we get from MMT are endless pleadings to be understood – as if MMT is difficult to understand. As if perhaps the Czar would one day peruse our heartfelt petition, and the scales would fall from his eyes, and he would finally clear the block to his understanding so that he could finally really help us laboring peasants. The reality is that the Czar understands perfectly well – his servant Bernanke even revealed as much on 60 minutes – but he has no interest in helping the peasants. The reality is that the Czar is himself the enemy. The peasants, alas, must help themselves.
inclined to agree with you about the czar. not so sure MMT is “easy to understand.” at least not for me. i think i see too much wishful thinking and a determination to ignore the “what next?” as in, “how do you allocate this free money?”
bust as for “fully funded Trust Fund,” that is nonsense. at least, the Trust Fund is fully funded when it contains as a reserve, “one full year of (expected) benefits.” It currently has about three or four years of expected benefits, and since there is not expected to be a time when we have zero payroll taxes for a full year, a years worth in reserve will last quite a bit longer… on the order of ten years. that picture will change… sort of. the current “three years” or so will last about another twenty years. but it doesn’t matter when it “runs out” since, first, the “as we go” taxes will still be sufficient to pay for 3/4 of “promised benefits” and that will actually be more than current benefits (or current benefits were a few years ago when Professor Rosser first pointed this out…. in any case not the end of life as we know it. Meanwhile.. the payroll tax could be increased one tenth of one percent per year and the Trust Fund will never fall below “fully funded.” while the tax is being increased one tenth of one percent, real wages are projected to go up over one full percent per year. This is perhaps problematic, as real wages might not be going up as expected. But even then, that extra 2% tax would fund a “full” retirement, and you would never miss the 2% out of your wages. I guarantee that.
how about this Dale…..no higher taxes for the working people. You keep saying that all we need is a little more tax on the working folks and SS will be fully funded…..The crucial point that you are missing is that there is no need whatsoever to raise taxes on the working folks. Taxes are already way too high to allow for full employment given the size of our current Govt spending (as a % of GDP). All we need to do is choose to fund SS. There is no such thing as getting the money from somewhere else to pay SS benefits. Taxes do not fund Govt spending in any meaningful sense.
parks
with all due respect, that may sound reasonable to the converted. it might even be true for all i know. but for the unconverted it sounds like nonsense.
SS is not a “tax.” it is a way to save your own money for your own needs after you stop working. what makes it different from ordinary savings is that it is guaranteed against inflation, market losses, theft, and your own personal failure to be able to save “enough” for a minimally decent retirement.
you are claiming that you can just pull the money out of thin air. but others here have admitted you can’t do this without limit. so the question becomes who gets the money you create? and the further question is why should the people live on welfare when they retire? heck, why not just pay the people that created money while they are young and can enjoy it so much more?
meaningless drivel….substance and understanding free
I would say that Social Security is a form of insurance rather than a tax. You get your payout when you turn 62/65, but the longer you live, the more you receive 😉
In the UK, social security, unemployment insurance and the national health service are funded by a single payroll deduction on all earned income with no upper limit, which are called “National Insurance Contributions.” A record is kept by the government of your National Insurance and your payout at age 65 is related in some way to what you paid in. It also covers all medical expenses, such that no NHS hospital has a billing department. All NHS doctors are on a fixed salary so there is little incentive to game the system. This is why healthcare in the UK costs 8% of GDP compared with 17% in the US and everyone is covered from cradle to grave.
Frank
thanks. i’d offer two comments:
first, SS is definitely insurance, but i hate to see people get hung up on words, especially “one word to rule them all.” SS is what it is. mostly insurance, but in some respects a “tax,” and in some respects a “savings plan” or even an “investment.” it is what it does. and the people who insist on calling it by one particular word are either “word bound,” or they are trying to force inappropriate connotations.
second, England and Europe are comfortable with paying for old age benefits with a general tax (no cap). I don’t think that would work in America at this time. “The Rich” have gotten too used to seeing themselves as tax victims. My own “psychology” prefers to pay for my own retirement, and certainly doesn’t want to see a country where the kind of people who want to live on hand outs have won the day. I don’t mind taxing the rich, but I’d rather do it for “national purposes.” My retirement might become a national purpose, but I’d rather it didn’t. On the other hand, if I was so poor nothing else would do, I’d be grateful.
I think folks should fix Social Security the way it is (tiny raise in the payroll tax), and spend their time and energy finding a way to get better wages for workers…. or at least a better life even at a lower level of consumption (more time for better things than “working for the boss.”
“My own “psychology” prefers to pay for my own retirement, and certainly doesn’t want to see a country where the kind of people who want to live on hand outs have won the day”
It is really a question of whom you trust the most with regard to your retirement savings and their ultimate payout. From my perspective, I believe in a social safety net regarding disability, retirement and single payer healthcare, since at the end of the day, the government can easily create the funds necessary to do this. Sovereign governments cannot go bankrupt, but private corporations can and do, taking your retirement funds with them on occasion.
Frank
absolutely. That’s what Social Security is. The problem we are having now, though, is nothing to what the problem would be (in America) if there was no chain of ownership, or “claim” of ownership. If “the government” just provided retirement, getting the money from “the rich” or “out of thin air,” the political powers that say “give it to me instead” would have nothing to stop them.
I don’t object to MMT so much (if I understand it) but I don’t see that it is all that different from what we have now (except for the lies and hysteria about deficits), and I don’t see that the politics of “keeping” your retirement would be any easier if the worker couldn’t say “I paid for it myself.”
“I don’t object to MMT so much (if I understand it) but I don’t see that it is all that different from what we have now (except for the lies and hysteria about deficits),”
But the understanding of deficits is HUGE. It is the result of the defining difference between MMT and what we have now. It derives from understanding monetary sovereignty. If monetary sovereigns only acted like they were monetary sovereigns, much of the suffering in the world (virtually all of the suffering caused by poverty) would be eliminated.
golfer
as far as i understand it the u.s. government today prints money at need to stimulate the economy, as do the banks. they just don’t call it that, because it is more fun to be able to politically scream about deficits.
and, again as far as i understand it, MMT does not solve this problem. your rhetoric about “unlimited” falls by your admission of “except for inflation” . and your printing and destroying money looks functionally equivalent to spending and taxing. with the disadvantage that you have a lot of people now thinking money is manna from heaven and all they need to do to get it is to have a friend in Washington.
AND your remark about “death insurance” once again suggests you don’t know anything about Social Security. I’ll let Frank answer your questions about UK insurance, but it sounded to me like you have been reading all the propaganda without doing your homework.
Personally, I think that MMT is defective. I would much prefer to see HR 2990 enacted, whereby fractional reserve banking would be abolished and the US Treasury create all money debt free.
http://www.govtrack.us/congress/bills/112/hr2990/text
I don’t see any posts criticizing this proposal.
Corruption is government is something that all of us should be concerned about and reforming the monetary system would put a brake on a lot of it.
Dale,
“as far as i understand it the u.s. government today prints money at need to stimulate the economy, as do the banks. they just don’t call it that, because it is more fun to be able to politically scream about deficits.”
No, they refrain from “printing money” as needed, because of the screaming about deficits.
That simple misunderstanding shows that you have not been reading and learning about MMT.
but i have been reading about MMT. right here. and I have been trying to be open minded and tell you what i don’t “understand.” remember, YOU are the salesperson here. so don’t tell me i have to buy your book before i can understand why i should buy your book.
as for what the government, and the banks, are doing now… i still believe they are creating money, just as you say MMT will. they may not be creating enough of it, but that is still what they do.
and you STILL have the distribution problem… only worse. at least the way we do it now there is a “chain of (claim of) ownership.”
“a social safety net regarding disability, retirement and single payer healthcare”
I think the safety net analogy pretty accurately describes our current system. The safety net prevents death in a fall, it does not prevent the fall. Americans today who suffer catastrophe in their retirement funds, or their health, or disability, (or simply cannot afford any of them) are not allowed to fall to the pavement, the safety net catches them. But it doesn’t restore them to the high wire from which they fell.
Programs to provide a comfortable retirement income, or full medical benefits, regardless of whatever other assets or income someone has is not a safety net, it is a guarantee of not falling from the high wire.
Dale,
It’s not my book and you don’t have to buy it. It’s free, a PDF download at Warren’s site. (Although Joe F. has inspired me to write my own book. It’s started, but progress is slow. Too many interesting discussions on the blog here.)
“they may not be creating enough of it, but that is still what they do.”
Yes.
“and you STILL have the distribution problem… only worse. at least the way we do it now there is a “chain of (claim of) ownership.””
That would not change either.
MMT is often said to be a description of the system we have now, rather than a “theory” as such. Some parts of MMT, such as the JG, are described as prescriptive, suggestions of new things to do that would make the economy better. Actually I don’t know of any other parts that are that way. Most of it is about how money flows into, out of, and through our economy, how it is created and destroyed and traded for other (real and financial) assets.
The descriptive part of MMT points out certain facts about the current system that other economic schools of thought (better word than theories, I think) seem or pretend not to realize. Thus the title “innocent frauds”. Government acts as if it were not monetarily sovereign, even though it is. It’s like having a car and not driving on the freeway, because you think it’s a golf cart.
Once you understand how money works in our system, different ways of managing policy become obvious. The size of the deficit, for instance, should not be a policy objective. Inflation and unemployment should be the policy objectives. Indeed, MMT points out that the size of the deficit is not really a controllable policy variable at all, but is endogenously determined, and austerity will cause higher deficits, not lower.
Some things about the current situation are universally acknowledged by economists. When government proposes to spend less and tax more, economists revise their growth forecast downward. And yet, in the name of growth and prosperity, that is exactly what political leaders of both parties propose to do. They do that because they are managing fiscal policy according to the size of the deficit. It’s like steering the car according to how much gas is left in the tank, instead of by the lines on the road. You’ll end up in the ditch, right where we are now.
Some things about MMT suggest changes to our institutions and laws. For instance, there is a law that requires Treasury to issue securities in the amount of the deficit each year. But if the government, as a monetary sovereign, can create money, then it need not borrow it (or collect it in taxes) in order to spend it. Treasuries then are only a tool to help control the interest rate, not a way of getting money to spend, and we might repeal that law and enact a new one reflecting our new understanding.
And if government does not need taxes in order to spend, then the purpose of taxes is only to regulate inflation. That different purpose might suggest a myriad of ways to reform the entire tax system.
But MMT in itself only describes how it works, and does not require any changes in the laws or institutions, except for JG and truly full employment.
I have a lot less problem with that than you might think. Still, I think it’s going to be a hard sell. People like to see a connection between what they do and what they get. And your rhetoric, at least, abolishes that connection. The only people I see embracing it, present company excepted, are the kind of people I would not trust in my house.
On the other hand I am very much in favor of using money policy to improve the conditions of workers… rather than improve the conditions of bankers and bond holders. Because, contrary to what they say, I don’t believe that if the bond holders sulk the economy will crumble.
On the other other hand, I have a hard time believing you could regulate money “creation” without getting into worse politics than we have today.
Meanwhile… please note I have done a worse job convincing you about raising the payroll tax one tenth of one percent (eighty cents per week) per year, than you have done convincing me about MMT (sort of). So take another think about it. While you are getting MMT up and running, the bad guys are going to kill Social Security, and you MAY not be able to get it back before a lot of people get hurt. But that eighty cents per week per year will buy all the time SS will need… as long as people demand it (“we insist upon being allowed to pay for it ourselves”) in a way Congress can’t pretend not to hear.
“People like to see a connection between what they do and what they get. And your rhetoric, at least, abolishes that connection.”
I don’t mean to. People will still get what they work for. Nothing in MMT says different. They will exchange their labor for money. (Some MMTers would like to “euthanize the rentier class”, so that the only people who get or have money are the ones who work for it.)
Because of leakages, monetary economies have unemployment. MMT recognizes that and proposes policies to minimize the damage. The people who will (directly) get the “something” from MMT policies will be those who will be able to work that are unable to find work now. Indirectly, everyone benefits from a more vibrant economy, just as they always have done. You could say that if tax cuts are part of the MMT solution, taxpayers will also benefit, but that benefit is marginal compared to having a job at all. Additional spending, if any, will mostly go to the wages of those newly-employed workers.
The principled, good-faith arguments against MMT stem from a lack of understanding. My sales pitch would emphasize education, and directly confronting objections with facts. Others have different approaches. Maybe a combination of them, or a synthesis of them, will turn out to be the best. Warren and Stephanie are very convincing, to me, in their writing and interviews. But I like the notion of a hit movie, whatever approach it takes. The immediate need is for more widespread information, not different information.
“Meanwhile… please note I have done a worse job convincing you about raising the payroll tax one tenth of one percent (eighty cents per week) per year, than you have done convincing me about MMT (sort of). So take another think about it.”
If government were like a household, that would be a good answer.
“I would say that Social Security is a form of insurance rather than a tax. You get your payout when you turn 62/65, but the longer you live, the more you receive ”
If life insurance pays when you die, is SS “death insurance”?
Are patients allowed to sue doctors and hospitals in the UK? How much do they pay for malpractice insurance, compared to the US?
Do London residents pay a different contribution than Glascow residents? Or are the rates the same for everyone? In the US, if you live in one state, you can’t buy a better or less costly insurance policy that is sold in a different state.
Does it really cover “all” medical expenses? There are anecdotes about people from other countries coming to the US for medical care because their government/insurer refused to provide it, or the waiting list was longer than their life expectancy if they were not treated. Are they not true?
There’s also a flap about drugs developed at a cost of $billions in the US being sold in other countries at greatly reduced prices, due to government price controls. Some Americans cross the border to buy those drugs and import them illegally into the US, and sometimes they are not quite the same formula prescribed by their doctor and approved by the FDA. Or sometimes they are counterfeit, and the pills contain no medicine at all. The companies do voluntarily sell their products in other countries because the price they are allowed to charge exceeds their production costs, but how much of the development cost attributable to those sales is picked up by Americans?
I wonder how much of the 17% vs 8% difference all these things make? Are there any studies?
@golfer
I would say that Social Security payments are a hybrid system, which pay out while you are still alive, but end upon your death, except in the case of dependents like a wife/husband or children.
I receive payments from both the UK and the US systems and they are quite similar. Term life insurance from a private insurance company is quite different in that a lump sum is paid out to your dependents after your death.
Social Security also functions in a similar way to defined private pensions, which end upon your death.
With regard to the UK National Health Service, which is funded entirely from a payroll deduction at source, everyone pays according to their income, no matter where they live within the UK. However, capital gains, dividends and year end bonuses are not liable. Everyone is covered from cradle to grave. Private insurance and treatment is also available for people who feel that they need and can afford it. Around 10% of the population goes for this optional extra, usually paid for by one’s employer, if you are in a well paying job. BUPA and PPP are the insurance companies involved. UK doctors can opt to work for the NHS or in private practice or a combination of both. Most work for the NHS. Junior doctors are paid around $100,000 per year and the average doctor remuneration is $200,000 per year. Most consider that they are well paid. Senior surgeons can make twice the average.
Everyone receives primary care, including general checkups and child birth. Emergency situations are dealt with in exactly the same way as the US. An ambulance picks you up from home and you are taken straight to the emergency room. With regard to elective surgery like hip replacements, there is usually a waiting list of a few weeks. The privately insured can jump the queue, but still receive treatment in a NHS hospital. Some people are more equal than others.
The NHS negotiates drug prices directly with the UK pharmaceutical industry. This would reduce costs if the US Medicare part D system were the same.
The increased price of medical care in the US comes about for many reasons, the first of which is that it is run as a for-profit business, rather than a national social service. Every time I have visited a US doctor, half my time is taken up by the billing department, which does not exist in NHS hospitals or NHS doctor’s surgeries. US Medicare operates on a 3% overhead, but the private insurers can take 25% of your premiums for profit and overhead.
The UK government takes care of malpractice claims and UK doctors are covered at no cost to themselves. Big payouts are not the norm. But you can sue in a court of law if you wish and can afford it.
In the US, people without insurance coverage tend not to receive primary care, which is relatively inexpensive compared with the emergency room visit necessitated by neglect.
Thanks. That is way more info than one usually sees.
There are no attorneys who take cases on contingency, then? Is there any other provision for people who are harmed by the system and cannot afford to sue?
The legal system in the UK differs from the US in that lawyers are not allowed to share in damage awards, but have to operate on a fee for service basis. If you are poor, there is a legal aid system, but I am not sure how effective it is.
“a determination to ignore the “what next?” as in, “how do you allocate this free money?””
In the same way the unfree money is allocated today, by laws enacted by Congress. That’s a political decision. There are many many suggestions on these blogs for ways to spend, and a few for ways to not tax so much. Take your pick, and vote for the guy who agrees with your pick.
“real wages are projected to go up over one full percent per year. ”
I hope so. What is the sea change that will cause such a reversal of the past 30 years trend? And what did these people project 5 years, 10 years, 20 years ago? Were they right or wrong?
golfer
they were pretty much right.
the problem has been not so much the rise in average wages as the fact that the money tends to do to those who already have more than they need.
no doubt this needs to be fixed. but in the meantime, fixing social security with the government we have, not the government we want to have, would cost you about 80 cents per week more each year. it’s a bet you should take.
I agree.
Well, that was a lively discussion. I think we should all tip our hats to dale coberly for adding some new perspectives whether we agreed, disagreed, or just watched. Thank all who contribute.
Consider it tipped.
Who took my s?
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Golfer1, Just noticed that you’re writing a book. I’ll look forward to it. I know you’ve learned a lot about MMT and you also write very well. So, it ought to be avery good one!