Attention: Deficit Disorder and the Real Crisis Ahead

By Fadhel Kaboub*

The ongoing political deadlock over the U.S. government deficit and the national debt is slowly digressing into one of the most devastating economic pains that a financially sovereign government can inflict on itself and on its own people. With the exception of the readers of New Economic Perspectives and MMT-oriented blogs (here, here, here, here, here, and here among others), the vast majority of the public suffers from an acute form of deficit disorder, which can be diagnosed in a variety of ways, but most commonly you will notice that the subject is convinced that: 

  1. the government should balance its budget and pay off its debt in the same way that responsible individuals, households, and businesses do;
  2. government deficits crowd-out private sector investments;
  3. government deficits cause inflation;
  4. government deficits promote inefficient and wasteful government programs; and/or
  5. the national debt is a burden on future generations and a form of taxation without representation.

The good news is that these deficit disorder symptoms can be easily relieved with a daily dose of MMT readings. For best results, abstain from consuming mainstream media deficit-propaganda during your MMT rehabilitation period. Warning: as you begin to heal from this deficit disorder, you may feel nauseated when exposed to mainstream news reports about the deficit. Do not panic, this is a natural feeling that most engaged citizens have once they heal from deficit disorder. When that happens, you are simply experiencing the urge to take action, educate, organize, and bring an end to this national deficit disorder.

On a more serious note, however, this national deficit disorder is blinding us from seeing the real infrastructure and education deficits that are slowly destroying quality of life for generations to come. Here, I want to argue that the real crisis ahead of us is going to be a crisis of healthcare provisioning with serious social and economic consequences for the U.S. and the global economy.

The long-term consequences of today’s deficit disorder will have a tremendous negative impact on many retirement-age vulnerable members of society after 2032. The lack of foresight that has overshadowed the public policy debate both at the federal as well as state and local government level is pushing the United States into a spending cuts frenzy aimed at balancing budgets and paying down the debt. This could potentially be the biggest mistake of our generation.

The U.S. workforce is going to experience a significant demographic change over the next 20 years. The pay-as-you-go social security system is structured in a way in which today’s workers pay for today’s retirees through a FICA tax directed into the Social Security Trust Fund and invested in AAA-rated U.S. government bonds. In 1960, there were 5 workers per retiree, and with the post-WWI “baby-boomers” effect, this ratio has been steadily declining to 3 workers per retiree today, and is expected to reach 2 workers per retiree by 2032. The only reason this decline has been manageable so far is because of increases in workers’ productivity and technological innovations. This demographic change will inevitably present a provisioning problem. Unfortunately, only the financing problem has gained so much attention by the general public, whereas the provisioning problem should be of much more significant concern to all of us today.

Deficit hawks have been arguing for increasing the retirement age and reducing retirement benefits in order to solve the financing problem, while the deficit doves argue for increasing the social security taxable income to close the financing gap. Regardless of one’s political inclination and tax-burden tolerance level, solving the financing problem will only put vulnerable people at a greater disadvantage in the future and will not make the provisioning challenge go away. Ignoring the provisioning problem creates a shortage of goods and services which will lead to inflation when the more affluent members of society outbid the poor in a fierce competition for scarce medical services, prescription drugs, retirement homes, and elderly care services.

The only way for society to offer a comfortable retirement to the elderly is by making sure that the workforce of 2032 is as skilled and productive as possible, and has access to the most up-to-date technological and logistical infrastructure, especially when it comes to medical services. The problem, however, is that such a sophisticated workforce can only be created if we invest in education, research and development, and public infrastructure today! This is exactly what we are not doing right now. Instead, we are slashing budgets for education and scientific research in the name of sound finance and fiscal responsibility. We can have all the money in the world in 2032, but it will not create a well-trained medical staff overnight, unless we recruit skilled workers away from other nations, which will shift the burden on the poorest countries that most desperately need their teachers, doctors, nurses, engineers, etc.

The American Society of Civil Engineers has identified an expected $3.6 trillion shortfall in public infrastructure investment that will result in the loss of 3.5 million jobs by 2020. That is a real deficit to be worried about.

Currently, nearly 22% of doctors practicing in the U.S. have received their medical degrees from other countries. According to the American Nurses Association, estimates show that by 2025 the U.S. healthcare system will experience a shortfall of 260,000 registered nurses. These are real deficits. 

If we fail to make the right decisions today and if we give in to the current deficit hysteria, we will be guaranteeing that our current problems will be compounded many times over by 2032. It is the most vulnerable members of society that will end up suffering the most, namely the elderly, the poor, the homeless, the chronically unemployed, women, and ethnic minorities (not to mention the developing countries that will experience a more rapid brain drain). The solutions are available to us today. We must reset our economic and social priorities to alleviate the suffering of the poor in the short term and invest in science, education, innovation, and infrastructure in order to avoid a catastrophe in the long run.

 

* Dr. Fadhel Kaboub is an Assistant Professor of Economics at Denison University (OH) and a Research Associate at the Levy Economics Institute (NY) and the Center for Full Employment and Price Stability (MO). His research focuses on job creation programs, monetary theory and policy, and the political economy of the Middle East. For more on his work, visit www.kaboub.com

 

 

 

 

16 responses to “Attention: Deficit Disorder and the Real Crisis Ahead

  1. charles fasola

    “The lack of foresight that has overshadowed the public policy debate both at the federal as well as state and local government level is pushing the United States into a spending cuts frenzy aimed at balancing budgets and paying down the debt. This could potentially be the biggest mistake of our generation.”

    The above is a very narrow minded statement indeed. The lack of foresight is contrived. It results from the capture of the legislative and judicial processes by the FIRE sector and billionaire elites. Balancing budgets, removing money from the public and funneling it to the rentiers, is a planned exercise. Paying down debt results in more money available for the creation of greater debt through loans. The money can be utilized to pump up asset prices instead of improving society. There is no lack of foresight on the part of those pulling the strings of government. Their plan was planned and set into motion decades ago.

  2. Bravo! That was very well said, e.g. “The only way for society to offer a comfortable retirement to the elderly is by making sure that the workforce of 2032 is as skilled and productive as possible, and has access to the most up-to-date technological and logistical infrastructure, especially when it comes to medical services. The problem, however, is that such a sophisticated workforce can only be created if we invest in education, research and development, and public infrastructure today! “

  3. Mark Robertson

    The above article ostensibly critiques “the current deficit hysteria.”

    Unfortunately the article repeats several myths that keep the hysteria going.

    Examples…

    [1] “The long-term consequences of today’s deficit disorder will have a tremendous negative impact on many retirement-age vulnerable members of society after 2032.”

    I disagree. I say that we are already suffering today from austerity, and the suffering will continue to worsen. The USA is increasingly becoming a brutal and impoverished dystopia ruled by wealthy lords. This is all according to plan, since the rich want to widen the gap between themselves and the rest.

    [2] “The lack of foresight that has overshadowed the public policy debate both at the federal as well as state and local government level is pushing the United States into a spending cuts frenzy aimed at balancing budgets and paying down the debt. This could potentially be the biggest mistake of our generation.

    I disagree. I say there is no “mistake,” or “lack of foresight.” I say that for the USA, the rich pay politicians to impose more austerity, in order to (a) widen the gap between the rich and the rest, and (b) to increase the supremacy of the financial economy over the real economy. I say that anyone who denies this, or who claims that politicians simply “misunderstand,” is a fool or a liar.

    [3] “The pay-as-you-go social security system is structured in a way in which today’s workers pay for today’s retirees through a FICA tax directed into the Social Security Trust Fund and invested in AAA-rated U.S. government bonds,”

    I disagree. I say that Social Security is not a pay-as-you-go system. The federal government does not need or use tax revenue. It creates its money out of thin air, simply by changing the numbers in bank accounts. This is called “government spending.” Likewise, Social Security or Medicare do not need or use FICA tax revenues. Such revenues are effectively destroyed upon receipt, i.e. eliminated from the money supply. Regarding the purchase or sale of T-securities, this is a separate matter between investors and the Federal Reserve. It has no bearing on the US government’s ability to pay Social Security benefits. (The article has several other errors that stem from this critical error.)

    [4] “Deficit hawks have been arguing for increasing the retirement age and reducing retirement benefits in order to solve the financing problem, while the deficit doves argue for increasing the social security taxable income to close the financing gap.”

    There is no “financing problem,” since US government spending is not “financed.” The US government’s money is infinite. For the purpose of spending, it does not borrow from anyone, nor does it need to. As for deficit doves and hawks, both are servants of the rich. Hawks want reduced spending on social programs. Doves want higher taxes. Either way, it is more austerity.

    [5] “If we fail to make the right decisions today and if we give in to the current deficit hysteria, we will be guaranteeing that our current problems will be compounded many times over by 2032.”

    What’s with this magical 2032 number? Does the author (a professor) claim that everything is fine, and will remain so for another 19 years? Talk about living in an ivory tower! And he claims to understand MMT.

    ADDENDUM:

    The above article has several links to MMT-related blogs, including Susan Webber’s “Naked Capitalism.” I do not consider “Naked Capitalism” to be MMT-related. Ms. Webber occasionally mentions MMT, and once in a while she almost grasps its simple truths, but she quickly back-slides, and once again echoes myths like those in the article above.

    • Mark Robertson

      I forgot to mention this little gem. The above article refers to, “A spending cuts frenzy aimed at balancing budgets and paying down the debt.”

      The spending cuts are primarily in federal government programs that benefit the working class. The purpose of the cuts is not to balance the federal budget (which doesn’t need balancing, since the federal government has infinite money) but to impoverish the 99%, and thereby widen the gap between the 99% and the 1%. This is the sole function of austerity in the USA.

      As for “paying down the debt,” this is absurd, since (again) the US government has infinite money. It sells T-securities by choice, not necessity. The “national debt” is a trivial formality. It is a Federal Reserve matter; a side show that means nothing to the US economy. The Fed can instantly and effortlessly retire the “national debt” at any time with no inflationary effect, simply by debiting investors’ T-security accounts, and crediting their regular bank accounts.

    • Mark, NC posts are always “in paradigm,” but since it cross-posts blogs by Stephanie Kelton, Scott Fullwiler, Dan Kervick, Randy Wray, Bill Black, Michael Hoexter, and myself quite frequently, I’d say it’s properly called MMT-related.

    • Mark,
      I’m not convinced that “This is all according to plan, since the rich want to widen the gap between themselves and the rest”. You may be right but I think the simpler explanation is that the rich are only looking out for themselves (and the hell with everyone else). I don’t see it as a big conspiracy but merely greed and a lack of morals. They make themselves feel better (so they can live with themselves) by going to church and donating what appear to be large amounts of money (but small in terms of percentage of income) .

      However, none of them look at the big picture; how their greed and concentration of wealth into fewer and fewer hands destroys economies and eventually democracy. They are too busy with their tunnel vision lives to see that the rest of us are suffering because of their actions. To them we are either a) lazy, in which case they feel no need to concern themselves with us or b) stupid, which feeds their ego that they are smarter than everyone else (although this is usually far from the truth). None of them seem to realize that if we continue down this same path, destroying the middle class, that none of us will be making enough for them to extract their parasitic interest payments. We will have to re-learn the lessons the Great Depression taught us.

      I agree with the author that we had best start planning for the future. It has been estimated by some that by 2050, a majority of today’s jobs will be replaced by robots. Planning for this outcome can either turn us into an Elysium type world or one that shares the fruits of productivity equally.

      • Mark Robertson

        RobertM says, “I’m not convinced that ‘This is all according to plan, since the rich want to widen the gap between themselves and the rest.’ You may be right, but I think the simpler explanation is that the rich are only looking out for themselves (and the hell with everyone else). I don’t see it as a big conspiracy but merely greed and a lack of morals.”

        RESPONSE: Thanks for your comment. I actually do see it as a conspiracy, since almost all people in the 1% share numerous traits. To explain…

        For the rich, it is not enough that they succeed. Everyone below them must fail. Why? Because the sensation of wealth is not absolute. It is relative. It is based on differences between the rich and the rest.

        For example, if everyone has a million dollars, then no one is special. However, if I have a million dollars, and everyone else has nothing, then I am special. I have more power. I am “better.”

        Hence, the sensation of wealth is not a product of how much money I have, but how much MORE money I have than you do. My “wealth” is proportionate to the DIFFERENCE between me and you. To widen that difference, I can grab more money for me, or I can prevent money from reaching you, or I can do both.

        Therefore the rich grab all they can for themselves, while they also pay politicians to reduce deficit spending, and to hack away at social programs that benefit the 99% (e.g. Social Security). The 1% know that the US government has infinite money, and yet the 1% pay politicians to lie, claiming that the US government is “broke.”

        It’s all part of widening the wealth gap. The wider the gap, the greater the sensation of wealth, power, and superiority among the 1%.

        Currently the financial economy is stronger than ever, and it is a deadly parasite on the real economy, which is dying. This is by design. The rich want to keep us in permanent poverty, since this widens the wealth gap. Even during the 1930s depression, the rich became richer than ever. In capitalist economies, recessions always destroy the middle class by transferring wealth to the top.

        This is why the Pete Peterson and his kind devote half their time amassing more money, and the other half working to eliminate or privatize social programs. It is not enough that they succeed. We must fail. It is not enough that the financial economy sets new records every day. The real economy must remain in a depression. It’s all about widening the wealth gap.

        You mention an “Elysium type world.” Yes. That is what the rich dream of. Paradise for them, and hell for you and me. Paradise is delicious because it is so far above hell. Its luxury arises from the difference between paradise and hell.

        What if you had all the freedom you wanted, plus every conceivable toy or material thing you wanted? (Including vast harems of nubile sex kittens if that’s your thing.) You would soon grow bored with life. Your only remaining thrill would be POWER over others. And power arises from the wealth gap.

        People who claim that the rich mean well, but simply “don’t get it” are living in a dream world. They are in denial. And it is because of this denial that inequality worsens every day.

      • charles fasola

        Sorry, I am right. So you believe it’s all just happenstance? You have got to be kidding me. Do you dispute the fact that the FIRE sector has completely captured government? You believe the annihilation of regulation of that sector is the result of individual greed and the .01%’s lack of morals? The legislation that facilitates their destruction of the productive economy happens out of the blue? There exists no prior planning? The global economic system is a very complex one, yet you seem to believe individuals acting for their own benefit, autonomously, makes it all come together to the benefit of the rentiers and the rentiers only, in the end? You believe in fairy tales. the same sort of fairy tales that neo-liberal economics rely upon.

    • While MMT describes how “Social Security or Medicare do not need or use FICA tax revenues”, it is not entirely inaccurate to say that the “pay-as-you-go social security system is structured in a way in which today’s workers pay for today’s retirees through a FICA tax”. Social security is a redistributive system. It redistributes current purchasing power from today’s workers, through social security, to today’s retirees, by insisting that both the payouts and the taxes exist.

    • Mark,

      Looks like Webber is a secret part of the neo-liberal conspiracy then! Good catch there!

      After all you say here: ” anyone who denies this, or who claims that politicians simply “misunderstand,” is a fool or a liar. ”

      So I would say that Webber from what I have seen is waaaaay smarter than most if not all in Congress so she cant be that dumb on this either…. hence her “back-sliding” has to be some sort of evil plan of the neo-liberals! Good catch with Webber here…. another neo-liberal conspirator obviously!

      rsp,

  4. “We must reset our economic and social priorities to alleviate the suffering of the poor in the short term and invest in science, education, innovation, and infrastructure in order to avoid a catastrophe in the long run.”

    Very well said, and great article! With politics and ideologies being as divisive and rigid as they are though, the old “progress moves forward one grave at a time” saying seems to be the sad truth. Guess I should just go back to school and become an RN, at least those will be in high demand!

  5. Pingback: Attention: Deficit Disorder and the Real Crisis Ahead « naked capitalism

  6. The Bible has an interesting take on money hoarding: It absolutely condemns it in favor of investment or even usury (presumably from foreigners). See Matthew 25:14-25 (“The Parable of the Talents”) for the details.

    But look. The way to head off argument over excess deficit spending is to allow true private currencies. That way, if government overspends relative to real growth and taxation, then taxes would become EASIER to pay in real terms.

  7. I loved it anyway. Great word play.

  8. Luciano Marrocco

    Excellent article. But we must ask ourselves why these truths do not go in large channels of information. Maybe because you want to understand the true nature of money. If you continue to consider money as an object that, in the moment of its creation, must be given in the loan, the debt problem be it state that the private citizen will never be resolved.
    Sorry for my bed english

  9. cuts cuts cuts, we have your cuts: DOD, NSA, TSA, DHS, etc., farm subsidies, energy subsidies, bogus tax deductible charity organizations.
    then fix the rigged tax laws that give buffet and romney preferred treatment so that they pay only about 15% tax. lower the corporate tax but make them pay it instead of dodging their taxes by leaving them offshore.