The Most Important Point of All Was Ignored

By Joe Firestone

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

11 Responses to The Most Important Point of All Was Ignored

  1. “legislating programs essential for getting millions of Americans on their feet again and contemplating the future with hope. That, in itself, will lessen inequality.”

    Yes, and you’ll get a lot more support for that if you leave out the other.

  2. PCS may fix the debt, but not the problem. The problem is accumulation of excess savings by the few chasing unearned income. Taxing is a temporary solution, much like the PCS. Privatizing SS would make the problem worse since unearned income originates from the wages of earned income. Unless unearned excess savings is invested carefully in job producing enterprise, the economy stalls. Don’t expect the invisible hand of self-interest to correct the problem nor will government safety-net programs solve the problem. There is fierce competition for what yield remains, to the point of sacrificing the wage earner income that clears markets. One can only wonder about the outcome in Ukraine as the Crimean Russians trade one set of oligarchs for another. In this the workers of the world share a common bond.

  3. No matter how the funding mechanisms are set up, it is always the case that retirees – by definition, people who are not working – consume output they themselves are not producing. It is always the case that those who are working generate the output that satisfies the consumption needs and desires of (i) themselves, (ii) the retired, who used to work but no longer do, (iii) the young, who have not yet entered the workforce, (iv) people of working age who are not in the workforce and (v) people in the workforce who do not presently have jobs.

    But it is also the case that the capital wealth of the society, which determines the productivity of present labor, was produced by past work performed by past workers, some of whom are now retired.

    Basic issues of justice, social trust and solidarity require that we attend to preserving a proper, socially sustainable balance among these various groups of people as demographic and industrial conditions evolve over time. This is not an issue that has anything essential to do with the solvency of existing funds, since funding mechanisms and cash flows can always be changed. Focusing on moneymatters is always a way of missing the point.The more fundamental issues concern the flow of real output and real value from workers to others, and among the generations.

    • “It is always the case that those who are working generate the output that satisfies the consumption needs and desires of (i) themselves, (ii) the retired, who used to work but no longer do, (iii) the young, who have not yet entered the workforce, (iv) people of working age who are not in the workforce and (v) people in the workforce who do not presently have jobs.”

      This is a profound truth. What has changed that has begotten controversy and weakened the “socially sustainable balance among these various groups of people”?

      It used to be that parents cared for their underage children, and workers accumulated savings to care for themselves in retirement, and workers cared for their retired parents if their savings proved insufficient. There was a strong sense of community within the family group that kept this system intact. Most people were willing and able to give small amounts of their incomes to charities which supported the relatively small number of those without family support.

      Lately – starting in the 1930’s when workers and retirees didn’t have the financial means to support even themselves, it has been government which provides a large measure of support for retirees and children. Many fathers have abandoned their children, and the single moms often have not the means to support them or themselves. Without understanding of MMT, the belief is that government coerces money from workers and gives it to strangers, and that such transfers now amount to 1/3 or more of what government does. There is no strong sense of community behind this arrangement, as there was behind the previous one. And now, since the Great Recession, as workers again struggle to support even themselves and their children, they do not feel like they have the means to support strangers as well, and they are told that the systems which will support them in their retirement are “broke” or “unsustainable”.

    • Joe Firestone

      Basic issues of justice, social trust and solidarity require that we attend to preserving a proper, socially sustainable balance among these various groups of people as demographic and industrial conditions evolve over time. This is not an issue that has anything essential to do with the solvency of existing funds, since funding mechanisms and cash flows can always be changed. Focusing on money matters is always a way of missing the point.The more fundamental issues concern the flow of real output and real value from workers to others, and among the generations.

      Quite true. But unfortunately we can’t focus on the fundamental issues as long as people are draining all the oxygen from politics with distractions including this major one about entitlements going broke so let’s have a generational war. So, I think we do have to argue over money matters and get the myths and lies rejected in public consciousness.

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  5. With all the aging population and more and more people going into retirement, how will we compensate that drop in the labor force to sustain our unemployed? ;)

    We certainly need exponential population growth and higher retirement ages…
    after all, in nominal terms a pension system is nothing more than a pyramid scheme, since more than one has to pay into the system what another is getting out of it…
    nevermind the fact that 1 worker in industrial agriculture can sustain around 140 people.

    • Julia Kenner

      We need a large increase in leisure time, and if there is work that needs to be done, spread it among more people. If we lower the retirement age to 60, that will theoretically increase available opportunity. Special attention must be paid to the most destructive area of our economy, that of “defense”. Jobs programs here are notorious for creating unemployment and damaging the rest of the economy.

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  7. Abby’s literally foaming at the mouth by the end of her rant.