A Pledge to Protect Social Security and Medicare

By Stephanie Kelton

It happens every few years.  The Trustees of the Social Security Administration release a report projecting gloom and doom for the system’s “finances,” and the so-called reformers crawl out of the woodwork touting various schemes to “save” the system from bankruptcy.  

For those that don’t understand how our monetary system works, the latest report is particularly alarming.  The loss of millions of jobs has meant that fewer workers are paying into the system, and the Trustees have concluded that the Trust Fund will only be able to cover the emerging shortfall until 2037. After that, the Trust Fund will be exhausted, and payroll taxes will only be able cover about 75% of promised benefits. For those that want to destroy Social Security, this is welcome news.   

But not everyone wants to run for the exits, handing the “problem” over to Wall Street’s financiers (i.e. privatizing the system), who will rake in billions of dollars in fees and commissions in exchange for creating and managing our new “personal savings accounts” (more on this here).  For example, Sen. Herb Kohl, Chairman of the Senate Special Committee on Aging, has said that “modest changes can be made over time” to keep the system solvent. 

The minor “tweaks” being considered by the Senate Committee include various schemes to keep costs down and revenues up. To reduce the costs of running the program, the Committee suggested that Congress could gradually increase the retirement age or reduce the annual cost-of-living adjustment. To boost revenues, the Committee suggested that Congress could raise the payroll tax or eliminate the income cap so that wages above $106,800 become subject to the payroll tax. 

According to Sen. Kohl, D-Wis., reform is a foregone conclusion. “Modest changes,” he told the Associated Press, “can be done and will be done.” To soften the blow, he insisted that the reforms “are not draconian.” 

The problem, as we have argued many times on this blog, is that the federal government is not revenue constrained. It can afford the promises is has made to current and future retirees. It cannot, as Alan Greenspan admitted, “go broke” as long as the payments are denominated in US dollars. This means that Social Security (and Medicare) face NO FINANCIAL CRISIS today or in the future.  

Sen. Kohl’s heart may be in the right place, but he doesn’t understand how the monetary system operates. As a result, millions of Americans could be forced to suffer undue hardship in the years ahead – delaying their retirement, paying higher taxes and receiving fewer benefits. 

We call on those in Congress (as well as those seeking Congressional office) to affirm their commitment to protecting and preserving Social Security by signing the following pledge:

“I pledge to vote against any piece of legislation that would reduce current or future benefits under Social Security or Medicare, whether through reduced compensation, reduced coverage or a change in eligibility requirements.”


10 responses to “A Pledge to Protect Social Security and Medicare

  1. We need to start talking like it is. The government does NOT have to fund itself with taxes or finance itself with debt issuance under the current fiat system. The voluntary restraints that give the impression of this are ideological constraints that have been imposed politically. There is no financial necessity involved at all. The only constraint is real resources and with full employment defined at 6% under NAIRU, the US consistently running under capacity, meaning that there are no real constraint in the foreseeable future. It is in the public interest to fund a pension program for the elderly not only as social welfare but also for distributional purposes. It makes economic sense to maintain a modest level of demand by elderly consumers. It is a public investment rather than a public expense.Moreover, privatizing SS woud further increase the imbalance between rents and productive investment in the US. Financial fees are essentially rents. The problem that the country is facing is due in no small measure to the disparity between productive investment and rent-seeking, which results in large inefficiencies.

  2. I hereby take the pledge.Warren Moslerwww.moslerforsenate.comwww.moslereconomics.com

  3. There would be NO crisis if 1) Congress hadn't stolen money from Soc.Sec. trust fund for the last at least 30 years; and 2) if we'd stop wasteful Pentagon spending on quagmire wars and boondoggle weapons systems that don't even work.We have the money, just not the will to take care of our nation's citizens, who, by the way, all EARNED what they're getting from Social Security. They paid payroll taxes for years. Why do the banks, oil, big insurance, etc all get a free ride, but the poor and middle class have to suffer with low income and cuts? What the H is going on with our national priorities and 'values'?

  4. Unfortunately, I believe you have a completely juvenile outlook on the crisis and my generation is going to suffer because of your ignorance.You make the argument that the federal government is not revenue-constrained. Can you substantiate this? It seems to me that you are implying that we can simply print more money to meet our budget needs, but I feel that you are misled on monetary policy yourself if you think that this would carry no economic repercussions.Secondly, we are apparently looking at substantially different data if you believe that the system can be saved with "minor" tweaks. For instance, let's consider an increase in the payroll tax. Can you give me a number on what the increase should be to account for the trust fund shortfall? I've ran into figures of around 2-3%, which is not a "minor" tax increase by any means. Plus, this would essentially be shifting the burden onto the younger generations, as the people currently retiring would have put in a lower amount of taxes (2% at $106,800 over 47 years = ~$100,000 less) than the current working generation, while receiving the same benefits. Do you consider this fair?This argument crosses over to any other solution which raises government revenue. Why should the younger generation have to shoulder the burden for an older generation's lack of foresight?

  5. Yes, I can and have substantiated the claim that the US government is not revenue constrained. In fact, getting people to understand this fundamental point was one of the primary reasons for starting this blog in the first place. But don't take my word for it, look at what Bernanke and Greenspan have said. The US government cannot "go broke." It cannot "run out of money." It cannot become "insolvent with resect to obligations in its own currency" (Greenspan, 1997). Or, how about Bernake's answer to the question, "Is that tax money the government is spending?" ANSWER: "It's not tax money. . . we simply use the computer to mark up the size of the account … It's much more akin to printing money than it is to borrowing." (Bernanke, 60 Minutes interview, 2009).The US can do this because, unlike, say, Greece, the US government is the ISSUER of its currency (Greece is the USER of its own currency). The difference means everything. It means, to address the other reader's question, that we can AFFORD "boondoggle weapons that don't even work" AND Social Security. I'm not saying the government OUGHT TO spend the way it does; I'm just saying it is not revenue constrained. You may not like it, but that don't make it untrue.I have explalined in great detail the mechanics of government finance. If you really want to understand the way it all works, take the time to study the balance sheet entries and reserve accounting. It is all laid out in an article called "Do Taxes & Bonds Finance Government Spending?" You can find it in the Journal of Economic Issues, 2000 (Google it). I spent a couple of years tracing out the (rather complex) arguments, so perhaps you should spend an hour working through the paper before calling me ignorant.

  6. Could you give me a quick reader's digest, then? I'm afraid I don't have time to read through your economic papers, but I am interested in hearing that there exists an economic theory that overcomes the basic problem of inflation.

  7. To supplement my last comment, I'm aware that our country runs off of fiat currency. I wonder what economic distinction you make between "spending literal money" and "printing more money," as traditional economic models show that printing more money (or increasing our budget account balance, however you want to call it) causes inflation (see the Greenspan paper you referenced to me)

  8. Printing money does not cause inflation. That is a common myth perpetuated by economists, who are presumably funded by rich Republicans. If you need recent proof, where is the inflation now in the US after the Fed printed trillions of dollars to banks, zero interest rates etc. There is none. Most people are still in dire financial straits and can't afford anything. There are various ways the Fed can control money flow or "repatriate" cash, when they print money (which they do in any case, whether you want to believe it or not). Overall, inflation is a very complex topic, but I believe that steady inflation as we've had in the US for a long time, has to do with the credit financing in the private sector, and has nothing to do with "money printing". If we moved away from all this credit/leverage nonsense and casino capitalism (people can only make money if prices rise), inflation would be very low in the country, even if the government printed money like crazy.In terms of hyperinflation, in modern times, this only happens when people lose faith in currency, due to the fact that it is essentially not a sovereign currency (e.g. Argentina).

  9. I'm sorry, I thought I just heard you say that printing money does not cause inflation.

  10. Hi Stephanie,If I were running, I'd take the pledge too. And thanks for the reference to your definitive piece in The Journal of Economic Issues.To those worried about inflation, let's start thinking about this by being accurate. The Government doesn't print much money these days, it does spend money, and in the act of spending in creates new money. So the real question is whether Government spending in a fiat money system creates inflation or hyper-inflation. The general answer is it does not, so long as the Government doesn't create so much money that its supply exceeds the productive capacity of the economic system at full employment. Since right now we have very high levels of unemployment, and also are using only about 2/3 of our productive capacity, increased Government spending and deficits will not cause inflation or hyper-inflation.Three very interesting pieces on inflation and hyper inflation are here:http://bilbo.economicoutlook.net/blog/?p=3773here:http://www.netrootsmass.net/wordpress/wp-content/uploads/images/20100428-4-Marshall-Auerback.pdf andhere: http://neweconomicperspectives.blogspot.com/2010/03/hyperinflation-hyperventalists.htmlFrom these pieces you'll learn that creating money is not a sufficient condition for inflation occurring.BTW, Marshall Auerback has a great piece on budget-busting over at New Deal 2.0 here:http://www.newdeal20.org/2010/06/22/president-obama-is-hoisted-on-his-own-budget-busting-petard-12977/And I have one on America Speaks at FDL (cross-posted at other places also) here:http://seminal.firedoglake.com/diary/56192