When You Really Look, Financial Quicksand Turns Into Oligarchical BS
. . . the need for entitlement reform. there was a firestorm of reaction. an article in the ” l.a. times” went as far as to say i want to lead my generation into poverty. come on, man. this isn’t about me. it’s about the major problem.
JF: (Your humble blogger): Normally, I’d agree with a remark like this, because it’s the view being stated that is or isn’t valid. But in this case someone so obviously ensconced in the bosom of a family in the 1/1000th of the 1% might well have a motive for wanting to cut back entitlements to the point that most Americans would not value these entitlements anymore, and so would just ignore or even support attempts to privatize or eliminate them.
It’s true that her view may be correct anyway, but as a source whose family stands to gain from a weakening of entitlements, people like myself and most other Americans who stand to benefit from making the entitlement safety net much more generous and bringing it in line with safety nets in other wealthy western nations, would be foolish not to greet Abby’s views with considerable skepticism and, at a minimum, to ask hard questions of this princess of the new oligarchy.
– Abby, do you know the difference, when it comes to insolvency, between nations with non-convertible fiat currencies, freely floating exchange rates, and no debts denominated in currencies they cannot freely issue; like the US, the UK, Canada, Australia, New Zealand, Japan, and others and nations that don’t issue their own currencies, or peg their currencies to others in international trade, owe debts to others in currencies they can’t issue, adopt other nation’s currencies, or issue currencies that are convertible upon request into commodities like gold or silver?
– Do you know that Congress has the authority under the constitution to make appropriations for entitlement programs automatic at the beginning of each year, and has already done so with some programs, and that the President under current law pays for those out of the Treasury’s main spending account and not out of any trust fund account?
– Do you know that under current law, the Treasury Secretary can spend Congressional appropriations of entitlements, not only by using reserves generated from taxes, or from selling debt instruments; but also from reserves generated by selling consols, or minting and then depositing platinum coins with huge face values specified by the Secretary such as $60 Trillion?
And, if you know these things, then why is it you say that the Government will have a solvency problem when it comes to spending entitlement appropriations, when that spending falls due?
If you know all the above, can you please explain why you think there is a Federal government solvency problem related to future entitlement spending? Isn’t this the very first thing you have to explain before advocating for cuts to entitlement spending that so many Americans are dependent upon?
And don’t you think your failure to make your reasons for thinking that there is a solvency problem absolutely clear in light of the above facts, ought to make the rest of us, who may have to rely on those entitlements, suspicious about your sympathies and motives? If you really were on the side of the millennials right now, wouldn’t you be moving heaven and earth to find another way of supporting and expanding entitlements, so that millennials might find it easier to avoid the abject poverty and insecurity which is becoming so commonplace in America today?
And, if you don’t know all the above, then how can you pretend that you are qualified to discuss the debt and the challenges, if any, it presents to Americans? How can you claim that you are qualified to prescribe remedies to save entitlements from what you seem to believe is insolvency, by cutting benefits, knowing that will hurt millions and millions grievously, and knowing also, that you will not suffer from these cuts at all? If you don’t know the above, don’t you think that your opinions are best confined to matters where you do have some expertise, and can say more than simply repeat narratives developed over many years by Pete Peterson’s many think tank and interest group fronts?
. . . here’s the deal, say whatever you want, but unless we’re willing to address this, we’re in financial quicksand. here are the numbers in the coming fiscal year. the government will lay out a $3.8 trillion, about 70% of that for mandatory spending programs, mainly social security, medicare, medicaid, and interest on the federal debt. Partisanship and name-calling, aside, this is basic math.
JF: But, it’s not basic math, Abby. You really need to learn to distinguish “basic math” from using arithmetic along with interpretations of financial numbers. The numbers without the interpretations are nothing; but the interpretations are treacherous and can easily make the numbers lie. Hiltzik answers you, in part, by pointing out that:
. . . . lumping together of the social insurance programs with debt interest and a bunch of other things she doesn’t mention, to get to 70%. You wouldn’t know that Social Security, Medicare and Medicaid, Huntsman’s prime targets, actually come not to 70% of the budget, but 48%. Is that a lot? You can judge for yourself, as long as you realize that 48 is less than 70 — a lot less — and that means plenty of spending gets crammed into that mandatory-spending category that isn’t Social Security or Medicare.
So, your number is technically correct. But your interpretation lies, because it misrepresents by a huge amount the proportion of the budget devoted to Social, Security, Medicare, and Medicaid. Why is it that when right wing commentators like yourself use numbers, it’s like a flashing neon sign saying “reader beware: lying with statistics alert”? Don’t you get tired using numbers in such a way that people skeptical of your commentary always drop whatever else they’re doing to uncover what they’re pretty sure is going to turn out to be a lie? Did you read too much Plato at the University of Pennsylvania, by way of Leo Strauss?
In addition, the interest costs on the Federal debt are controllable by the Federal Reserve and the Treasury in coordination, and may be driven down to nearly zero by them over time. Do you know this, Abby?
Or do you believe that bond markets have control of interest rates and ultimately the interest bill paid on Treasury securities? If you believe this is the case, then how do you explain that the Fed has been able to keep interest rates including bond interest rates so low in the United States, even in the face of the rather large, but still not large enough deficits, since fiscal 2009? And how do you explain the near zero interest rates on securities issued by the Japanese for years on end?
. . . the non-partisan congressional budget office predicts each year over the next 25 years our government programs will wind up costing more than we take in. and they also project our debt to gdp ratio will only continue to grow steadily over the next two decades, reaching places we haven’t seen since world war ii. we are fighting to survive only this time financially. social security spending will grow from about 5% to 6% as a percentage of gdp.
JF: It’s customary to make obeisance to the CBO, by calling it non-partisan; but surely this is an empty ritual devoid of meaning for the 99%, the unemployed, and especially for both seniors and millennials.
CBO has accepted the framing that deficits are bad and surpluses are good since its first Director, Alice Rivlin, one of Washington, DC’s most aggressive and persistent deficit hawks was appointed its first head. It does not project policy impacts of various policy alternatives, but only impacts on the deficit and the debt, as if all there is to fiscal policy is evaluating whether the projected deficit is large and the debt-to-GDP ratio is likely to get larger or smaller over whatever its projection period is.
The CBO may not be overtly partisan in the sense that it supports either Republicans or Democrats, but it is an organization that is partisan about decreasing debt-to-GDP ratios; favoring those, and opposing increasing debt-to-GDP ratios. And this is also a bias against deficit spending regardless of whether such spending is a consequence of private sector savings and import desires, even when deficit spending is needed to maintain full employment.
So, the bottom line is that CBO projections and reports are biased against full employment and for keeping labor markets weak. They are also biased against enactment of Green New Deal-like policies. And CBO itself is also biased against the 99%, in the precise sense that its activities since 1975 are a major factor in providing analytic justification for following policies (including the unnecessary enactment of a drastic rise in FICA taxes visited upon the boomer generation in 1983) that have increasingly impoverished the 99%, and led to the worst distribution of wealth in America since the 1920s.
As if CBO’s systematic bias against full employment isn’t enough, and, as I’ve written many times before, CBO projections are a joke. On many occasions they don’t even hold 6 months out. For example, from the Spring of 2008 to actual results in the Fall. And in FY 2013, CBO had to make a major adjustment of its deficit projections for FY 2013 (ending in September of 2013) between January of 2013 and May 2013, when it was obvious that they were grossly over-estimating the projected deficit for fiscal 2013.
Basing policy decisions on CBO projections going out decade,s or using other projections, based on CBO figures as a foundation, over a 75 year time frame is the height of folly. Abby, do you know what the magnitude of monthly annual projection errors might be on key variables in a model over 75 years? Errors in CBO projections aren’t random, they always reflect and weight recent history far too heavily. Over 75 years the projection errors involved may be an order of magnitude or more.
And please don’t protest that CBO and its projections are all we have. Because, if all we have are projections that we know are fairy tales, the right move is not to make decisions based on fairy tales. It is to find other bases for making the best decisions we can.
it’s even worse for health programs like medicare and medicaid, which almost doubled from 4.6% to 8%. over the next 25 years these programs will grow from about 7% of the economy to more than 14%. so i ask — how are we going to pay for that?
JF: First, it doesn’t matter for solvency whether these programs total 40% of the economy, or 14% or 7%. A Government with a non-convertible fiat currency, a floating exchange rate, and no debts in any but its own currency, can still pay for program costs, if Congress will make the appropriations and maintain a legal structure that allows the Executive Branch working with the Fed to create coins with arbitrary face values, and create reserves at the Fed when crediting deposits of those coins. With a Government like the US’s there is never a “pay for” problem, as long as all its moving parts want to pay the bills, come what may.
That said, this point raises a larger issue. That issue is the percent of the overall economy occupied by health care spending, both public and private. Right now, that percentage is nearly 17% of the economy. It is much too high, and is draining money from much of the rest of the private sector. In addition, it is a major cause of increasing economic inequality, since the flow of money through the health care sector at present tends to move from a vast bottom of consumers and tax payers to health insurance companies and service providers who funnel it to powerful organizations and individuals at the top of wealth pyramids.
So, if we care about inequality, then we should want to reduce the proportion of economic resources spent on health care. How can we reduce this proportion to 12 percent of the economy, while reducing inequality, providing access to all, and preventing the rate of rising health care costs from exceeding the rate of inflation?
The answer isn’t rocket science. We know from the experience of many nations that it is an enhanced Medicare for All system as in Canada, New Zealand, or Taiwan, or perhaps a National Health System (NHS, the dreaded socialized medicine) as in the UK. By adopting health insurance/care reforms like these we can reduce that 17% to 12% or less, if we are as efficient as other nations.
Why is it, Abby, that you don’t mention these options, but only cutting entitlement benefits and other spending? These options are the obvious solution to the actual problem that exists, which is not Government solvency. Is the thought of such systems so unthinkable to your plutocratic sensibilities?
. . . but for some people even raising the question means you’re automatically anti- social security or against the elderly. that rhetoric might work for campaigning or special interest groups but it doesn’t do much for the people who count on these programs. the ” l.a. times” article that took me on raised a worthwhile distinction, though, about raising the age of retirees. the change in life expectancies from age 65 is much lower. but the idea that basically doing nothing about the budget shortfalls and having deficits forever will somehow be okay is not right to my way of accounting.
JF: It’s not raising the questions of SS accounting or increasing health care costs as a percentage of the economy that is anti-SS or anti- the elderly. It is prescribing safety net cuts rather than safety net expansions, when there is no reason for solvency worries, that is anti-both. Again there is no solvency problem, but only a political problem created by the Pete Peterson lobby, of which you are evidently a part, raising faux, non-existent solvency issues.
I have just the solution for this political problem. It is for the President to have the Secretary of the Treasury, and indirectly the US Mint, create and deposit a $60 Trillion platinum coin at the Federal Reserve. Then the Treasury can use the resulting $60 T in reserves to pay off the debt and cover deficit spending for the next 15 – 25 years. Within six months of creating and depositing that coin, the political problem of the public debt will be gone, since it will be plain to people that large portions of the debt subject to the limit are being retired.
Of course, the deficit would still remain, now de-coupled from the issue of “the debt.” However, the deficit, is not, in itself, an issue. So, the context favorable to enacting fiscal policies that create private sector microeconomic austerity, and the possibility of macroeconomic austerity, would be gone.
when i talk of reform it could include means testing or slowly increasing the retirement age for people for decades from when they’ll receive benefits. others might support raising the income cap on the payroll tax. liberals may like that more but it’s also a budgetary reform. on medicare, i think the simpson/bowles plan is a great place to start, slowly raising the medicare eligibility age from 65 to 67 by the mid- 2030s and expanding means tested medicare premiums. let’s debate those options. and by the way i’m not the only one who thinks we need to debate this.
JF: Well, as Michael Hiltzik says: we’ve been debating these issues for a long time. Probably much more than half of Washington agrees with your point of view. Fortunately, neither Washington nor you have been able to convince either seniors or millennials that entitlement cuts are good for them, and so they don’t have much patience for a debate that assumes what it must prove, namely that there really are solvency problems with entitlements.
In any event, I can agree with you that a debate over fiscal policy and what its constraints are would be a very good thing. But, I’m afraid I don’t think it should start with the question of how we save entitlement programs from becoming insolvent; but with the prior question of whether the Federal Government, under current law, can be forced into insolvency, and whether the notion of “bankruptcy” is applicable to the Federal Government or any of its parts. If you’re willing to start there, then I can be open about that. But, I don’t think that any progressive should begin a debate by conceding the assumption that there can be an insolvency problem, because I don’t concede that, and I need you to tell me what evidence you have relating to that assumption before any discussion can go further.
Short clip from Steny Hoyer played by Abby:
We’re going to have to reform entitlements to keep them solvent for future generations.
JF: Steny Hoyer is a Democratic Party third way politician, with no understanding of economics or macroeconomic sectoral balances. He is part of the Peterson lobby in Washington and is unqualified to opine on this subject. He should immediately be defeated in his re-election bid, based on this nonsensical statement, before he contributes to the onset of another great depression.
Short clip with question by Steve Kornacke and answer by Ed Rendell played by Abby:
You’re okay with raising the medicare eligibility age?
With proper carveouts for people with health challenges, absolutely.
Ed Rendell is another third way politician who is part of the Peterson lobby. He was Pennsylvania’s Governor, and a good one among recent Governors. But his background makes him unqualified to prescribe policy for the Federal macroeconomy because, like Jon Hunstsman, he has no experience as the CEO of a currency-issuing government. All his experience relates to the constraints experienced by a currency-using Governor.
Abby could multiply such examples all day if she wanted to. She could probably quote Bill and/or Hillary Clinton purveying similar foolishness. None of that would prove a thing. What could prove something is if Abby could answer the questions I posed at the beginning and still reasonably make the claims that she does. I fear, however, that doing that would be very difficult and embarrassing for her
our goal should be to explore any option to fund and maintain entitlements while also being proactive about our long-term debt realities. say what you want, our financial lives depend on that. okay. that does it for “the cycle.” “Now” with Alex Wagner starts right now.
Our financial lives do not depend on that, because, again, there is no solvency problem. It is a fantasy produced from ignorance, or a desire to distract people from real political issues like the need for full employment, price stability, social and economic justice, inequality, and a host of others. But, Abby, does your view mean you’d be willing to explore minting that $60 T coin and using it to pay down the debt as it falls due, and cover deficit spending for a good many years?
If so, I’d be glad to help you explore that so long as we’re not assuming that there is a solvency problem prior to exploring it. But why do I get the feeling that your mind just isn’t open to the idea that there aren’t any purely financial solvency constraints on the Federal Government?
(Cross-posted from New Economic Perspectives.)