By Randy Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College. Cross posted from EconoMonitor
Don’t you feel relieved? After weeks of threats, hostage-taking, and other forms of deficit terrorism, our two political parties have finally “compromised” on what was always a foregone conclusion. (As I write, we still await the Senate vote—but it looks like a done deal.)
Washington got what it wanted—a down payment on destruction of the last remnants of progressive policy. Soon, it will be 1929 all over again. We can make believe that the New Deal and Great Society programs never existed, and go back to the good old days when it was every “man” for himself. To hear Michelle Bachman tell it, we might want to go back to the even better old days before the Civil War when men were for sale, leading to more stable families living in slavery on plantations run by benevolent slave masters.
Superficially, the spending cuts don’t look like much. The grand compromise cuts $21 billion next year from a budget of $3.7 trillion—sort of like foregoing one Big Mac from your annual food budget. In spite of all the talk about needing to take the medicine now, rather than kicking the “deficit crisis” down the road, Congress adopted a plan to kick that can right down the interstate.
It might make you wonder what the fuss was about.
All sides expressed their displeasure, as they held their noses and voted for the putrid heap of a plan. That is pure political theater, of course. Republicans fear a backlash from the fringe right that wanted immediate elimination of all social spending. Democrats fear a backlash from working Americans—the 70% or so who vehemently oppose any cuts to Social Security, Medicare, and Medicaid. And so both sides say they hate the plan, but under the circumstances it was the best that could be secured.
And both sides agree that the looming fiscal crisis still looms. So they have created a Rube Goldberg machine to do what they know they cannot: the bill contains automatic triggers and across the board cuts that take effect if Congress cannot ram through cuts to so-called entitlements.
I do not want to go deeply into the details, but here is a quick summary. The bill contains $1 trillion in cuts, spread over coming years. It creates a bipartisan committee that is supposed to find another $1.5 trillion to cut by Thanksgiving; Congress must vote on the recommendations by Christmas. If all that fails, $1 trillion across the board cuts will take effect. In return the debt limit is raised by $400 billion now, and another $500 billion later. Congress can vote to stop the debt limit hikes, but the President can and will veto such a vote—letting Congressional weenies save face.
Finally, by New Year’s day Congress must vote to send a balanced budget amendment to the states; if they vote to do so, Obama can ask for a $1.5 trillion increase to the debt limit; otherwise he can ask for only $1.2 trillion. Congress gets to vote on that increase, too, but Obama gets to override that, too! (Don’t you love the way each milestone coincides with a national holiday?)
Are you still following? All of this is designed to allow Congress to shirk its job, of course—to build a Rube Goldberg machine to accomplish what our elected weiners (sorry, Anthony, you saw it coming) know would hurt them in the next election.
Here is the Beltway’s fantasy. The US government is running out of money. The main cause is the “entitlements”—all those deadbeats expecting hand-outs from Washington. Alan Simpson, co-chairman of the President’s previous deficit commission, put it this way: “We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!”
I want to be clear. This is not a partisan position. Everyone in Washington accepts it—from the progressive think tanks to the nuttiest free marketeers; from the politicians to NPR’s reporters; from Pete Peterson’s hedge fund cronies to organized labor. All present a unified front against budget deficits—particularly those due to “infinite horizon” deficits that result from “entitlements”.
If we project Social Security benefit payments and payroll taxes through infinity, and subtract revenues from spending, we get a big deficit number. If we then project Medicare spending and tax revenues through infinity we get an even bigger number. Tens of Trillions of dollars.
And so we need that Rube Goldberg doomsday machine that cannot be stopped by human hand. It all kicks in automatically to slash entitlements because we know that neither voters nor their representatives will act to avert fiscal catastrophe that will sooner rather than later bankrupt the US government.
Budget deficits as far as the eye can see do sound mighty scary. They might even sound unsustainable to the untrained. But there are so many things wrong with such a calculation that it is difficult to know where to start. In previous posts I have dealt with deficits, debt, and the debt limit from other angles. To put it simply, a sovereign government that issues its own currency can never face an affordability constraint; it cannot run out of its own money. The trillion-dollar platinum coin proposal that I discussed helps to drive that point home.
I will not go further into the affordability issue today; here I will address the long-term projections of deficits, and the possibility of dealing today with deficits that might occur in the distant future.
Let us begin with Medicare because that one is all too obvious. It is critical to note that Medicare’s infinite horizon deficits result from the assumption that healthcare expenses will rise faster than national production and income. Forever. That cannot happen. It will not happen. As Herb Stein says, unsustainable processes won’t continue.
The problems with such a projection are not unique to Medicare. Every firm in the country that provides medical insurance will go bankrupt if the projections prove correct. Every household in America will go bankrupt. It will not happen. It is a silly exercise in stupid projections. Yes, we must and will do something about healthcare costs. Looking at Medicare, alone, is of no help whatsoever.
We need fundamental reform of the entire system. We need what every other developed country in the world has: single payer. We need more government, not less. Medicare is not the problem, it is the solution. Medicare for all.
What about Social Security’s infinite horizon deficits? First, the whole exercise is wrong-headed. Let us say for a moment that a half century down the road the US will find that (current law) promised benefits resulting from Social Security (and Medicare) cannot be met out of (current law) taxes. What can we, now, do? Cut benefits now? Raise taxes now? Why?
Today, there is no problem—revenues and expenditures are approximately in balance (indeed, until the recession hit, wiping out revenues, the program ran a huge surplus).
Today’s seniors have worked for thirty or more years, paying taxes, working hard, maybe saving a bit on their own, with the expectation that they could have a decent retirement in 2010. The deficit hawks want to tell them it was all a lie? Government will default on its promises? No way—it will not happen.
More probable is a cut to future benefits, something the doomsday machine can be programmed to do. We will tell today’s young people that their benefits will be lower in, say, 2050, than what their grandparents are receiving today. Why? Because today’s infinite horizon projections show future deficits.
Really? Let us say we pass such a law. Will it reduce benefits a half century from now? Tomorrow’s policy making is going to be bound by today’s decision? Get real—today’s Congress cannot tell our grandchildren’s Congress what to do.
In 2050, policy makers will react to the democratic demand of voters to provide for seniors. Projections will—with certainty—prove to be wide of the mark. Maybe they will be overly optimistic; more likely they will be overly pessimistic. In any case, we cannot bind policymakers of the future.
We can, purely for today’s silly budgeting procedures, reduce future benefits and raise future taxes. Why not go whole hog—mandate elimination of Social Security benefits in 3050, but raise the payroll taxes on that date. No more entitlements for seniors in 3050! Mandate government investment in Soylent Green factories instead! Now, discount the stream of revenues and expenditures back to today.
As a pure accounting procedure, we can eliminate the infinite horizon deficits. All is fine and dandy, job well done, no “unfunded entitlements”, deficit hysterians can stop hyperventilating. We have pushed the decision about caring for tomorrow’s elders into the distant future—something that we have no control over, anyway. Maybe youngsters in 3050 will decide to support them; maybe they will decide to eat them. It is not our concern and there is nothing we can do about it.
What about raising taxes now, on the supposition this could relieve burdens fifty years from now? Sorry, it does not work that way. Here’s the idea. Social Security runs surpluses (as it has done since the early 1980s) used to buy government bonds. When, it runs deficits in the future, it sells those back to Uncle Sam to cover the shortfall. But Uncle Sam must then either raise taxes or run a deficit in the rest of its budget to cover the purchases of bonds from Social Security.
What would happen if Social Security does not run surpluses now? Then in the future, to the extent that Social Security runs a deficit, Uncle Sam will raise taxes or run a deficit to cover it. Do you see any difference? No. Today’s Social Security surplus makes no difference at all for the overall budget stance tomorrow. It just accumulates claims on the US government—like a husband owing the wife—an internal accounting procedure.
Simpson claims that Social Security recipients are little more than new born calves, seeking to suckle the teats (he says tits, apparently confusing his cow with his wife) of our hard working cows down on Wall Street, who’d like to destroy Social Security so they could manage and lose retirement savings in the next big bubble.
Now, wait a minute. About three quarters of all Social Security recipients are retirees—those who have worked hard all their lives, contributing to American production. They gave us the living standard we now enjoy. Since 1935, government has held out the promise to all workers: work hard and long and you will enjoy a decent retirement. How can we possibly compare that to suckling the teats (or tits) of 310 million cows? The other quarter of recipients are dependents—widows, children, and people with disabilities. Is the metaphor appropriate?
Social Security, Medicare, and Medicaid—the greatest remaining New Deal and Great Society programs—together comprise our most important safety net. Indeed, Social Security has contributed more than any other government program to poverty reduction, and it is the most important source of income for the majority of American seniors. It is an intergenerational promise, our most important one: if you work hard during your working years, tomorrow’s workers will take care of you in your old age. And if you should become disabled or should die, your co-workers will take care of you or your family. And if you can survive to age 65, you finally get decent health care coverage.
To be sure, such a promise is precisely that—no more, no less. We cannot hold future generations to such a promise. But we can sure as heck protect Social Security, Medicare, and Medicaid today from those who want to dismantle it.
Make no mistake. The President as well as both houses of Congress are solidly aligned to gut these programs. That is what the Rube Goldberg machinery is all about.
It is time to get out the pitchforks to destroy the doomsday machine Washington is creating for us.
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All present a unified front against budget deficits—particularly those due to “infinite horizon” deficits that result from “entitlements”.
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A deficit is a deficit in the accounting identity.
The quickest way to a deficit is to cut taxes. Are MMTers closet Reaganites?
Randy,
A government that prints its own currency may not encounter an affordability constraint (you say so, but where is your proof- you get no points for pretending that economic theory can dictate the actions of all sovereign actors on a world economic playing field). What happens (besides sending in bombers, drones, and death squads) if trading partners balk at the exorbitant privilege being extended to a country which used to be more than a parasite?
I agree to everything but not to the claim that “Everyone in Washington accepts it—from the progressive think tanks to the nuttiest free marketeers; from the politicians to NPR’s reporters; from Pete Peterson’s hedge fund cronies to organized labor.”
The unions don’t come even close to agreeing and honest progressives don’t agree either.
The Dow is down 265.87. What’s up with that?
Maybe it just dawned on Mr. Market; if everybody is busted, including Mother Milk Cow,* there will be no one left to rob.
And if Mr. Market can’t rob, he can’t gamble, and if he can’t gamble, he gets depressed.
*Mother Milk Cow (the US gov) has an endless supply of milk in Her teats. Unfortunately, there are no gentle farmers in Her barn, only sick and twisted butchers like Alan “Tits” Simpson, Erskine “Teats” Bowles, and Barrack “Nipples” Obama.
I think you nailed it Max.
That’s a disappointing article by an economics professor. There are very few actual spending cuts, there are cuts in the growth rate of spending. Not the same thing.
Also who is calling for Social Security to be gutted? The President has called for some adjustments, that’s about it. Delaying when people will be eligible in 10+ years isn’t exactly gutting the system. I’m eligible in 23 years to receive SS, I’d gladly delay it 2-3 years right now if it would keep the program financially sustainable for our children.
Why do you think social security spending is “projected” 75 years in advance, and found to be “unsustainable”, while military spending isn’t even projected 5y in advance? Because the latter is a heck less sustainable than social security or medicare are.
So why do you think nobody is looking at the sustainability of the latter, and everyone is looking at the former? Right, because they want to find a stick to hit the dog with.
As for gutting SS, of course nobody is talking about “gutting” anything. No, the operative word is “making it sound/sustainable, and to ensure that our grandchildren will also be able to enjoy it”. But seriously: do you really believe it is good policy to think 75 years ahead? Remember what was going on 75 years ago, in 1935? Think they would’ve been able to correctly predict the course of the next 75 years?
Floppe…Baby Boomer.
pardon?
A query Dan…what caliber (percentage of cutbacks per-annum), over what distance (years), would be necessary to induce a kill ratio (multiple), that would mathematically suit you and yours, alleviate the unproductive burden on the markets .
Skippy…c’est pas grave…. http://www.youtube.com/watch?v=nuIYhx_gA5A
Dan Duncan…publican…snicker
Already prescription costs for chronic diseases like high blood pressure are going down according to CVS because many patents are expiring and generics are being made for the high cost patented medications.
Mr Gardner;
The hidden joker in the deck here is the changing nature of physicians. Old time doctors were, I presume, somewhat independant high ‘value’ professionals. Todays doctors are more and more ‘servants’ of centralized and ‘market driven’ for profit corporations. I have personally run up against a ‘corporate’ physician who would not give me an older generic drug because, “the Clinic requires me to ‘recommend’ certain drugs.” As health care becomes more ‘profit’ oriented, and ‘shareholder’ driven, you’ll see more ‘new wonder drugs,’ (reformulations of older drugs so as to merit new patents,) forced upon the generally unsuspecting public. National Health is the way to go, if only because, through the political ‘process,’ we can try to influence decision making. I would much prefer “Cloud Cuckoo Land” to a cup of hemlock.
Because much military spending is discretionary………….
You’ve been listening to Tea Party PR. Per the Ferguson video we posted yesterday, it looks like $300 billion of cuts kick in this year, starting in October. Bob Kuttner provides details:
As the beginning of this year, the respected Congressional Budget Office (CBO) projected economic growth in 2011 of 3.1 percent. But the actual growth rate will be more like about 1 percent.
In the first quarter, the economy grew at 1.8 percent. In the second quarter, growth dropped to just 1.3 percent. It will almost certainly be lower in the third quarter.
In June, according to the Commerce Department, durable goods orders collapsed. A short-lived boom in manufacturing fizzled. Growth could well be flat by year end.
This means that the GDP assumptions—on which the deficit deal is based—are worthless.
If the economy is growing more slowly than anticipated, government takes in less revenue. So the cuts in spending will produce far less net deficit-reduction than expected.
The difference between 3 percent growth and zero growth is around a hundred billion dollars in tax revenue, and more payouts in unemployment insurance, Medicaid, and other safety net outlays. Faltering growth means that we will hit the debt ceiling again much sooner than anticipated and that the whole ten-year trajectory to reduced deficits is based on false assumptions.
The story gets worse next year. CBO projected growth of 2.8 percent for 2012. That is not likely to happen either. For the period 2013-2016, growth is forecast at a healthy 3.4 percent. It is likely to be far less, and of course, cutting spending will only reduce growth further.
In other words, the whole exercise of the grand bargain is built on statistical sand.
And that means we get cuts THIS YEAR, sports fans
http://blog.prospect.org/robert_kuttner/2011/08/now-back-to-the-economy.html
Early next year, as part of budget assumptions, Treasury will have to come up with a realistic 10-year GDP forecast.
President Obama’s going to have to defend that GDP forecast against a GOP candidate who will argue that his/her policies will result in annual GDP growth of 5%.
How do you, as the incumbent President, argue against an aspirational 5%.
With 50,000 factories or 10 percent of the total US factories being sent overseas I would have thought that this fact would be more explored as the reason for the current economic malaise. It was covered up by the real estate boom hiring but now its effects seem to me to be a large cause of the current unemployment and tax shortfall.
Yves Smith,
Isn’t it worse than Kuttner writes? Wasn’t first quarter growth just revised downward from 1.9% to 0.4%, as reported last week?
http://www.cnbc.com/id/43941459
If second quarter numbers are revised downward as much, then it will be negative.
To further support the front loaded serious nature of very near term cuts, Peter Orzag emphasized the trigger mechanism of the doomsday device. He said on Charlie Rose last night, that the CBO normally does not score, take into account these triggers, as they are weak mechanism, stronger in rhetorical value and PR spin, than operational detail. HOWEVER, in this case, the CBO actually bothered to run the numbers on this particular trigger BECAUSE IT WAS WRITTEN LIKE AN IRON CLAD CONTRACT WITH NO ESCAPE HATCHES, EXITS, WIGGLE ROOM FOR INTERPRETATION ETC. In my opinion, the ad hoc committee of the whole is planned failure, letting the invisible hand of inaction to take over, and make a decision no one has to actually vote on and be held politically accountable. And of course there is the mystification factor of 2 steps removal from the actual vote of today and yesterday that connects any yes votes from what seems to be a rigged trigger, guaranteed to go off. So sometime around Thanksgiving, that bright flash going off in the horizon is the nuclear extortion going off. If only Obama could channel Jack Bauer from 24 and invoke the 14th Amendment. But, that would suppose that he wants to actually govern and and not just get elected and survive to get re-elected, to once again, not govern but posture. Imagine what kind of shit they will make him eat in public on next go round in 2013.
No, not according to the bill which says that in October they must make recommendations for $1.2 trillion in cuts over the period from 2012-2021. http://rules.house.gov/Media/file/XML_112_1/WD/DEBT_016.XML#toc-HE8F16660AE28473AB044DA5D7D6E479E
Nowhere does it say the actual spending cuts they must decide on in October must take place in 2011 or 2012. They must happen between 2012 and 2021 with no restrictions on when the cuts are actualized, which means they can theoretically even wait till 2021 to enact the spending cuts.
Perhaps you can point to where in the bill it says the cuts must actually be realized in 2011 or 2012.
Hey Steve. How about raising the withholding tax to more earned income. How about reducing war and homeland security expenditures. How about reducing off shore tax havens for big corportations. How about a Tobin tax? Why put it on the working man?
You’re pretty much on the money. There are two things Congress needs to do but won’t: (1) raise the cap so that Social Security payroll deductions don’t stop at $109,000–that’s an immediate infusion of cash, and (2) end the wars in Iraq and Afghanistan and stop empire building.
Congress won’t do it because (1) the Repubs are still trying every which way to privatize Social Security and (2) war is a racket and the kickbacks are just too good.
Today, there is no problem — [Social Security] revenues and expenditures are approximately in balance.
That’s not what the CBO says. Their stance:
Yes, this now-permanent deficit resulted from the 2007-2009 recession. But it’s not as if it hasn’t happened before. The back-to-back recessions of 1980-82 had a similar baleful effect on Social Security, leading to the Greenspan commission raising FICA taxes in 1983 (and claiming it was a permanent fix).
In effect, the government never ‘stress tests’ its budget projections for the business cycle, an ever-present fact of life. This is why its projections are always wrong, on the optimistic side.
As a percentage of spending, the Soc Sec deficit alone is not huge. But the CBO’s estimated $547 billion ten-year deficit is more than half of the claimed $1 trillion in initial spending cuts. In other words, it does matter.
The puny deficits you and the CBO mention could easily be handled by A) the huge trust fund SS has run in anticipation of boomer retirements, or B) a small rise in the cap of income subject to SS withholding.
Somehow there is always money for endless and pointless war (pointless except for the huge profits of the MIC), and bank “bailouts”, but gosh, never enough for the people who this government is actually supposed to work for…
and its because of people like you Haygood, you plutocrat worshiping whore.
Evidently you didn’t read Randall Wray’s assertion that ‘When [Soc Sec] runs deficits in the future, it sells those [trust fund bonds] back to Uncle Sam to cover the shortfall. But Uncle Sam must then either raise taxes or run a deficit in the rest of its budget to cover the purchases of bonds from Social Security.’
On this point, Randall Wray and I are in complete agreement.
Thanks for your kind words and contribution to civil discussion!
We can explain it this way too, and make everyone right on the issue of Uncle Sam borrowing money.
Evidently you didn’t read Cedric Regula’s assertion that ‘When The Treasury redeems Treasury bills, notes and bonds in the future, it sells new ones to raise cash to pay off the old ones. This is called rolling over the debt.
They do this because the “full faith and credit of the USG” applies to both public treasury borrowing and the borrowing they do from the Social Security Trust Fund.
There is no legalese that makes special treasuries subordinate to publicly held treasuries.
I consider this a rather strange article. If we simply can decide to run unsustainable deficits and do not care about the future, well, I bet the bond market will react at one point in time. If the government cannot establish creditibility in the value of the dollar and in the prospect of a reasonably balanced budget to be arrived at in about 10 years, I think we all will be sorry. Destruction of the dollar plus interest rates rising suddenly and fast will put an end to this gutless politician’s actions.
Yawn.
At what point does a sovereign nation become a debt slave to bondholders? When it decides to be… no sooner and no later. These are political decisions — the very notion of “unsustainable” debts, for a nation with currency sovereignty, is an oxymoron. If the US government had any legitimacy it would print $8 trillion to rebuild our infrastructure, manufacturing capabilities, healthcare and education system; we would once again lead the world in showing how a state can actually work in the best interests of its people, instead of leading the world in showing how to become debt slaves to banksters and the IMF.
We are living through one of the darkest times in US history and its all because of a lack of will and imagination amongst our mandarin, weak-blooded “leaders”. Traitorous scum to the last. The American people know what is best, and our “elite” scum are doing exactly the opposite. I guess they hate the fact that with all their fancy degrees and “credentials” they couldn’t run a carwash successfully let alone a country. Why did Obama promise the things he did during the last campaign? Because he knew what the people wanted and he reflected it back at them. Why did he not follow through? Because he thinks the people don’t know what’s good for them… if only Harvard taught character and humility instead of arrogance and pride this country could be great again.
When the US economy has completely collapsed and people are starving… even then the Obamas of the world will deny their culpability and continue to tell us that they know best… their hubris and arrogance will bring us all down if we let them.
+1.
“If the US government had any legitimacy it would print $8 trillion to rebuild our infrastructure, manufacturing capabilities, healthcare and education system”
I am speechless at this redefinition of the word “legitimacy.”
I’m not. That’s how we solved the depression. Massive spending in public works and in WWII. Plus the GI Bill.
Seems pretty straight-forward to me. The government spends now and pays it down later when demand has increased and unemployment is down.
What, inflation will go up from the record low it’s at now? Boo hoo.
Good points Frank. Evidently the Fed can pony up 16 trillion for banks and corporations, but now we have to push the panic button for something possibly happening way down the road. Let’s call this what it really is. A dismantling of the New Deal and a return to neo fuedalism.
You nailed it, Frank.
I’m dying to be convinced of this, but printing money does not solve the allocation of scarce resources. If we build, build, build like crazy, where’s all the metal, oil, etc come from?
Excellent article. Thank you Yves and Randy.
The Soylent Green factories are a perfect “green” industry solution, but why wait until 3050 to phase it in? Post-Peak Oil collapse will be upon us before then, and, in addition to mining seniors as a food source, there is surely Matrix-scale energy potential in that idea.
To your point on the Rube Goldberg contraption, the sophistication of political theater has now been choreographed to a higher level: not just the built-in cat food commission triggers, but also the CYA vote setups paired with assured vetoes—all very clever theater.
Chris Floyd has a good take on this as the ultimate suicide pact, reminiscent of Easter Island:
“So the deed is done. The ‘debt ceiling’ crisis has been “resolved” by a further maniacal destruction of the commonweal, in a bipartisan pact that completely ignores the murderous imperial wars as the primary drain on the nation’s treasury. As we noted here yesterday, the deal also sets up an unaccountable politburo (the special “Super Congress” committee) that will remove further coddling of the rich from the democratic process altogther.
…
“Obama had many options for avoiding this ‘crisis,’ long before it came to a head. He didn’t take those options because, like all good disaster capitalists, he wanted and needed a crisis of this sort to enact the brutal economic agenda he has openly advocated from the beginning. The result, of course, will be further impoverishment and diminishment in the lives of millions of ordinary people, for years to come — and, ironically, the eventual collapse of the monstrous system that supports the ravenous elite that Obama serves with such panache.”
“History affords few examples of the political elite of a country committing such an act of national suicide in order to protect the already super-rich from the slightest impingement of their already colossal fortunes.”
“I suppose Easter Island might serves a pertinent precursor.”
Jared Diamond’s “Collapse” is full of such examples of “unenlightened self-interest” of the elite causing total societal collapse, including the Maya, Anasazi, Greenland Norse and others. We seem determined to pursue a similar path.
“Since 1935, government has held out the promise to all workers: work hard and long and you will enjoy a decent retirement. How can we possibly compare that to suckling the teats (or tits) of 310 million cows? The other quarter of recipients are dependents—widows, children, and people with disabilities. Is the metaphor appropriate?”
Maybe Alan Simpson should look to Paul Ryan for an answer on that “teats” question, eh?
via his wiki [footnote #11] entry (Which I will assume his staffers keep an eye on for accuracy).
“”Ryan attended Joseph A. Craig High School in Janesville and was sixteen years old when he found his father in bed, dead of a heart attack at age 55 (Ryan’s grandfather had also died of a heart attack at age 57, as had his great-granfather also similarly died of a heart attack at age 59).[10] Ryan began collecting his Social Security survivor’s benefits until age eighteen, which he saved for college tuition and expenses.[11]””
Hypocrisy abounds along the beltway, no?
gs_
While I’m certain that Ryan, being a politician, has been hypocritical on many issues, this anecdote is not remotely hypocritical.
I guess we see things through a different looking glass. I can also sense it would end in pointless debate.
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On your comments below on the 50 and SS. I agree, I am 42, and I don’t expect nor count on receiving SS benefits.
However, I tend to think people are looking the wrong way. I have and keep my eye on Roth and traditional IRA’s. How many years before our politicians and banks see those piles of money as a cash cow to be dipped into, with banks and their siphoning by fees, and politicians piling on tax rates.
If anything has been proven in recent years, it is that the rule of law does not matter, a contract is not a contract, and the rules of the game shall be changed as we the [politicians] see fit.
So, what is it going to cost to draw funds at retirement? And, will those funds still be there in 25 years. I have become so cynical I believe an Argentinean style nationalization of funds could happen in this country, in my lifetime.
Well said. The dominant cynic in me says that the Central State will plunder IRAs sooner rather than later. The Rule of Law is now a malleable concept based on who you are.
If we actually had some jobs programs up and running this would be a moot point. The “staging” of all this Kabuki has is worse than a mideval morality play. I expect a smoke bomb will be thrown to present “the Devil” in the details! Ohhh, doesn’t it give you the shivers?
Oh and what a mess it will make http://www.youtube.com/watch?v=qybUFnY7Y8w, not to belittle the point.
Missing the point?
It all get’s down to, “What do we have?” and “How do we divy it up?”. Among wolves, the Alpha wolf get’s the best cut and and the young, weak and old get the scraps. Ultimately survival of the fittest. I’m glad we’re a bit more generous than that. Seems like today in the US, the Alpha wolves don’t feel like sharing as much. I don’t deny that they bring home the bacon (literally), but then again, they can’t eat it all either. The Alpha wolves want the young and weak and old to go out and “try harder” for their scraps and when they have done enough to deserve a meal, the alpha wolves with toss out some more scraps…Unemployed Soldiers coming back from Iraq? – get a job, 18 year old single mothers of several kids? – get a job, disabled? pull your weight, getting old? – go back to work?, layed off from High tech? – go back to school. I could go on, but I’m thinking maybe the Alpha Wolves are the ones not carrying their weight…
Speaking of unsustainable systems, in less than 20 years there will be two workers for every SS beneficiary. At that point the game is up regardless of the FICA withholding rates.
Uh…you seem to make an assumption that may not be shared by all.
Why does SS have to be funded solely through the FICA tax?
As jim eliot said above, it’s about two questions. What do we have and who gets what?
The only thing that’s unsustainable is people’s expectations.
“Why does SS have to be funded solely through the FICA tax?”
Certainly it doesn’t, I should have been more specific:
At that point the game is up regardless of the FICA withholding rates, caps and any other transfer scheme that can be cooked up.
I don’t know where to start on Johnny except to say he is wrong and wonder whether he is being paid to post ignorance or it is his own doing.
Johnny, I paid into SS for 45 yrs and watched it being dismantled for the past 40 years. Before you post such drivel again I would ask that you go back and read clearly what Reagan and Greenspan did to SS as a data point.
Transfer payments my ass! Fuck the ignorant.
Those are my predictions; time will tell if they are wrong. If in fact there are two workers for every collector in 2030 I challenge anyone to make the numbers work.
And yes, I am paid to post by David and Charles Koch. I cannot confirm or deny the rumor that we hold a Koch Conspiracy Conference Call every Thursday at 9AM EDT.
Right away you get romantic.
Can you make those SS numbers work?
We the IBM’s Jeopardy Watson program answering everybody’s questions and robots building most things there is no telling what the US will be like in 20 years. We might all be speaking Chinese or since 300 million Chinese have learned English, replaced by citizens of China.
“Speaking of unsustainable systems, in less than 20 years there will be two workers for every SS beneficiary. At that point the game is up regardless of the FICA withholding rates.”
Any economist will tell you that it is theoretically impossible. All cost savings from transferring labor to lower cost jurisdictions leads to improvements in our standard of living. That theory is true even up to the point that we have no jobs left….or is it no jobs left for anyone but economists…theoretically, of course. Before we get to the point of a shortage of workers (ie 2 per retiree)we will theoretically import theoretical workers and since trade deficits are theoretically not harmful because we theoretically have a sovereign currency there is no theoretical reason why we have a theoretical problem. Theoretically, I suggest you find something else to worry about.
“In theory there is no difference between theory and practice. In practice there is.”
I don’t worry about it. I came to the realization that I wouldn’t see a dime many moons ago. Chalk it up to a lesson on Leviathan.
Randy Wray reminds me of Chip Diller at the end of Animal House in the face of abject chaos. “Remain Calm! All is well!”
Those under 50 would be well-advised to plan on zero SS benefits at retirement. Anything received from our betters in DC should be considered a bonus.
Enough for MMT nonsense. When these crazy mmters blame financial crisis due to ” Bush didn’t spend enough”, you know this thesis is just like a piece of swish cheese.
A year ago someone asked a prominent mmter why he said the entire world “did not understand our monetary system” except a tiny group of mmters. His answer ” look at who is right”, implying he had perfect record giving investment advice. Even there is no evidence for such record many believed him anyway. one year from now, look at what happened. This guy blew every important market call, people who believe his “QE is not inflationary” thesis would be stuck with worthless paper with zero yields. After a few ill timed short calls this guy eventually turned bullish a month ago. No wonder his site has reduced to some gibberish and boring political debate.
Unless you believe MMT’s implied assumption : that government is virtually incorruptible given absolute power to maneuver price of everything, via monopoly of fiat money. MMT is only for those who has interest to grab power of “open an account and mark it up”. most probably for his personal account I guess.
Gibberish and straw men.
Its time for the states to act and call for a balanced budget amendment. The second method starts with the states, and was likely included to give states a check on overreaching federal power. The legislatures of the states apply to congress for a convention to propose amendments to the constitution. If 2/3 of the states make such applications, congress must call the convention. Once such a convention is called, and amendments are proposed, the amendment(s) must be ratified by the legislatures of 3/4 of the states. This method has never actually been used to amend the constitution, but Congress has proposed amendments in response to threats by states to call a convention, likely to retain some control over the amendment process. Read more: http://wiki.answers.com/Q/How_can_the_US_Constitution_be_amended#ixzz1TumvklA2
Might want to give Jamie Dimon a call and see if he is on board with that..lol.
All sarcasm aside…I have serious question and I am trying to get my head around something (not a statement). So here goes, for you, or others here: How could we enact a Fed Balanced Budget Amendment when our financial system and economy that is built on credit and debt?
@Bill
Yeah, no. A requirement for a balanced budget would be the worst thing possible. We have to spend our way out of a depression, then pay down the debt later through increased tax revenue (increased taxes, or the same take rate of a larger tax base), printing money, or a combination of both.
How would a balanced budget requirement solve anything? We can simply set prime interest rates, so printing money is only an issue when unemployment is low.
Other commentators have pointed out US electoral politics is presented as professional sports. Political parties are really the red and blue teams, rather than the right and left viewpoints, the outcome is presented as wins and losses rather than arrangements for living together, and many more analogues.
The obvious next question is what kind of sport? Debate isn’t sport, though high school kids compete. The framework for politics isn’t baseball, soccer, or golf, but professional wrestling.
This analogy fits so many ways–the outrageous chest thumping asides for the cameras, the dangers and difficulties acted out with exaggerated vigor, the moves that would create serious injury and damage if really done are shaken off, etc.
Most important, any rational observer can tell they’re faking it. In professional wrestling, the performers are working together on a prearranged script. In deliberative politics, it’s obvious that supposed opponents are working toward mutual goals, in this case enriching the wealthy at the expense of the rest of us. Their seeming conflict is a cover for having parts in the same play.
Like the WWE, politics is based on something that used to be a real contest. Now it’s a show, one convincing only to those out of touch with reality. Keep bringing up reality, and the show becomes thinner and thinner.
To the victor go the spoils. There are always spoils somewhere.
I think he or she was trying to say that there is no “victor”. There’s just the show. So it’s kind of like one says to the other, “Hey Victor, how do you want do split up the spoils?”
Excellent observation. I thought Linda McMahon was a perfect fit for the Senate. The transition from one theater of the absurd to another would have been seamless.
” How could we enact a Fed Balanced Budget Amendment when our financial system and economy that (sic) is built on credit and debt?”
Oops, now that does appear a fly in the ointment!
Ummm, two-tier finance and politics is the only meaningful answer. Guess which tier Alan Simpson’s in.
It’s really wonderful in a way. The filthy counterfeiting and usury cartel is forced to tread on the “Third rail of politics”. Go ahead Alan Simpson and justify starving Gran Ma. Perhaps she’ll invite you into her Heavenly Mansion assuming you get that far?
Yves, if you’re going to run a serious macro website why do you post such an outrageously political screed? People looking for serious macro insights will no longer be interested in checking your site….unless you intentionally are interested in attracting only the Marxist side of the political spectrum…I can just tivo MSNBC for this level of “discussion”.
The Marxists in China sure figured out how to get 50,000 US factories to move to China with more on the way by devaluing their currency. At least in their constitution their government is suppose to better the live of their people.
Psst. Obama’s a Marxist too. Pass it on.
Don’t believe me? Check this out:
http://s673.photobucket.com/albums/vv96/GBarg/?action=view¤t=Obama-Fraud-Wannabe-Marxist-Dictator.jpg&newest=1
“To put it simply, a sovereign government that issues its own currency can never face an affordability constraint; it cannot run out of its own money. ”
They will, however, run out of the population’s willingness to use this currency as money. People might use rubles instead. Can the US government run out rubles?
There are countless examples where foreign currency trumped local “sovereign” currency. Countless.
And yet — gosh,how is this even possible?? — dollars are still what everyone wants. Dollars and a hefty chunk of US debt.
Unless they’re are total whack jobs, in which case they want gold.
Considering the history of fiat currencies, ownership of gold is rational. It’s a natural defense against the currency predation of Central States the world over.
I think you are suppose to have issue enough currency(debt) so that resources are utilized but not so much to cause inflation.
I’m not so sure the Tea Party will ultimately emerge on top.
Wendy Schiller makes some good points on this – http://theconversation.edu.au/the-tea-party-claims-victory-but-will-the-last-laugh-be-obamas-2634
All I got out of this was what is a Rube Goldberg machine? and then I had to go back to a great article that actually explained it. This is complements of John Hussman at hussmanfunds.com. I only say that because I don’t want to abide by his disclaimer.
http://www.hussmanfunds.com/wmc/wmc100322.htm
Other than having a financial parallel, your link seems an odd choice for a reference on Rube Goldberg.
Why not the obvious
http://en.wikipedia.org/wiki/Rube_Goldberg
Or for more examples
http://goodcomics.comicbookresources.com/2009/03/19/comic-book-legends-revealed-199/