Yves here. I must confess I find it difficult to counter the simple-minded and inaccurate arguments of the deficit scaremongers. They start from the falsehood that we have been “living beyond our means” when pre-crisis, deficits were running at 1.2% of GDP and the CBO projected that they would rise to and remain at 1.5% of GDP, which was a sustainable level. The Federal debt to GDP ratio would have fallen over time at that level of spending.
What made debt levels rise was the global financial crisis. Yet you never, ever, hear this crowd talk about banking industry reform, or for that matter anything other than cutting “entitlements”. The formula is “deficits dangerous, cut spending for ordinary people.”
It’s hard to beat the “live within your means” imagery, which is intuitively appealing to most people and difficult to rebut in the soundbites usually allotted for this type of conversation on TV or at conferences. Dean Baker takes the line of explaining that long-term forecasting is prone to error, and that even it Social Security turns out to need fixes, we have plenty of time to do it and it would take at most 1% more of GDP of spending, which is comfortably affordable. And as for Medicare, which is not part of this post, I suggest you read how the Fed’s long term fiscal forecasters have shredded the CBO model that has served as the basis of deficit hysteria. They demonstrate that the spending growth projections are indefensibly aggressive and violate the CBO’s own rules for budget forecasting.
By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives
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.
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SS is not bankrupt now, it has $2.6 Trillion in Treasury IOUs in the SS “trust fund.”
So if I have $100K in my bank account, am I bankrupt or not? You can’t answer the question without knowing my liabilities. And as the author obviously knows, the same is true for Social Security, or any other entity. But it makes a better sound bite for the innumerate to just baffle them with big numbers. Trillions, OMG!!!
In fact (as opposed to rhetoric), the Social Security Trustees report for 2013 notes on page four that:
‘For the 75-year projection period, the actuarial deficit is 2.72 percent of taxable payroll. The open-group unfunded obligation for OASDI over the 75-year period is $9.6 trillion in present value.’
In other words, Social Security is grossly underfunded, and fixing it with payroll taxes would require a swingeing bite. Those who try to sweep these inconvenient facts under the rug are no friends of Social Security.
Pension security begins with full funding, contractual enforceability, and a fiduciary obligation to beneficiaries. Soc Sec possesses none of these basic safeguards, and as such, is a source of uncertainty and insecurity, not to mention low payouts owing to malinvestment of its assets.
I think this is a good comment, though I come at it a different way:
It is imperative that we raise taxes on the rich, i.e., corporations and the top 1% of households. I have no interest in more deficit spending if it will simply be looted by our kleptocratic elites. We are well past the tipping point into banana republic economics in the US.
MIke: As JohnnyGL pointed out on the weekend, the U.S. Gini coefficient has risen close to a severely unequal 48:
http://research.stlouisfed.org/fred2/graph/?id=GINIALLRH
This represents inequality beyond many Third World countries, and as you say, we’re experiencing banana republic economics. I enthusiastically agree with you: Raise the higher marginal income tax rates, and cut the tax shelters. Unfortunately, U.S. politicians fear Grover Norquist a lot more than they fear us.
I addressed that point many times. Sure we need to re-structure our tax system and make the wealthy pay much higher tax rates; But our first problem is get the poor and the people who suffer grievously from the Great Crash and the Long Depression they had no part in creating, on their feet again. Then we can turn to fighting the tax battles with the wealthy.
The bottom line is that to begin to turn inequality aound we don’t need to turn to taxes first. We don’t need money. What we need is for Congress to appropriate deficit spending and for the Treasury to have an adequate balance in its spending accounts to implement those appropriations. That can be done through issuing debt instruments or through platinum coins, or though other measures. The point though is that it is easy to fund the spending programs we need, if and when the appropriations are in place. And it’s important that deficit spending be used simply because the fiscal multiplier is much higher if we are not taxing to “pay for” that spending.
Okay! When the economy is down, deficit spending certainly makes sense, and despite the NBER’s bizarre declaration of the recession’s end in June, 2009, the economy is still way down. When the economy is healthy, or appears to be healthy, it’s harder to argue in favor of deficit spending. The years 2001-2006 come to mind, but Bush wanted to fund his wars against “weapons of mass destruction”, so the deficits soared.
The deficit should be allowed to float through the actions of auto stabilizer programs such as the Job Guarantee in response to people’s foreign trade and savings desires. If this isn’t done and assuming there is no credit bubble, then a good economy will turn into a down economy very quickly, and a bad economy will become a stagnant economy and perhaps even a depression economy also pretty quickly.
Whether an economy is evaluated as good, should not be our measure of whether there should be deficit spending, but rather, whether or not 1) there is full employment, defined as everyone who wants a full-time job can have one, and 2) how much deficit spending is needed to maintain ful employment.
Note that even with full employment, if people want a negative trade balance of 4.0% of GDP and private sector savings of 6% of GDP annually, then deficit spending on 10% will be needed to stay at full employment, provided that the deficits are properly targeted. It’s best to have automatic stabilizers in place to cause that level of deficit spending rather than Congress having to respond annually with new spending ideas.
On the other hand, if Congress des implement new deficit spending measures needed to solve specific problems, then the automatic stabilization mechanisms would reduce deficit spending to respond to that. For example, say there’s a Job Guarantee program, already providing full employment, and then Congress legislates an emergency program to convert much f the nation to wind power, then the jobs created by the new program would reduce the number of employees employed in JG work, assuming the new wind power jobs paid more than the JG wage and tota compensation package.
The concern, with good reason, is after more deficit spending, there is no higher-taxes-for-the- rich.
On the other hand, if we tax the rich to help the needy, both goals (helping the needy and taxing the rich) are guaranteed. I can’t imagine where else that tax-the-rich money would go – back to the rich, after we tax them?
Yes, Beef.
This is the point I was trying to make (less concisely!) below…
I agree with much of the sentiment behind this comment. But, if say, Congress doubled SS benefit payments, and the President funded those inceased payments with platinum coins, than the money would be placed directly into the hands of seniors, most of whom or poor or middle class.
The question, for those in need of help now, is which will come first politically: a platinum coin or higher taxes on the rich.
By now means can we exclude the possibility of reaching the latter first.
Yes, I understand your point. I have difficulty swallowing it because I think the distribution of wealth in the US is so unconscionable, so egregiously unjust, that anything that could serve (even indirectly) to lessen the stench of kleptocracy and oligarchy makes me bristle. I see your counterargument (the platinum coin example), that this would at least help out some of the poor, while leaving the kleptocracy intact.
I confess I do wonder if this is not setting our sites too low, if it is not simply palliative care, instead of attacking the disease.
I think it is setting sights way too low. The Vichy left do love their captive constituencies. Well, really the captive more than the constituency.
Joe has yet to give any credible explanation of why a flexian government would do anything he asks for, without which he’s only lending his credibility to the rotating protagonist/face role in the party.
Yes, and I meant “sights”. I got tangled in my thicket of metaphors… *blush*
“For the 75-year projection period…”
Ah yes, “projecting” over three generations into the future: sure to be highly accurate.
Don’t worry Jim, climate catastrophes and disease will wipe out many of the people CBO is projecting long before they reach retirement age; many before they’re even born! The CBO has failed to account for our planetary post-industrial decline. Taking that into account makes the SS numbers look far rosier.
Of course that’s right. CBO projections are often invalidated 6 months out; much less 61 years out. These are nonsense games designed to create austerity. The effort to this dates from the mid-1970s it’s not recent. It as to do with the establishment of right-wing think tanks and the beginning of the Peterson campaign to privatize SS.
Joe:
Correct and thank you for stating such. 10 year increments is about the longest we should be projecting. The biggest problem is funding SS when it gets down to 1 year (which by law Congress must react to) . Even then if we did nothing it would still be funded at 70+% of the payout at that time.
The solution maybe just as easy as slowly increasing the payroll tax 1 tenth of 1% for 10 years on both individuals and companies. Have you read Bruce Webb and Dale Coberly ? Both have a sound basis on SS>
$9.6 trillion over 75 years comes to $128 billion a year, which is already only 1% of GDP. In addition, while that number is in nominal terms, hopefully over the next seventy-five years the economy will continue growing faster than the rate of inflation (i.e. there will be real growth in productivity), making that percentage even a smaller. This is an accounting problem that we need to take care of legislatively. It is not a crisis requiring us to scrap our social welfare system right now, or privatize it into the hands of those who will surely destroy it.
And above, I outlined how to take care of it legislatively. Can we do that? Well, we have 19 years to elect the right people to remove the problem. Hopefully we ‘ll be able to do it long before they admit; though I have to admit that the likely election of another Clinton in 2016 doesn’t bode well for strengthening safety net programs.
Gee, that sounds horrible until one compares it to the $6 trillion spent on wars which have made us less safe, $4 to 15 trillions spent to bail out Wall St all without any attempt at the reform or changes in national priorities necessary to stop the insanity.
Obviously the problems with ss are much smaller and easier to fix, and the DC & Wall St austerity is simply the preferred solution by the elites.
Just more making the little people pay while the rich get richer.
How about those who sweep under the rug the inconvenient facts that:
1) SS has plenty of “funding” for years to come;
2) The conclusion that it is “underfunded” is true only if we assume that it must be “funded” with payroll taxes at the present rates, and also if we assume that current law continues unchanged; and that it could just as easily be funded in the way I outlined in the above post;
and
3) That SS needs to have funding in place now for obligations that will fall due more than 18 years from now is an arbitrary assumption having no justification in light of the fact that Congress can change current law as prescribed above, literally in an afternoon and then the President can ensure that the funding for benefit payments would always be there by minting platinum coins with very high face values and depositing them at the Fed?
And how about the fact that the IMF says we need greater wealth and income distribution in order to have economic progress?
http://www.imf.org/external/np/pp/eng/2014/012314.pdf
Thus, SS needs to be increased, not decreased.
Thus, the rich need to be taxed more, like for SS contributions.
Not enough progressive talk about this important development at the IMF.
‘For the 75-year projection period, the actuarial deficit is 2.72 percent of taxable payroll. The open-group unfunded obligation for OASDI over the 75-year period is $9.6 trillion in present value.’
$9.6 TRILLION sure sounds like a lot of money until you put it in perspective.
The financial system bailouts cost somewhere between $10 trillion and $13 trillion in 6 YEARS. The wars in Iraq and Afghanistan cost between $5 trillion and $6 trillion and counting.
So, we found somewhere between $15 trillion and $19 trillion when we “needed” it.
We could have just banked the $9.6 trillion and wasted a little less. Over 75 years.
On some estimates, the bailout total had reached $29 trillion by December of 2011.
http://www.huffingtonpost.com/l-randall-wray/bernankes-obfuscation-con_b_1147291.html
So if I have $100K in my bank account, am I bankrupt or not?
That’s easy. You are not. Assuming that any immediate claims / liabilities have been paid for.
You conflate bankruptcy with underfunding. They’re not the same. Under your definition of bankruptcy, every household with a mortgage is bankrupt, every company with debt higher than their cash reserves is bankrupt, and every government program that doesn’t generate its own revenue through fees is bankrupt.
Opponents of social security love to equate lack of planning for possible, future bankruptcy with bankruptcy today. The fact is that social security is not in a crisis. It needs changes to further strengthen it, but that is far from a crisis.
If your definition of a government program in crisis is one that is fiscally sound for another 20 years (i.e. can pay its liabilities with current assets and projected revenues), then I shudder to think what you consider a fiscally sound government program is (or for that matter, what household, private corporation, or any other current enterprise meets your definition of fiscal soundness).
Sigh. If only people now had half as good an understanding of Social Security and (government) finance as FDR.
MEMORANDUM ON CONFERNCE WITH FDR CONCERNING SOCIAL SECURITY TAXATION, SUMMER, 1941
“Those taxes aren’t a matter of economics, they’re straight politics.” The trust funds are politics. The taxes and trust funds have nothing directly to do with the economics of Social Security, which is a government program. Jim Haygood’s and many others’ concerns are honest – but utterly misguided and confused, based ultimately on incorrect accounting. MMT = FDR =Keynes = New Economics of the 1940s = correct accounting. Modern mainstream economics – started rotting in the 1950s – phase change into 50+% nonsense around 1970 – = bad accounting.
Are there ” ‘Defense’ Department” taxes? Is there a Pentagon Trust Fund? Do people worry about the Pentagon going bankrupt, being actuarially sound? No, because these questions and mythical institutions make no sense, because they embody invisible, and ever more nonsensical and untrue presuppositions. Unfortunately, government spending which is not welfare for the rich, or “defense”/waste spending is made to embody nonsensical assumptions – which become more and more nonsensical the more societies develop & technology advances.
And the (pretend) “finances” of SS could be (pretend) “fixed” very easily & invisibly by changing just one number – the interest rate on the bonds the funds hold – Robert Eisner’s suggestion.
There is no such thing as contractual certainty, enforced by law. All laws are undone by the stroke of pen. What is legal today is tomorrow illegal. The decision makers who legislate simply change hands by being elected with the money of wealthy and powerful to have the patina of legitimacy. All of the decisions in a democratically controlled republic, which is the basic structure of governing around the world, gather together in one controllable venue in a national capital where a legislature convenes and legal disputes are adjudicated.
The electoral process then has all of the elements of power under control via elections which proceed to rewrite laws in the Uniform Commercial Code in favor of corporate business interest, eroding and degrading any contractual obligations whatsoever. The precious rule of law is a legend told to the middle class to make them feel secure and have the capacity for calculability, the power to project a course in a stable civil society over time without concern for disruptive rule changes or violent gangster predation against their property, their savings or their physical well being. Your petty bourgeois belief system in the power of the rule of law, fiduciary responsibility, the reification of intangible ideas such as enumerated political rights into A THING CALLED PROPERTY show nothing more than your socialization in a sub=culture of working people whose lives have been planned for by those far above them in status and power in the social order. Change is the only constant in the anarchy of capitalist production. There are no commercial or juridical eternal verities.
It is 100% impossible for our Monetarily Sovereign U.S. government to run short of dollars, for the simple reason: The federal government creates dollars ad hoc, by spending dollars.
If a creditor presented the federal government with a legitimate $999 trillion invoice, the government could pay that bill today simply by instructing the creditor’s bank to increase the balance in the creditor’s checking account by $999 trillion. That is the method by which the federal government creates dollars.
Instructions take the form of a check or wire, and require no balance from which to draw. That is the fundamental difference between Monetary Sovereignty and monetary non-sovereignty.
All this talk about government solvency, Social Security solvency, debt/DGP, etc. is absolute nonsense. The government does not pay its debts with GDP. Paying federal debt is completely unrelated to GDP.
This entire article is based on the false assumption that the federal government’s finances are like personal finances (i.e. monetarily non-sovereign), whereby one must have a source of income before paying bills.
The federal government needs no source of income to pay its bills. Even if all federal taxes fell to $0, the government could continue paying its bills, forever.
Ah but there’s a flaw in your secret plan. If the Federal Wizard of Ben conjures enough of these little green slips called “Federal Reserve Notes”…then people will no longer believe they are worth anything. Oops.
Sorry, you’re not really saying that the federal government has the power to create and issue $US balances whenever they want out of thin air, are you?
Please explain the debt-ceiling and government shutdown crises from that perspective.
Also, that the SecTreasury says he NEEDS to have money in his account before he can spend it.
Please say what it is that you think you know, that Secretary Lew does not know.
Otherwise, sounds like 999 Trillion snake-oil pitchman here.
You’re saying that the federal government can credit someone’s account without debiting its own account, which violates federal financial management protocols……which is why Lew says he NEEDS the money……. in order to follow the rules of financial management..
Huh?
Huntsman’s commentary and a lot of the comments on this post are based on this false assumption; but certainly not my post, if that’s what you intended to say, Rodger.
Apart, from that, the above statement is at a level of abstraction that isn’t helpful in explaining to people why the Treasury will be able to make those projected “shortfall” payments. Sure it’s true that the Government, including the Treasury, the Fed, and the Congress can always arrange for those payments since our Government is monetarily sovereign, and sure it can pay a $999 Trillion bill if it were valid and presented to it. However this is hiding the following details:
1. The Congress would have had to appropriate the spending resulting in the bill;
2. The Treasury would have to create the credits at the Fed PRIOR to marking up that private sector account;
3. The Fed would have to cooperate with Treasury in getting those credits either by implementing the procedures now coordinated by the two agencies to facilitate the sale of debt instruments, or by implementing the procedures I’ve outlined here: http://amzn.to/Z7kG5q to get that $ 999 Trillion in reserves into the TGA, so the creditor’s account could be paid.
The quote above from your reply is correct, but opaque in relation to details like these. Such details are needed to persuade people that monetray sovereignty exists apart from our mere assertions that it does, in spite of the illusions the PTB have created to hide the truth from Americans.
Actually, I don’t think that is true. First the projected liabilities of SS are not current liabilities. The projections are relative to assumptions which are unlikely to hold over 75 years. So, these liabilities are highly contingent.
Second, Social Security is an agency within the Federal Government whose spending is done directly out of the Treasury General Account. The Treasury, in its turn, has unlimited authority under current law to mint platinum coins with arbitrary face values. It can have $60 Trillion minted tomorrow and deposited at the Fed, which, in ts turn, has unlimited authority to credit the Treasury accounts with $60 T in reserves. Treasury can then use those reserves to guarantee the projected liabilities of SS out to the 75 year time horizon. Also, Treasury is obligated to pay out benefits as long as Congress mandates such payments. So, since Treasury has the means using Platinum Coin Seigniorage to make those payments, it also will have the obligation to use this or other means at its disposal to pay out those benefits for as long as Congress mandates those payments.
Bottom line? Fiat currency users can be “bankrupt.” But fiat currency issuers can only refuse to pay their bills or go into voluntary default. If they do that they’re not bankrupts; but just the worst kind of “deadbeats,” Like rich people or corporations who won’t pay their bills.
Trying to answer the “living beyond our means” and other memes a rightward tilt in framing issues cannot be done. Why? Because our contemporary political economy and social reality is far to complex to describe in a few words–it takes an education to even begin to understand the actual dynamics involved in the events and issues that seem to overtake us and the American people have largely wanted to close their eyes rather than educate themselves as citizens. There is too much around us that is more satisfying to pay attention to.
Well, there’s always rabble-rousing at the expense of the finance industry.
It’s worked in the past even if it wouldn’t pass muster in a seminar room at the John F. Kennedy School of Government.
As I commented below, Occupy did a good job at bringing all that out and the rabble was not aroused–in fact they went exactly in the opposite direction. Americans would rather be ruled by ruthless authoritarians who wear suits and take daily showers than people who are dirty (not too many showers in parks) and (worse) read books and (even worse) appear not to have a job.
It was not the fault of the “rabble.” It was the fault of Occupy. They screwed up royally.
See: http://mythfighter.com/2012/06/17/anyone-heard-from-occupy-lately-does-anyone-care/
Everyone makes mistakes.
But they are re-occupying……..
https://www.facebook.com/events/517755408329988/?ref_notif_type=like&source=1
“…our contemporary political economy and social reality is far to complex to describe in a few words…”
Walter Kaufmann has considered this conundrum in depth:
From the introduction to Martin Buber’s I and Thou.
What is needed, I think, is a good simplification. Firestone has been doing a lot of good work on this front.
Well, Occupy tried some good simplified slogans and, frankly, they didn’t stick. While the left talks about the “99%” the rest of the population doesn’t much care because, as most people know, Americans like to think of themselves as temporarily embarrassed millionaires (or even billionaires) who accuse the poor of being irresponsible and making poor choices–if you want to work in America, the story goes, you can succeed. How do you argue with that? Sociological studies? Lectures on the psychology of poverty and generational suffering? Americans equate economic success with virtue because that’s the social ethic–not necessarily because they are mean or ignorant it’s and underlying assumption on the part of most Americans.
How can you simplify Yves’ assertion that the budget crisis is phony? You can say “government debt is not like consumer debt” but that goes nowhere. You can say that the ruling elites are stealing our money but most people will ignore that because American cultural icons are often con-men and women. After all, the Bankers cheated us fair and square in the old-fashioned art of the hustle–they put in the sweat to run the cons–why not get the rewards?
As they say in academia, “further research is required.” The flailing economy will help our cause, as will repeated assertions of fact and truth.
Americans will never buy the argument that the people higher on the food chain for whom they depend for a paycheck and beer money are the reason why they can’t pay the mortgage. They need a much more credible enemy, like a bearded ex-CIA operative holed up in a cave and dying of kidney failure— whose family just happened to be business associates of the Bush presidential dynasty. That enemy was just like the Energizer Bunny. It just kept going and going long after the original actor died and was replaced with another who looked vaguely similar. A few hundred thousand in bribes to the Pakistani secret service paid a thousandfold dividend in Homeland Security fear bonds.
Fortunately it looks as if we have found a replacement to scare the sheeple back into the fold. We were taught at an early age to hide under our school desks in the event of a nuclear attack by the Bear. By universal acclimation our organizations of public information have cast aside the ghost of Osama and replaced it by the severe face of Vladimir Putin.
This argument comes up a lot in progressive circles, and I think it’s just a way for the left to give up while patting themselves on the back. Oh, our positions are so complicated and people are so stupid, we’re doomed to lose! What’s really happened, I think, is the left ceded control of the argument a long time ago to the right, and currently doesn’t possess the skills and fortitude necessary to win the public back after 40 years of allowing right-wing memes to go unchallenged. And I think this happened because too many of the “left” bought at least partially into the right-wing narrative themselves, because of corruption by monied forces and a desire to triangulate and appear “serious.” Say what you will about the right, they have been willing to work hard for 40 years to change the discourse and have achieved a large measure of success, while the left coasted and napped and thought Social Security would always be the “third rail” no one would ever touch.
It’s a lot easier to work hard for forty years when you’re being paid, as I’m sure many will come to find out soon.
I’ve heard this sort of argument a lot. I don’t buy it. Most people who don’t, for whatever reason, study these issues which have never been presented to most people in coherent neither in ElSec nor Post-Sec education nor, God forbid, the mainstream media. Part of the the reason there is so little understanding of the problems we are faced with is dud to the fact that, culturally, there is so little value placed on wisdom and knowledge.
The reason the left is moribund is that most of us don’t understand what political power is nor how to achieve it–here’s a hint–power comes from committed communities.
“Trying to answer the “living beyond our means” and other memes a rightward tilt in framing issues cannot be done. Why? Because our contemporary political economy and social reality is far to complex to describe in a few words”
True. But that is what the people who say that we are Living Beyond Our Means are doing. We don’t have to describe it all in a few words ourselves, we just have to counter the propaganda.
I have two reactions to the Living Beyond Our Means meme.
The first is, what does that mean? Burning too much oil? Eating too many french fries? Degrading our environment?
The second is, Are You Nuts! How can the richest, most powerful nation the world has ever known live beyond its means? If we have people going hungry, living on the street, or dying from lack of medical care it is not because we cannot afford to feed them, clothe them, house them, or heal them. It is because we do not want to do so. The claim that we are living beyond our means is just an excuse for doing nothing.
Yea well don’t bother worrying about destroying the life supporting capacity of the planet. What matters is not if the oceans suppport life, the temperature and soils allows food to be grown etc.. What matters is a bunch of purely symbolic stuff like money. And the most frustrating thing is that not only the Austerians believe this nonesense but the growth regardless of consequences types are their mirror image.
I am more inclined towards the first reaction.
We are chopping down too many trees, living beyond our means.
3,000 lions today, versus 1/2 million lions in some area in Africa.
Whereas we had gorillas in the mist, now, it’s gorillas amidst farms…thank you, infrastructure projects.
We have to imagine, visualize, and people believe it is possible, a smaller GDP and a happier society.
We are living beyond our means.
The needs of the many should include the rest of Nature and those to come after us, even if we have to say no to many infrastructure projects, if that is what is means, because the needs of the many outweigh the needs of a few.
That should be ‘…1/2 million lions 50 years ago…’
Narrowed to US only.
Postulate: There is plenty of capacity to deliver food, clothing, and shelter for every person in the US.
Therefore, there are millions of people who want a to work (a job), but can’t (unemployed). These people are available to work on the things that as a society we need. So, saying we as a society can’t afford to do -blank- should have nothing to with what the value of certain numbers in computers are, but whether there is the labor, energy, and material resources to do -blank-.
Yes, material resource and energy are limitations of a sort. But, one of the things that we should be doing is figuring out how to use less materials, make use of more renewable energy (Total US energy usage is 1-2% of total solar insolation. There is plenty of energy.) reduce impact of food production reduce environmental impact. Yes, the people working and getting paid to do these things by creating money will want stuff beyond food, clothing, and shelter. But, there is plenty of capacity to provide that stuff and by working on reducing the impact of making stuff we prevent the environmental damage of that stuff.
One point, I am not of the school that technology will magically save us. I think it can save us, if the will and effort is applied as a society. Without the will and effort, the random efforts of underfunded researchers struggling to get grant money and trying to make a living probably won’t cut it.
My point is we can afford to put people to work, take care of our elderly, protect the environment, and more because the people are there desperately wanting to do something. And, all we have to do is key stroke the “money” to have them do it.
Social insurance is popular, just, evidence-based, cost effective, and critical to the entrepreneurial risk taking upon which market-based economics depends. I find that someone not amenable to at least one of those angles is usually part of the problem (unless of course they are legitimately critiquing private property ownership itself, but that perspective is quite rare…)
I would also add, though, that acknowledging people’s concerns about things like inflation and government waste is helpful. After all, if the cost of living wasn’t going up so much, then why is chained CPI a big deal?
We are squandering massive resources, and the healthcare sector in particular is definitely part of the malinvestment. The OASI trust fund is sound. But the DI and HI trust funds have real choices coming, and our unemployment insurance system is embarrassingly awful. Only a tiny minority of the unemployed are covered by UI benefits. Those excluded range from prisoners to recent graduates to people who ‘voluntarily’ quit a prior job to people who violated a ‘policy’ of the prior employer to people who worked for an employer not covered by that state’s unemployment compensation system.
It is also interesting hearing a defense of social insurance in the MMT context, since social insurance (particularly universal unemployment insurance and universal health insurance) is one of the biggest alternatives to MMT’s JG/ELR. What social insurance offers – especially in the American context – is proven historical success combined with the underlying philosophical view that life is a basic right, not something that must be earned. JG is exactly the opposite – it says that people should have to work for even the most basic of necessities.
For JG and many others like it, the default is suffering, starvation, sickness — you need to work, you have to have a job.
For GDP sharing, the default is living and sharing together, meager though it may (or may not).
It’s about your basic assumption about what it is to be a living being.
Job guarantee is just changing our masters. Who tells us what to do to survive under what conditions. Under a job guarantee If the market can’t provide enough jobs then the government will step in. But the workers relationship to it all is still as a servant who must obey their masters! What’s the alternative, eh well I don’t have utopia in a box but: worker ownership or guaranteed income, that would make the masses their own masters.
And being that we have a government owned in entirety by the capitalists at present and that’s not even debatable, whose to say if by some miracle a job guarantee program passed, the jobs it provides aren’t very low quality. Because the capitalist state has no real incentive to increase worker bargaining power. That is often the case with existing social programs! That aren’t real competition (although SS is an exception of course). And it would of course have the side effect that anyone without a job would be even more despised than they already are.
That a job guarantee might be somewhat of an improvement over the present though sure, but it’s not the end state to be sought.
‘…somewhat of an improvement…but not the end state…sought…’
‘changing our masters….’
Exactly.
Anything but paying attention to the fact that we are a monetary sovereign of the little people, for the little people and by the little people…and money creation via the little people spending it into existence.
The little people, collectively, are not a household.
Washunate: JG is exactly the opposite – it says that people should have to work for even the most basic of necessities.
NO IT DOESN’T. That is NOT what the JG says. (@MyLessThanPrimeBeef, also) The JG is perfectly consistent with a money-using society that provides all the basic necessities to its members. Such a society is much less immoral and insane than a monetary society without a JG that does not provide such basics, but it is still immoral and insane, impoverishing itself and its members by creating an unemployed caste of “lesser people” for no (speakable, civilized) reason whatsoever.
Many (/most) critics of the JG, including academics, construe the JG as something quite different from what it is and then criticize that – and MMTers would often agree with these (irrelevant) critiques.
That’s not how Wray and Mosler and others use it, though. JG is a fundamental component of MMT’s monetary system.
Here is how Wray quotes Mosler on the subject:
“With ‘state currency’
There necessarily is,
Always has been,
Always will be,
A buffer stock policy.
Call that the MMT insight if you wish.
So it comes down to ‘pick one’-
1. Gold
2. Foreign Exchange
3. Unemployment
4. Employed/JG/ELR
5. Wheat
Whatever!
I pick employed/JG/ELR
As it works best as a buffer stock based on any/all criteria for a buffer stock.”
Later on, Wray dismisses social insurance and practical critiques this way, “I’m not going to say more about these final two arguments against full employment as I’m convinced both are fallacious, and because neither of these critiques offers a price-stabilizing anchor for the currency in place of the JG/ELR.”
To say that JG is consistent with a society that provides other support to citizens is to critique the very essence of the JG, to disagree with MMT’s view that one must pick a buffer stock policy, that a monetary price-stabilizing anchor must be in place.
http://www.economonitor.com/lrwray/2013/12/28/bop-a-mole-1-does-modern-money-theory-need-a-job-guarantee/
Nothing you quote (or could quote) from Mosler & Wray contradicts what I said. The JG is not exactly a component of the monetary system, but a consequence of the correct and entirely trivial understanding of the monetary system = (purely financial, operational side of MMT)+ universal human moral principles and elementary logic.
Wray, Mosler are not talking about other support systems, but about “buffer stocks” – which does not have much to do with other social decisions, but is more of a “purely economic” idea.
To say that JG is consistent with a society that provides other support to citizens is to critique the very essence of the JG, to disagree with MMT’s view that one must pick a buffer stock policy, that a monetary price-stabilizing anchor must be in place.
No,it does not. Again, Washunate, you don’t understand what the JG proposal is. Both Mosler & Wray are on the record as saying that modern societies should “provide other support to citizens” one way or another. You can call MMTers crazy or illogical, but what I am stating is not a critique of but the standard understanding of the JG among MMTers like Mosler & Wray, and what you are stating is not.
It takes wild and unsound leaps of logic to derive a contradiction between the JG & proposals for societies providing all the basic necessities. The JG is a job offer. That’s all. If I or anyone offers you a job, how am I saying – “You must work for basic necessities”? I am not. I may say this also – perhaps by imposing an onerous tax system, perhaps by enslaving you. But that is a completely different action, a completely different thing.
I’m reminded of the logic used in Elizabethan society where if one was sentenced to capital punishment, one could choose the manner of death if found guilty, but, pleaded not guilty, if they owned property i.e. beheading, hanging, burning, or for those that wished to pass on their assets to their family… death by weight, the most gruesome and languishing of all. A sharp rock was positioned in the back between the spine and ground, next a board was laid across the top of the body. Now slowly large weights were increasingly applied to the top of the board until a combination of crushing and asphyxiation killed the victim, up to 12 hours till death.
Skippy… failure to submit to this punishment resulted in the liquidation of ones assets to the state or plaintiffs. Gezz the evolution of market based social morals reads like a “SAW movie” traps compilation from antiquity… devolution comith!
PS. have to stop reading so much.. I know… sigh.
So let’s skip the whole buffer stock thingy and just do the “other support to citizens”.
You need to read more of the JG literature. The JG is not an alternative to the social insurance programs. MMT proposals about the JG are quite explicit about that. So, your claim to this effect i just false. Please do not make it again!
As for Social Security, I am old enough to remember being concerned about Social Security at the start of the Reagan administration. I did not follow the question closely, but I was aware that the gov’t addressed the issue and the fix was in. A few years later I was surprised to hear that Social Security might not be there for us when we needed it. What! Didn’t we just fix that? But a lot of young people were worried and, to the extent possible, prepared for a retirement without Social Security. I have come to realize that Social Security is a perennial target. Someone is always saying that it is flawed, or that the gov’t may not meet its obligations to seniors. It’s all bullshit. And we should call it for what it is: Bullshit! Bullshit! Bullshit! Reasoned argument is the wrong response. Reasoned response to each objection is a never ending game of Whackamole. It is not worth the trouble. Go to the heart of the problem and cry Bullshit!
Now that’s an interesting theory. What if they don’t even plan to cut SS but just want to scare us to putting every more of our meager incomes into WallStreet retirement accounts.
Outside of a tiny handful of nutty Mises.org ideologues there’s no-one who actually wants to destroy SS and the payroll tax that funds it.
The populace can be divided up into two groups: people who like the system as is (vast majority) and people who’d prefer that the gigantic cash flows of the payroll tax were being funneled into private hands, there to be skimmed off. (Wall Street and friends both pecuniary and ideological.)
But actually completely get rid of SS? Never happen. We might definitely see a privatized system some day though (with a tact government backstop of course…it would be politically impossible to allow the nation’s retirement plan to be destroyed in a big 2008 style downturn, all talk of markets and such nonsense to the contrary.)
“The 90 percent who lost everything are ‘extremely rare cases’, a spokesperson said on condition of anonymity.”
The “fix” in 1983 wasn’t a fix. What should have been done then is what is proposed above. Had that happened we wouldn’t be hearing this nonsense about SS “running out of money,” unless he Government, as a whole, ran out of money. Of course, that’s also nonsense; but it’s easier to argue one issue rather than two and show that both are really the same issue, namely that this Government, under current law and the constitution, can’t be forced into insolvency.
BTW, if we want our current young people to have a secure retirement, let’s raise their wages. :)
Everyone should have a seat at the dining table.
That means GDP sharing, nothing to do with higher minimum wages.
Spending future income [debt] is the shortest road to Hell mankind has ever discovered.
Right! Let’s get rid of banks. No more loans! No more loans!
Let’s not get rid of banks.
Let’s stop banks from issuing our money BY making loans and increasing the debt, and instead have the government issue the money without debt, and have banks lend THAT money..
Occupy seems to be waking up to this idea………finally.
https://www.facebook.com/events/517755408329988/?ref_notif_type=like&source=1
Bullshit!
Amen, brother, amen!
The “It’s hard to beat the “live within your means” imagery” is nonsense. Besides the 2%, how many people buy a house with cash? How many buy a vehicle with cash? How many pay for college with cash? Whwn I hear that squeal, I usually ask “Did you pay cash for your home?” The answer has always been “No.” If someone borrows $210,000 to buy a home and they earn $70,000 they are in debt 3 years worth of total salary. How can these same people say defcits are the end all, but then borrow 3 times their earnings on a home?
“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…”
This statement is not perfectly accurate, as income distribution affects FICA payments. If a higher proportion of earned income goes to people who reach the FICA cap in mid-January, doesn’t that mean that a higher proportion of earned income will not be subject to FICA?
That’s generally right. But since one of the policies advocated by MMT is a full payroll tax holiday for both employees and employers. With that enacted, it will redress the inequality balance somewhat, at least for a time, as will other measures to get people back on their feet. But what I’m saying is that the fight for a fairer tax system to level the payig field can wait until later and need not be coupled with the task of getting people whoe again..
Politicians know better than to mess with Social Security. Its a kiss of de@th. On the hand, Team Obama found new, easy targets to do his Grand Bargain in the 2015 budget: Military Veterans, their families and Active Duty service members. Obama and his gang are making sure those who fight USA wars shoulder more of the cost of propping up Wall Street defense hardware.
>
Min!
we love you
and..they are bullshitters – greedy and amoral bullshitters, I would add
& if you need more proof – look into Medicaide Estate Recovery
‘tax the rich to save the poor’ g.singlaub
Here is my attempt to kill the pernicious kitchen table metaphor with some humor: http://cloudtransit.wordpress.com/?s=kitchen
It is nearly on point, since if falls into the, ‘imagine your family is the Federal Government’ rhetoric that makes “entitlement reform” sound so sensible.
Hey Min,
I think I like your argument but cannot follow due to you abbreviations/ acronyms.
Specifically: MMT, JG/ELR, JG, DI and HI…
Please elaborate,
Thanks
Hi, Roscoe.
Thanks, but I’m not the acronym guy. :)
You’re thinking of somebody else.
MMT = Modern Monetary (or Money) Theory. See some of the blogs on the blogroll like New Economic Perspectives, billyblog or The Center of the Universe
JG = Job Guarantee
ELR = Employer of Last Resort. The JG, sometimes called ELR program offers a government job to anyone who wants one. Like abolishing slavery, human sacrifice, establishing some kind of democracy etc it is a minimum for a sane (monetary) society.
OASDI = Old-Age and Survivors Insurance and Disability Insurance (The main part of Social Security)
DI = Disability Insurance
HI = Medicare Hospital Insurance (HI) Trust Fund
Social Security’s future needs are trivial if the economy grows at even a moderate rate. But if the 1% confiscate the entirety of the economy’s growth – this has been approximately the pattern since 1980 – there is no money , not only for Social Security, but any other social good.
The choice is between the people’s needs, and even bigger McMansions.
If the education was ‘we need more economic growth,’ and the rich confiscate all of that, then we don’t need no education.
It’s a small voice – why don’t we share what we have, even just fractions of what we have, more equitably and be happier?
We must motivate the designated winners!
A quick note to Joe Firestone: you’re absolutely right (on the facts and on the financial solution), but you’re never going to get anywhere trying to convince people logically. Huntsman’s appeal isn’t to logic, it’s to emotion by stating an unrelated (but true) fact followed by a unrelated conclusion.
For example:
Fact: People live longer than they did when SS was passed in 1935 (true)
Conclusion: We have to do something! Let’s raise the retirement age to 75! (unrelated conclusion)
So, in all seriousness, the “progressives” (a poisoned word — call yourselves Patriots) need to counterattack and shame them (consider something like the following):
So, Abby, what you’re saying is that the America that stood as one at Bunker Hill, that put a man on the moon, the America that rolled over Saddam in 72 hours, the American that invented the iPad and the iPhone, well the answer to some G*d-damned accounting weenie problem is to let Grandma starve? Is that your America? Franklin and Lincoln’s America? What ever happened to “nobody left behind”? Didn’t we learn that in the jungles of Vietnam? Because if that’s YOUR America, where Grandma dies on the 4th of July ’cause she can’t afford A/C, go spout your crap to the French.
Does it make sense? No, but who cares? It’s a slightly more sophisticated version of Blutto’s “was it over when the Germans bombed Pearl Harbor” speech. (IOW — the greatest country in the history of the world can’t honor it’s promises to Grandma? Is that what you’re saying to me?)
Forget about facts, go for the emotional jugular.
I like the emotional thing, see: http://neweconomicperspectives.org/2012/12/richard-eskow-asks-which-side-are-you-on.html
But I also like the facts. Different strokes for different folks. I’m not trying to counter Huntsman on MSNBC, I’m trying to provide various reasons why she’s full of it to people who reason.
I doubt all notions involving money. If we chuck the records away, what is debt or deficit tomorrow? If all cash melted into air at the same time, what would money be? What would it be if those ripped-off took power? Now think of all well-cleared farming land melting back to ancient fern. Want this to happen ahead of all money and its records disappearing?
Even the UK NHS budget is thought to run with 7% fraud, rising to 15% in some areas. If stock markets are 50 – 70% over-valued, what fraud there? So what is money?
One can usually ask such questions in trying to come to definition in use. We might ask if money is a convention. Typically we think of such as the following:
The central philosophical task posed by conventions is to analyze what they are and how they differ from mere regularities of action and cognition. Subsidiary questions include: How do conventions arise? How are they sustained? How do we select between alternative conventions? Why should one conform to convention? What social good, if any, do conventions serve? How does convention relate to such notions as rule, norm, custom, practice, institution, and social contract? A favourite philosophical gambit is to argue that, perhaps despite appearances to the contrary, some phenomenon ultimately results from convention. Notable candidates include: property, government, justice, law, morality, linguistic meaning, necessity, ontology, mathematics, and logic. We can add money.
So you can line up to write any of a thousand books on the bloody obvious fact that money is a convention. Monkeys and a quantum computer set to a task we already know the answer to. Money is a convention with irregular meaning is use, just like much language. So why is it not subject to democratic control and transparent accounting, and why does money control politics?
At this point, economics can only help by modelling democratically controlled, transparent accounting systems. There’s no money in this, so economists won’t be bothered. And, of course, the implementation of any such system would dissolve the competitive advantage that keeps the US military umbrella up and the sky from falling.
A common thread linking most treatments is that conventions are “up to us,” undetermined by human nature or by intrinsic features of the non-human world. We choose our conventions, either explicitly or implicitly. Aristotle said. ‘Money has become by convention a sort of representative of demand; and this is why it has the name “money” (“nomisma”)—because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless,’
Philosophy might help in some clarification, but money isn’t the only thing lacking transparency. Human argument is mostly hidden too. We might vote for transparent money, but hurtling around in the dark is the right wing argument that the sky will fall and will become Chinese. If only we had similar ability to see dark matter as these hidden yet remarkably gravitational arguments.
Economics on money is arguing dark politics by shining light on what does not interact with photons. Hume argued a convention was ‘a sense of common interest; which sense each man feels in his own breast, which he remarks in his fellows, and which carries him, in concurrence with others into a general plan or system of actions, which tends to public utility’.
These days these feelings are created by PR, much of which is dark argument supporting dark politics. We should try and factor dark money into out field equations. Money is made by humans. We know and forget this.
If you do not have money, you will starve. If you do have money, you can not eat it. From the perspective I use, money is just a call on society’s resources. It is a medium to distribute those resources, physical, intellectual, and moral to effect society’s purpose, the creation and maintenance of the society we want to live in. As I have said in the past, a prime goal of kleptocracy’s class war is to split money from its underlying social purpose, to make it a good in and of itself, and to legitimize society destroying accumulations of money/society’s resources into the hands of a few.
I hope it’s obvious I agree Hugh. One finds not just that money is a convention, but a convention on conventions (private property, inheritance) that many perceive as concrete, when in fact they have had their day. I’m sick of economics that isn’t even making plain what there is to share, let alone what we might build.
This is obvious stuff. I suppose it’s obvious too we have not and are not building green capacity. We’re so dumb we can’t even see ways to use a plan on what needs doing to provide the genuine welfare of people in work on reasonable pay. The modern quest for profit per employee is making the majority disabled.
In short. it’s easy to do complex sums on what doesn’t have to be there tomorrow, than act as though people matter.
I agree with those who advocate emotional appeals:
Hey howd you like your SS money to be on the stock market?! Sound like a good idea to let the vampire squid have at it?
Or
if SS is going broke then how come the checks haven’t stopped in 75 years?
Or this one I stole from studs terkels book hard Times:
I made investments in this country too….where’s my dividend?
Now you’re talking.
Sorry that was an endorsement for Ed S above.
I came late and it has probably been said by others but the first step is for us to take back the political system. Nothing is going to happen until we do. And once we do, we can begin to redistribute the resources of our society to create the society we want. That is we can both direct resources to the poor and middle classes and away from the rich and elites. The rich and elites are never going to redistribute our society’s resources except in joke ways, like raising the minimum wage a little. The bottomline here is that the rich and elites will continue to loot until we stop them. They will not give up voluntarily or under pressure anything, and they will fight tooth and nail to the bitter Untergang end for each and every cent they have stolen from us. This is not about monetary policy but about brutal, callous, criminal theft. We should never make the mistake that it is about anything else.
1. Don’t vote for obvious political whores like Obama or the Clintons. Period. ‘Lesser of two evils be damned’.
2. Fight the herd instinct. Condemn Obama and Clinton et. al as corporate scum. Boo them in public if you ge the chance. Never hear their names mentioned without making a gagging sound. At first you will be considered a weirdo. Keep the faith. If enough of us are strong, and people see that it is more than one or two who feel this way, then the herd instinct no longer holds the majority in check, and things may change.
3. Don’t trust words. Trust the record. Suggestions: Bernie Sanders, Dennis Kucinich, Jeff Sessions. Other suggestions welcomed but only if accompanied by VOTING RECORDS. If Obama has taught us anything, it is that talk is cheap.
The very fact they are attacking the welfare budget rather than expanding it into a work programme providing real support and decent pay to provide dignity, says it all. I’m struck now that they are disabling us through much the same tactics used in Korean prisoner-of-war camps.
Very few people can’t work. Yet we force many into disability because we don’t design work to fit people. The first thing I’d do to redesign the welfare budget would be to make all newsroom jobs reserved for disabled people. I don’t expect there are any people in wheelchairs who could do such a bad job as the present crews. We might do the same for Parliament. We might do well to reorganise around the social model of disability (though not on disability where its denial of impairment is silly). Current models of “success” are disabling nearly all of us.
“” 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.””
Joe, not sure if I understand this.
Can you please explain where the Treasury has any authority to create reserves in its TGA account?
I always thought that ‘reserves’ can only be created by the federal reserve.
What law or rule allows the Treasury to create reserves in its own account?
Thanks.
@JuneTown Joe,…What law or rule allows the Treasury to create reserves in its own account?
I hope Joe gets around to answering this. It’s rather awkward, because Joe doesn’t toe the MMT line on this matter, despite his berth on NEP. Example:
That reserve and TGA balances are the IOUs of privately-owned reserve banks contradicts the MMT foundational claim that these banks are the right arm of the USG, which thus can compel them to mark up TGA balances at will.
I think it’s fair to say that Joe downplays the schism between himself and the hardcore MMT adherents, but his understanding of the USG/FRB relationship fits the evidence. That’s why he has been flogging The Coin, an asset to surrender to the reserve banks in exchange for the liability the USG asks them to assume when they clear a check written against the TGA. I believe that’s what he’s referring to as USG’s “authority to create the reserves in the Treasury spending accounts.”
But let’s see whether Joe can step up to your good, tough questions.
I’ve implied an answer to this above here: http://www.nakedcapitalism.com/2014/03/joe-firestone-progressives-need-game-social-securitys-enemies.html#comment-1947135
But it’s also in my book: http://amzn.to/Z7kG5q in considerable detail. First, the Government isn’t the Treasury alone. It’s the Congress, the Treasury, the Fed, the regional banks acting as agents of the Fed, (without incurring harm to their balance sheets) even the Supreme Court on occasion with its interpretations of the constitution establishing current law.
You quoted me above. That quote doesn’t say that the Treasury has the authority to create the reserves it needs. It says the Government does. How does “the Government” exercise that authority? Well, first Congress has to appropriate spending. Second, the Fed system has to cooperate. That means the Board of Governors led by the Chair has to set policies mandating that the regional banks use the authority Congress gave the Fed to create reserves in the Treasury account when Treasury does certain things.
The Court’s role has been mainly to sustain the authority of the Fed by refusing to provide standing to challenges to the Fed’s constitutionality on grounds that Congress, in creating it, exceeded its authority by establishing an “independent” fourth Branch of Government, a plain violation of the Constitution, in my view.
Treasury’s role in getting the Fed to create reserves for deficit spending in its accounts has been mostly to issue debt instruments, where the Fed auctions off the instruments while seeing to it that primary dealers have the reserves necessary to buy the instruments, and also that the Treasury accounts are then credited with the amount of reserves paid which it then destroys in the dealer accounts. Sometimes, Treasury gets credited for relatively small amounts of reserves when it mints and delivers coins to the Fed to be used in circulation or sold into the collectors markets. The profits Treasury makes on the “sales” of these coins are called seigniorage and it is credited in the Treasury accounts by the Fed in the form of reserves it creates.
The law currently allows the Treasury to mint and deposit 1 oz. platinum coins with arbitrary face values specified by the Secretary, and already the seigniorage on such coins has been credited by the Fed to Treasury accounts in the form of reserves created by the Fed. The proposals by Beowulf and myself to mint platinum coins with high face values such as $1 Trillion or $60 Trillion or more have never been taken up by the Treasury. But, nevertheless they are just extensions of current practice authorized by current coinage legislation.
But if the Treasury did take these up it would still not be directly creating reserves in is accounts. It can’t do that under current law. But what it can do is to use such coins as physical messages to the Fed ordering it to create reserves in its spending accounts. The Fed might resist crediting the coins for awhile, but the law is clear that if there is a difference of opinion on matters of financial interpretation between the Treasury Secretary and the Fed Chair, then the view of the Secretary will prevail. So, sooner or later, the Fed Chair on pain of dismissal for cause by the Secretary would have to mandate the regional bank where the coin was deposited to accept the coin and create reserves for its face value in Treasury’s account. Btw, the bank in question here would most likely be the NY Fed.
So, that’s it:
1. the Government taken as a whole has full authority to create unlimited reserves.
2. It is the Fed that has Congress’s delegated authority to act in the name of Congress to do this. But
3. The Treasury has Congress’s delegated authority to order the mint to create coins having many different specified face values, but also platinum coins whose face values may be specified at the discretion of the Secretary. And
4. As the Treasury’s sole legal banking agent mandated to serve Treasury’s needs, the Fed has a fiduciary responsibility to accept Treasury-created coins and credit Treasury’s accounts for their face values (actually the Mint’s Public Enterprise Fund account must first be credited. But the Treasury, by law, can “sweep” the PEF for seigniorage at will).
I hope I’ve answered your question. For more detail on the background and various economic, legal, institutional, and political issues related to Platinum Coin Seigniorage (PCS) please see my book. Also, I’m not aware of any conflict between anything I’ve said there and basic MMT theory, and I don’t think there is any distance between my theoretical position and the position taken by Randy Wray for example in his book, except perhaps for semantic differences over whet is “private” and what is “public” in relation to the components of the Fed. But neglecting these semantic differences I’m not aware of any diferrences between myself and other MMTers on operational details.
If my views seem different to you, that may be because tend to focus more on political and legal issues related to MMT’s accounts of operations. I consider that my niche, because my Ph.D. is in political scence and also because my career has mostly been focused on interdisciplinary work.