Yves here. This Real News Network interview is from a multi-part series about Michael Hudson’s new book, J is for Junk Economics. And after a lively discussion by readers of the economic necessity of many to become expats to get their living costs down to a viable level, a discussion of the disingenuous political messaging around retirement seemed likely. Among the people in my age cohort, the ones that managed to attach themselves to capital (being in finance long enough at a senior enough level, working in Corporate America and stock or stock options) are generally set to have an adequate to very comfortable retirement. The ones who didn’t (and these include people I know who are very well paid professionals but for various reasons, like health problems or periods of unemployment that drained savings, haven’t put much away) will either have to continue working well past a normal retirement age (even charitably assuming they can find adequately compensated work) or face a struggle or even poverty.
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore. I’m speaking with Michael Hudson about his new book J Is For Junk Economics: A Guide to Reality in the Age of Deception.
Thanks for joining me again, Michael.
MICHAEL HUDSON: Good to be here.
SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of Social Security and it’s a myth that Social Security should be pre-funded by its beneficiaries, or that progressive taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you criticize. We talked about this earlier, but let’s apply what this actually means when it comes to Social Security.
MICHAEL HUDSON: The mythology aims to convince people that if they’re the beneficiaries of Social Security, they should be responsible for saving up to pre-fund it. That’s like saying that you’re the beneficiary of public education, so you have to pay for the schooling. You’re the beneficiary of healthcare, you have to save up to pay for that. You’re the beneficiary of America’s military spending that keeps us from being invaded next week by Russia, you have to spend for all that – in advance, and lend the money to the government for when it’s needed.
Where do you draw the line? Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society. You had the first public pension (social security) program in Germany under Bismarck. The whole idea is that this is a public obligation. There are certain rights of citizens, and among these rights is that after your working life you deserve to live in retirement. That means that you have to be able to afford this retirement, and not have to beg in the street for money. The wool that’s been pulled over people’s eyes is to imagine that because they’re the beneficiaries of Social Security, they have to actually pay for it.
This was Alan Greenspan’s trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won’t have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn’t call FICA wage withholding a tax, but of course it is. His trick was to say that it’s not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody’s pay check, right off the top.
The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we’re squeezing out of the wage earners, there’s a cut-off point: around $120,000. The richest people don’t have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich.
So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds “in their sleep.” That’s how the five percent have basically been able to make their money.
The idea that Social Security has to be funded by its beneficiaries has been a setup for the wealthy to claim that the government budget doesn’t have enough money to keep paying. Social Security may begin to run a budget deficit. After having run a surplus since 1933, for 70 years, now we have to begin paying some of this savings out. That’s called a deficit, as if it’s a disaster and we have to begin cutting back Social Security. The implication is that wage earners will have to starve in the street after they retire.
The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn’t nearly enough to retire on. There’s also been a vast looting of pension funds, largely by Wall Street. That’s why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don’t have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn’t. The pretense is that nobody could have forecast this!
There are so many corporate pension funds that are going bankrupt that the Pension Benefit Guarantee Corporation doesn’t have enough money to bail them out. The PBGC is in deficit. If you’re going to be a corporate raider, if you’re going to be a Governor Romney or whatever and you take over a company, you do what Sam Zell did with the Chicago Tribune: You loot the pension fund, you empty it out to pay the bondholders that have lent you the money to buy out the company. You then tell the workers, “I’m sorry there is nothing there. It’s wiped out.” Half of the employee stock ownership programs go bankrupt. That was already a critique made in the 1950s and ‘60s.
In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell.
So it’s become a shell game. There’s really no Social Security problem. Of course the government has enough tax revenue to pay Social Security. That’s what the tax system is all about. Just look at our military spending. But if you do what Donald Trump does, and say that you’re not going to tax the rich; and if you do what Alan Greenspan did and not make higher-income individuals contribute to the Social Security system, then of course it’s going to show a deficit. It’s supposed to show a deficit when more people retire. It was always intended to show a deficit. But now that the government actually isn’t using Social Security surpluses to pretend that it can afford to cut taxes on the rich, they’re baiting and switching. This is basically part of the shell game. Explaining its myth is partly what I try to do in my book.
SHARMINI PERIES: If the rich people don’t have to contribute to the Social Security base, are they able to draw on it?
MICHAEL HUDSON: They will draw Social Security up to the given wage that they didn’t pay Social Security on, which is up to $120,000 these days. So yes, they will get that little bit. But what people make over $120,000 is completely exempt from the Social Security system. These are the rich people who run corporations and give themselves golden parachutes.
Even for companies that have engaged in massive financial fraud, the large banks, City Bank, Wells Fargo – all these have golden parachutes. They still are getting enormous pensions for the rest of their lives. And they’re talking as if, well, corporate pensions are in deficit, but for the leading officers, arrangements are quite different from the pensions to the blue collar workers and the wage earners as a whole. So there’s a whole array of fictitious economic statistics.
I describe this in my dictionary as “mathiness.” The idea that if you can put a number on something, it somehow is scientific. But the number really is the product of corporate accountants and lobbyists reclassifying income in a way that it doesn’t appear to be taxable income.
Taking money out and giving it to the richest 5%, while making it appear as if all this deficit is the problem of the 95%, is “blame the victim” economics. You could say that’s the way the economic accounts are being presented by Congress to the American people. The aim is to popularize a “blame the victim” economics. As if it’s your fault that Social Security’s going bankrupt. This is a mythology saying that we should not treat retirement as a public obligation. It’s becoming the same as treating healthcare as not being a public obligation.
We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you’re going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You’ll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We’re cutting taxes on the rich, so we don’t have the money to do what social democracies are supposed to do. You’re going to privatize the roads, so that now you’re going to have to pay to use the road to drive to work, if you don’t have public transportation.
You’re turning the economy into what used to be called feudalism. Except that we don’t have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary “financial/real estate/public enterprise” class that is transforming the economy.
SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, J Is For Junk Economics: A Guide to Reality in the Age of Deception. Michael is actually on the road promoting the book. So if you have an opportunity to see him at one of the places he’s going to be speaking, you should check out his website, michael-hudson.com
So I thank you so much for joining us today, Michael. And as most of you know, Michael Hudson is a regular guest on The Real News Network. We’ll be unpacking his book and some of the concepts in it on an ongoing basis. So please stay tuned for those interviews.
Thank you so much for joining us today, Michael.
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It’s 10 bagger time for sure. A house in the tropics with servants at your beck and call. Breakfast on the veranda. Lunch at the club. An afternoon sail. Dinner at the house of a famous author. Or some native woman who cooks spicy food and is hotter than the sun. No shuffleboard and pills! You need to stay buff if you wanna live like this. You can’t be flabby and short of breath.
Thanks for this.
+1. Yes. Great post. Very clear explanation of Greenspan’s SocSec bait-and-switch.
Oh, crap! I knew we’d been had, but I didn’t realize the depth of deception and utter ruthlessness of Greenspan’s plan.
Tip, did you realize what was being done to the workers, the non-capitalized savers of this nation by this not-so-grand bargain? If you gey it now, can you do something to ol’ Greenspan if he’s there where you are?
Sadly, I do not believe in an afterlife, so of course there’s no punishment available for the nefarious pols and powerful behind this plan. The ony recourse is to help others understand what’s been done to us and by whom.
Hell’s bells! We must take them down. Workers of the world, unite!
Yves’s remark on retirement by sector is apt. I laugh bitter tears when I see that a financial CEO contract always includes a “pension,” as if the tens of millions of dollars in salary and bonuses weren’t enough.
A “pension” is for those who, broken by a life of hard physical labor, finally can’t work any more for their crust of bread. It’s not another revenue line-item that’s barely enough to refuel the yacht.
There was a time when people “saved for retirement.” With real rates of return being negative, and all assets priced arbitrarily at the whim of the central bank’s policy du jour, I am perfectly frank when people ask “what should they invest in”: nothing. Pay down your debt, and spend whatever you have beyond an emergency cushion right now, while you can enjoy it. Savings will inevitably be wasted, by inflation, the “health-care system,” or financial-sector scammers. Do not ask for whom the bell tolls; if you have to ask, you can’t afford it.
This is all in the context of the Federal Government already spending 20% of GDP, a number that was never designed to happen. It is the States that were supposed to be in charge of the people’s welfare, not the national authority. So the argument that we should increase Federal taxes to somehow redistribute wealth is also wrong, because that wealth will simply be wasted, spent by people who are responsible to no one.
At moments like this there are no good choices. Most Europeans have long learned to live with governments that were hostile to them, and that is where we stand now.
Tocqueville’s Democracy In America is tough going in spots, but my gosh, what a beautiful world he depicts, when the average Pennsylvanian’s tax liability beyond his township was $4 a year.
I won’t argue too hard about your “Federal vs State” argument, but note that if the state is in charge of most taxation then Richy Rich can live in a low tax state next door and employ the well-educated, healthy (single-payer) people in your state.
You are so right about Tocqueville. He presents more truth than most people can stand:
‘At the end of the year 1831, while I was on the left bank of the Mississippi, at a place named by Europeans Memphis, there arrived a numerous band of Choctaws (or Chactas, as they are called by the French in Louisiana). These savages had left their country and were endeavoring to gain the right bank of the Mississippi, where they hoped to find an asylum that had been promised them by the American government. It was then the middle of winter, and the cold was unusually severe; the snow had frozen hard upon the ground, and the river was drifting huge masses of ice. The Indians had their families with them, and they brought in their train the wounded and the sick, with children newly born and old men upon the verge of death. They possessed neither tents nor wagons, but only their arms and some provisions. I saw them embark to pass the mighty river, and never will that solemn spec- tacle fade from my remembrance. No cry, no sob, was heard among the assembled crowd; all were silent. Their calamities were of ancient date, and they knew them to be irremediable. The Indians had all stepped into the bark that was to carry them across, but their dogs remained upon the bank. As soon as these animals per- ceived that their masters were finally leaving the shore, they set up a dismal howl and, plunging all together into the icy waters of the Mississippi, swam after the boat.’
Just got my copy of “J is for Junk Economics”
Other people are on the same wavelength.
Professor Werner moving from reality to fantasy:
“Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular ‘results’. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired ‘conclusions’, to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and ‘axioms’. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion.”
“Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today’s dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter’s (1954) assessment, and things have since further moved away from the credit creation theory.”
“A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner
http://www.sciencedirect.com/science/article/pii/S1057521915001477
Even the BoE has quietly come clean about money.
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
Leaving Paul Krugman looking rather foolish ……
“…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.
No, it doesn’t work like that Paul.
The facts tell all.
Francis Fukuyama talked of the “end of history” and “liberal democracy” in 1989.
Capitalism had conquered all and was the one remaining system left that had stood the test of time.
With such a successful track record, everything was being changed to a new neo-liberal ideology and globalization was used to test this new ideology everywhere.
The Great Moderation seemed to indicate that the new ideology was a great success.
“Seemed” is the operative word here.
A “black swan” arrives in 2008 and nothing is the same again, the Central Bankers pump in trillions to maintain the new normal of secular stagnation.
Sovereign debt crises erupt, the Euro-zone starts to disintegrate, austerity becomes the norm., no one knows how to restore growth and the populists rise.
A new ideology comes in that is rolled out globally and seems to work before 2008.
What happened in 2008?
This is the build up to 2008 that can be seen in the money supply (money = debt):
http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg
Everything is reflected in the money supply.
The money supply is flat in the recession of the early 1990s.
Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan’s loose monetary policy.
When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).
The theory.
Irving Fisher produced the theory of debt deflation in the 1930s.
Hyman Minsky carried on with his work and came up with the “Financial instability Hypothesis” in 1974.
Steve Keen carried on with their work and spotted 2008 coming in 2005.
You can see what Steve Keen saw in the graph above, it’s impossible to miss when you know what you are looking for but no one in the mainstream did.
The hidden secret of money.
Money = Debt
From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
If you paid off all the debt there would be no money.
Money and debt are opposite side of the same coin, matter and anti-matter.
The money supply reflects debt/credit bubbles.
Monetary theory has been regressing for over 100 years to today’s abysmal theory where banks act as intermediaries and don’t create and destroy money.
The success of earlier years was mainly due to money creation from new debt (mainly in housing booms) globally feeding into economies leaving a terrible debt over-hang.
Jam today, penury tomorrow.
This is how debt works.
Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions (Michael Hudson and Steve Keen are on the list of 12).
They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing).
The Euro’s periphery nations had unbelievably low interest rates with the Euro, the risks were now based on common debt service. Mass borrowing and spending occurs at the periphery with the associated money creation causing positive feedback.
Years later, it was found the common debt service didn’t actually exist and interest rates correct for the new reality.
Jam today, penury tomorrow.
Why doesn’t austerity work? (although it has been used nearly everywhere)
You need to understand money, debt, money creation and destruction on bank balance sheets and its effect on the money supply. Almost no one does.
Richard Koo does:
https://www.youtube.com/watch?v=8YTyJzmiHGk
Ben Bernanke read Richard Koo’s book and stopped the US going over the fiscal cliff by cutting government spending.
Alternative and I would say much more accurate realities:
1) Michael Hudson “Killing the Host”, “J is for Junk Economics”
The knowledge of economic history and the classical economists that has been lost and the problems this is causing. Ancient Sumer had more enlightened views on debt than we have today.
2) Steve Keen “De-bunking Economics”
His work is based on that of Hyman Minsky and looks into the effects of private debt on the economy and the inflation of asset bubbles with debt.
3) Richard Werner ”Where does money come from?”
The only book generally available that tells the truth about money, I don’t think there are any other modern books that do and certainly not in economics textbooks
4) Richard Koo’s study on the Great Depression and Japan after 1989 showing the only way out of debt deflation/balance sheet recessions.
https://www.youtube.com/watch?v=8YTyJzmiHGk
The BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
The BoE have made a mistake.
“Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system.”
The limit for money creation holds true when banks keep the debt they issue on their own books.
The BoE’s statement was true, but is not true now as banks can securitize bad loans and get them off their books.
Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages, and getting them off their books.
Money is being created freely and without limit, M3 is going exponential before 2008.
Thanks SOS, agree. We’re at that 08 point now, in fact it’s worse.
Pensions should just be a click of the computer, no borrowings, savings or taxes needed and they need to be sufficient to live on.
No, we aren’t ‘winning’
In Australia, we used to give people the ‘aged’ at 60 for women and 65 for men. Now its 67 for both, the woman’s aged cut in was raised for ‘equality’ reasons, and it going up to 70 for my kids.
Politicians, judges, CEOs and the c-class, all those ‘shiny bums’, they can often work well into their 60s. The rest of us experience age discrimination in a tight job market and are forced into menial jobs just when society should be funding their well earned retirement.
You must separate fiscally-spent money from private bank-created money tho. Cutting government spending doesn’t cure private debt, it makes it worse. The government debt *pays* the interest on the private debt.
The whole “there aren’t enough workers to support retirees” meme is risible.
Example: Jane funds an IRA for 30 years. For those 30 years, there is one person paying in, and zero taking out. When Jane retires, the IRA flips to one person taking out, and zero paying in.
Disaster, or working as advertised?
That Serious Thinkers, elected officials and the SSA themselves advance this trope to explain why SS is hopeless is proof of willful mendacity.
Now if these folks admit, well yuh, you paid in over all of these years, but the money ain’t there no more, then first, that’s an admission of mismanagement (unsurprising), and second, bail us the fuck out like you did Wall Street.
https://www.stlouisfed.org/publications/regional-economist/april-2005/the-real-population-problem-too-few-working-too-many-retired
http://samjohnson.house.gov/issues/issue/?IssueID=792
https://www.ssa.gov/policy/docs/ssb/v66n4/v66n4p37.html
Most every purported “help” by the government is the exact opposite: your paying into a black hole.
Look around you. What around you was paid for by the government? The answer is none of it was. Taxes are a way to keep the bureaucratic structure afloat. What is very clear is that once government reaches a certain size it begins to massively leach off of those that work and gives it to those that “manage”.
Look at any industry today and you will find, in the private sector, declining or stagnant wages for the “drones”. Then look at the public sector: expanding, better benefits, better wages, less work etc. Thinking about it makes my blood boil. I see truckers making less now then 10 years ago, yet, the industry keeps crying that they “don’t have enough workers”. Yeah, sorry no one wants to work 25/8 driving around in the day time, sleeping in a truck at night, getting tracked through GPS & get penalized for going above speed limits when they can work for the DMV, make the same amount, and sit at a desk for 7 hours a day with plenty of benefits and vacation time.
Its about time for this system to implode. I see globalization and government expansion as a huge force that will eventually cause a revolution in the States.
Globalization and the government are simply red herrings meant to distract Trump voters while shareholder value driven corporate overlords continue looting.
Look around you. The government employs less people than pretty much for my whole life. Please get informed before you go off on a multi-paragraph rant.
http://historyinpieces.com/research/federal-personnel-numbers-1962
If you want a job join the military. Do you think that’s a good option?
maybe noone should work in trucking, freight trains are much more energy efficient as far as a means of transporting goods over long distances. Nah I’m not faulting truckers, just saying it makes no societal sense is all except maybe for the last few miles, but then neither do a lot of things. I doubt many people want to work at the DMV, but then maybe the benefits are enough to make a distasteful job seem worth it.
ISTR reading that the creators of the 401k saying that they never intended it to be a replacement for a pension.
As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,
why should I believe anything else that he has to say?
The sole instance given is of Bismarck’s Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.
For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.
Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, “re-tirer”), usually to the country.
Haygood had to resuscitate “rusticate” for the other day, to achieve a modern equivalent of that.
All of this is common knowledge. In case you don’t think so, spend five minutes with any book of demographics or social history; and that’s just for Europe. Don’t let’s even ask what “nobody expected to pay for their retirement” meant in early nineteenth-century Alabama.
By the way, Hudson does this all the time. When I can fact-check offhand, from my fund of common knowledge, he is often casually abusing the truth. I can be pretty sure that the rest of what he says is just as unreliable.
Didn’t Bismarck create those social welfare programs in order to prevent unrest in a recently unified Germany?
You may be correct about the 19th century, but it is 2017. And his points about the US tax system, the banks, the wealthiest 1% and our gov’t deceiving the middle and lower class are solid. A very basic retirement and healthcare should be provided to all in any decent marginally successful society. Not to mention a supposedly “great” one.
why don’t try to educate yourself, you may start here https://eh.net/encyclopedia/economic-history-of-retirement-in-the-united-states/
You read a great deal into a statement that you didn’t at all prove was untrue. Not impressive.
The question is, did society believe that it had a responsibility of care for people that got too old to work? You didn’t even address that. Yes we know life was “nasty, brutish and (most often) short. That doesn’t invalidate what he said.
PhilM ‘I can be pretty sure that the rest of what he says is just as unreliable.’
No mate, he speaks truth and may have exaggerated, but the point remains that here, the UK, most of Europe – then the state funds your pension if you need one. It is now a social obligation. Only in the US, do you have this class of people (the working class) who don’t deserve retirement and must fund their own meagre pensions, and if the ‘pool which funds the pensions’ becomes insufficient, well you know the rest.
Taxes see, they fund things, or more often don’t, because it’s a widely accepted lie to keep the private bank money creation bullshit going forever.
If everyone saved like you did, the economy would be smaller so there would be even more unemployment and no money for savings…
Most people can’t save. The economy is structured in such a ways that only maybe the top 20% can save.
Try to imagine what the economy would look like if everyone did what you did. How different would it be?
The money is not necessarily recycled if there is not enough spending. You could just end up with a huge asset bubble.
Money that is saved is not recycled into the economy through lending… and it pays no interest worth discussing.
Paradox of Thrift
According to Bill Mitchell and others, that theory, the Lendable Funds theory, used to be true perhaps, but isn’t true any more. Modern banks lend as much as they can push out, with no regulations to prevent them. So lending is already at what the traffic will bear, and additional deposits won’t change that.
So Rick… out of curiosity does your philosophy also apply to those who chose manufacturing as a professional career choice, areas like tool and die making, machine tool manufacturing, aircraft, car manufacturing,etc.?
And then from the 70’s through the 90’s watched the Unions they were members of busted, lay-offs and then back to work and then more lay-offs which killed their savings each time it happened, and then… the factory moved to China when they were forty or fifty years old so they then faced a couple of years of no work at all (except competing against kids for lawn mowing jobs or rural paper route deliveries) while they struggled in school to learn a “new trade” that barely paid above minimum wage and all the while wiping out their savings and 401K to pay the mortgage, help the kids and pay for the very high priced but nearly worthless education in new trades?
As someone who used to be actively involved in the core mfg infrastructure across this country (as well as parts of Asia) I’ve seen many go through exactly this in the rust-belts, formerly strong mfg parts, of our country, the mid-Atlantic States, Central Mfg States like Ohio, Michigan, Indiana,etc, and the West Coast States.
If your definition of bad choices is that they believed in the American Dream, they believed what their teachers taught them in high school and trade schools, and they believed in the promises their elected officials made to them, then I agree with you wholeheartedly.
But if you really believe that 30% or 40% of this country’s working class abused drugs, had kids out of wedlock, while not making a career for themselves, or that all these people spent poorly on luxury items and excessive consumption, then you are wrong, wrong, and wrong.
Of course a few made actual bad decisions, but the majority of people who will find themselves working until they die and, if they are lucky, doing this with a reliable roof over their heads, made the decisions they were taught to make, and the majority of them were taught badly, lied to, and got screwed.
I think you need to turn off the television, turn off talk radio, read a few books and get out in the real world and come back when your 50 or 60 years old and run the same neoliberal economic blame game bullshit… if you still believe it. I suspect you won’t.
P.S. I would like to meet anyone, now or in 1980, that could live on 20% of a median wage ($17K in 1980, $56K in 2016) while owning a car, a mortgage and married with a couple of children.
Thanks JCC, said it better than me.
Rick says ‘I have no sympathy’ what he meant to say is ‘I have no empathy’ Fixed it for you, mate
And he’s also saying, “I have no children and don’t intend to have any.” Which is fine in itself, but it is the only way to live and save the way he says he does.
He certainly has no sense of how changes in the economy have screwed over hard working people who planned as well as they reasonably could.
I suspect your children or your extended family, were your retirement if you lived long enough pre-20th century times. Also I cannot imagine there was any sort of defined retirement prior to 20th century for the masses. People simply did whatever they could within their families until they couldn’t. Work loads probably just decreased with the fragility of old age.
Also many people did live long lives. IIRC, heavy mortality was primarily concentrated in children and childbirth and maybe the occasional mass epidemic or bloody war. Dodge those and you could probably live a fairly long life.
Quite right; there was a bimodal or multimodal curve, which is why mean averages of life expectancy are not all that enlightening. But the fact is that most people who worked or fought, worked or fought their whole lives, until they were incapacitated; then there was their family, or the Church, or the poorhouse, or starvation, usually leading to mortal illness, if it had not done so before then.
The other side of that story is that the old folk were there as part of the social and economic unit: helping to pick the harvest with the very youngest; sharing skills and knowledge across four or five generations, century after century—rather than being shuffled off to die in some wretched cubby, doing “retirement” things. There’s a terrific little book, Peter Laslett’s The World We Have Lost, that gives a well-sourced and interesting picture of pre-industrial family life that pushes people to overcome some of their self-satisfaction about this kind of thing.
I remember reading where they found a Neanderthal remains that showed that this guy was definitely disabled to the point where he couldn’t have survived alone. Which means someone else helped him live longer.
That’s what humans have always done pretty much, before money. People paid in by being part of society, and then their community helped them later. Social insurance is just the money big civilization version of it isn’t it?
I’m just thinking of the people with aging parents and children with parent cosigned student loans… And what if they were responsible for paying the $90,000+ / year nursing home payment and all the medical bills, instead of Social Security, Medicare, Medicaid… On top of trying to help their kids get through college.
The whole scenario is a bad joke and getting worse.
There wasn’t 15-20% of the population expecting to live 30 years in retirement and the next generations to pay for their still mortgaged McMansions and trips to the tropics.
I have no issues paying for retirees. I have issues with asking the younger generations to pay for lifestyles that are bigger than theirs. The Western retirement lifestyle is too energy and resource intensive.
I don’t think most people collecting a social security check actually have a big lifestyle, much less trips to the tropics, that’s a Charles Schwab commercial, not a reality for most people. What Social Security has done is mostly reduce the number of old people living in poverty. Ok so young and middle age people are still living in poverty, making everyone live in poverty including people that are old and frail and sick is not an improvement. Are retired people’s lifestyles actually shown to be more energy intensive, I think in many ways they would be less so, ie not making that long commute to the office everyday anymore etc..
This ! Without adequate resources and, most importantly, energy, there are no pensions ! … indeed, there is no middle class as well !!
Sorry, but your comment is delusional. It is impossible for someone retired on only Social Security to “pay for their still mortgaged McMansions and trips to the tropics”. In what universe is that possible on a MAXIMUM annual income of less than $32,000? Googling “maximum social security benefits” generates the following info:
“The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. Depending on when you retire and how much you made while working, your benefits may be considerably less. The estimated average monthly benefit for “all retired workers” in 2016 is $1,341.”
I suspect a lot of people (younger than boomers) might be still mortgaged to a small degree when they retire as housing costs have gone up so that people can’t afford a mortgage when they are young, so if they buy real estate at all it’s at middle age, buy the first home in their 30s or 40s or 50, for a 30 year mortgage. But McMansions have nothing to do with that.
jrs:
If you are of the younger set, you might find yourself paying student loans much later in life than expected. Two income families which are more common place and double the college loans. This will impact your affording a mortgaging more than anything else.
First of all I did specify that a 15-20% group is doing quite well.
– Debt in retirement is increasing
http://www.investopedia.com/financial-edge/1012/boomers-staying-in-debt-to-retire-in-comfort.aspx
-Average/median square footage house 1973 vs. 2010.https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf
-Social Security represents half of retirement income for half of retirees. https://www.fool.com/investing/general/2016/02/28/how-much-of-my-income-will-social-security-replace.aspx
-Income distribution (see page 9)
https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf
************
The income distribution table shows that the younger retirees 65-75 are not suffering when compared to the working population… they seem to have a good thing going for them…
Merging all these data points, it becomes quite apparent that there is a large percentage of retirees who still carry debt while collecting social security.
Increasing social security to some group means making another group pay…
Historically, he is right and you are entirely wrong, which is not surprising as Michael Hudson is originally a philologist and historian and has specialised in economic history.
The modern conception of retirement is mostly a 20th Century invention, but throughout history, there are many versions of ‘retirement’, and they were almost always paid out of current expenditures. Roman soldiers were paid lump sums and frequently given land on reaching retirement age through the Aerarium Militare. Militaries throughout ancient and medieval history had similar schemes, and not just for officers, but again, these were rarely if ever paid out of a contribution scheme – it was considered an obligation of the State.
In many, if not most societies, it was accepted that aristocratic employers and governments had obligations to elderly staff – for example, fuedal workers would keep their homes when they were no longer capable of working, and this extended well into the 19th Century. Organised religions would almost always have systems for looking after retired religious members, again, always paid out of current revenues, not some sort of investment fund. The concept of a fixed retirement age (outside of the military) is a relatively modern one, but the concept of ‘retirement’ is not modern at all.
This is the worst strawmanning bull**** I have seen in a while; it is simply infuriating. I don’t have the time to put all of what follows into perfect order, but here’s what I can tap out in a minute or two.
If, PK, you are trying to prove that some people in the past have stopped work and still gotten paid, as part of their lifetime compensation for the work they have done, and that this is, de facto, compensation during what we would now call “retirement,” you win. Straw man knocked over.
So let me again quote what Hudson says, just so your argument can be demonstrated as the pointless distraction that it is:
“Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.”
That couldn’t be clearer. “Nobody anticipated,” as in “nobody.” Meaning it was a generally accepted social value that …. what follows. What follows is “people,” as in “people”; not just soldiers, or priests, or servants; “people,” ie, Gesellschaft; and then, “their own retirement,” (which can only imply a period when they were old enough still to do something productive that earned money, but chose not to, instead; because otherwise it would be called “disability,” right?). “That was viewed as an obligation of society,” meaning, it was a right, not a privilege or gift or compensation, and it was universal, because it applied to “people,” and “nobody” thought otherwise.
There is just nothing there that is justifiable in any way based on the history of the nineteenth century. The only exception is Bismarck’s Germany, which is adduced as proof of the statement, which is totally insupportable on its face.
If you stand by that, and are trying to suggest that “retirees,” meaning as a group everyone in society beyond a pre-defined age, as opposed to the disabled, were ever perceived as having a societally based right to welfare support before the very late nineteenth or early twentieth century, and that only in a very few, very advanced places, you fail three times over.
You do this in classically ahistorical ways: you conflate Gesellschaft with Gemeinschaft; you adduce the military of the ancient world, which is just hilariously anachronistic, but even those prove you wrong when examined closely; you completely misconstrue the rules of the corporately organized ancien regime, which by the way was ancient history as far as the post-Dickensian industrializing Europe that Hudson speaks of; you adduce the military and the priesthood as if they were representatives of “society” as a whole, which they were not–they were adherents of the body that made the rules, and liked to keeps its friends close, and could reward them. The same, while you are at it, was true of some different varieties of public servants–but not many, and again, not before the late nineteenth century, and certainly not in the US:
“Like military pensions, pensions for loyal civil servants date back centuries. Prior to the nineteenth century, however, these pensions were typically handed out on a case-by-case basis; except for the military, there were few if any retirement plans or systems with well-defined rules for qualification, contributions, funding, and so forth. Most European countries maintained some type of formal pension system for their public sector workers by the late nineteenth century. Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were not offered pensions until the first decades of the twentieth century. Teachers, firefighters, and police officers were typically the first non-military workers to receive a retirement plan as part of their compensation.”
https://eh.net/encyclopedia/public-sector-pensions-in-the-united-states/
Your ad hominem appeal to Hudson’s authority as a historian is amusing: it is actually not surprising that Hudson is wrong, and I am right; because he is an economic historian, with a special faculty, apparently, for conducting contemporary policy polemics; and I would be happy to give you my professional authority, except that this is the internet, so appeals to professional authority don’t mean anything at all, but I’ll just put it to you that it is more than sufficient; but leaving that aside, I am without a polemical agenda, except just this one: that the past needs to be respected in its totality, and that even when being used to score points in contemporary policy arguments. I know which of us has more credibility here just by reading Hudson’s sentences, which are devoid of historical meaning or sensitivity; and I know that I, as a historian, would never knowingly misuse the past to make a point about the present, because that is being a bad, bad doctor.
You bring up three cases: military, clergy, and servants. Those are exactly not what Hudson is talking about when he mentions Bismarck, or the nineteenth century, or retirement and its old age provisions as a whole, so you basically proved my point just by failing to address the actual argument. What Hudson is referring to—because he says so with his one example—is the Bismarckian “Gesellschaft” obligation to what had in previous centuries been called the the third estate in generic terms. Not, mind you, the first and second estates and their servants and adherents. If Hudson were talking about pensions for the military, he would have said so, and his argument would have ended there, in a paragraph, because they are fully protected in that regard and have been, at least more than the average citizen, since the GI Bill. Pensions for the military is not part of some kind of “social obligation” for retirees; it is a reward for long service, and therefore not some kind of “right of social welfare,” but a kind of compensation, and it was not much, at that, in the 19th century.
The regular clergy, which made up most of the clergy until the dissolutions, did not retire: their jobs were for life, because they lived a life of prayer, and that was not something that ever ended. The Church supported all clergy as a corporate, spiritually mandated obligation, not as a generalized “social obligation” like social security, or what Bismarck instituted. If your point is that certain corporate groups took care of their privileged members when they no longer worked, that is one thing; if your point is that “retirement” as a condition that merited social welfare, in general, the clergy don’t make that for you. They were exceptions to the general rule that people had to fend for themselves, a rule that applied to the entire third estate by definition from time immemorial.
Lastly, servants: those who “retired” in the nineteenth century very often did not have the same treatments as servants in the ancien regime, many of whom died in harness in any case. But, if their employing families did continue to provide for them, they did so not out of a sense they were meeting the “obligation of society to the retired,” but as a matter of family or community duty, noblesse oblige. It was completely at the mercy and discretion of the family involved. It was a matter of personal honor, and still is, when servants have been your friends and companions and have prepared and eaten the same food you have, and cleaned your mess and watched your back and brushed your horses and trained you to ride, and seen your youthful foolishness, sometimes for generations. Those are not “obligations of society”; they are personal and family and moral obligations. So Cato the Elder took some heat for his recommendations on discarding old and broken down slaves, but nobody suggested it was up to the Republic to pay for them instead. Since you’re going to the ancient world, you might better have used that example than that of the soldiers.
And so all that is what Hudson is not talking about. He’s talking about Bismarck’s social security as a moral precedent, reflecting a widely held belief in the popular right to a social safety net after a certain age.
So of course some people were “pensioned.” They were called “pensioners,” and many of them were not at all “retired,” but had gone on to work at other things, like soldiers who opened up fish-and-chips shops (q.v.). That does not mean that there was ever a Gesellschaft-like concept of “retirement” as a condition that brought the right to support by the commonwealth; not before Bismarck. That’s what Hudson’s reference tries to imply, that such a concept was common in the 19th century, at a widespread societal level in Western Civilization, and it is provably, demonstrably, obviously wrong. If it weren’t, why would the Old-Age Pensions Act 1908 have ever been passed?
“Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.”
You simply cannot construe that to have any truth, given the facts of the century. You can straw-man me about the concept of “retirement” all you like, although you are still wrong there, because the groups you name aren’t people who “work for a living,” which is the third estate; they are the first and second estates, and their adherents: those who fight for a living, and pray for a living, and those who obey them.
So the fact remains that Hudson’s statement was just polemical fluff, and no historian worth the name should have uttered it. I guess I’ll sit here and wait for his response, because yours, well….
Wow! What a credentialist rave! Can I suggest that a word and a phrase here (and remind you it was a brief inteview)?
So: “Nobody anticipated in the late19th century, and certainly in the majority of the 20C, that people would have to pay for their own retirement. That was viewed as an obligation of society.”
In support of PhilM, here is a short story by Mary Wilkins Freeman (1852-1930): http://fullreads.com/literature/a-mistaken-charity/. Rural New England was damn good, considering, yet being poor and old still involved a lot of very hard work, and the charity options were considered humiliating. There were certainly no pensions; there was a Poor House if you didn’t have kids to take you in.
Another option (which lasted surprisingly late) was for people to bid to take care of the town’s poor; if their bid was the lowest (that is, they’d do it for the least), they got the person. Can you imagine how that must have felt to the recipients of that charity?
Can’t argue with you there, witters. I’d like to say I didn’t start it, but I guess I did. I don’t like to have rank pulled on me by someone saying “oh, he’s right, because he’s a historian.”
Some of the pettiest, most uncivil exchanges you can imagine take place at American Historical Association conferences, where you would think the “banner-bearers of civilization” would be at their finest.
Similarly, debates in medical journals are barely polite, and are larded with as many words as possible to disguise that the argument is over a distinction that makes no difference.
Nevertheless, learning can happen.
Here’s a quote from Bernard Bailyn, in the forward to “The Ideological Origins of the American Revolution,” discussing the pamphleteering culture of the time–a great few pages including a tribute by Orwell to pamphleteering along the way:
“[Pamphlets] resulted also, and to a considerable extent, from what might be called chain-reacting polemics: strings of individual exchanges — arguments, replies, rebuttals, and counter-rebuttals — in which may be found heated personifications of the larger conflict. A bold statement on a sensitive issue was often sufficient to start such a series, which characteristically proceeded with increasing shrillness until it ended in bitter personal vituperation.”
(p 5)
The same occurred in the Reformation, and in the run-up to the French Revolution, and especially in the United Provinces at the time. Pamphleteering shrillness has been largely absent from the US because of the MSM control of the print media. The internet has brought all of its dynamics back to life, for better or worse. The good part, at least, is that I always learn something on the way to the “bitter vituperation” portion of the day’s entertainment.
The ghost of James Levy has returned to us!
“He didn’t call FICA wage withholding a tax, but of course it is.”
This just drives me to apoplexy. 1, that it is not called a tax, and 2, that wage taxes are never ever reduced.
Incessant yammering about “incentives” – but doesn’t a wage tax disincentivise both employers and employees with regard to wage work? – – Endless talk about how CEO’s can’t do ANYTHING unless their taxes are REDUCED!!!!!!! But somehow….that just goes out the window when it comes to wages – TAXES MUST GO UP.
Cheney – deficits don’t matter….except apparently with regard to social security…..
The other scam about FICA and its “separate” funding is that social security being in balance is OH SO IMPORTANT – deficits will be the death of it. Yet the general fund is in deficit (see Mish today for a bunch of stuff on the hypocrisy of repubs on the deficit) and ever more deficit and nobody seriously cares about it or worries about it. MONEY can always be found for invading for Iraq, and paying for invading anybody is NEVER a problem. Feeding old folks, on the other hand, sure strains the resources…
Its like it is as important to keep a reserve army of the impoverished as it is to keep the empire.
FD -‘This just drives me to apoplexy’ Breathe, buddy.
Yes, mate, feeding old folks – looking after the oldies so they have health care, decent food and a home.
How well each country does it reflects their views on whether it’s a social obligation. For many countries, there is no safety net and families provide the care, if they can.
It’s becoming that way in the west too. I don’t see many governments increasing welfare for our poorest people, benefits are being gutted and those that did save for retirement are seeing their funds looted and zero interest paid…
It’s good to read Michael Hudson’s call-out of FICA as a mechanism to crush workers and transfer wealth to the already rich.
FICA is indeed the worse sort of deductive reasoning. It is based on the premise that the rich are entitled to be rich, and that the masses want to take their money from them. In America in particular, wealth has historically been based on grants from the sovereign to loot the commons (timber, agriculture, mineral extraction, railroads, military procurement, data mining, etc.). These grants to loot the commons have nearly always been based on corrupt practices of cronyism and bribery. Alchemists like Greenspan simply provide theo-classical mumbo-jumbo after-the-fact justification for their piracy.
Ironically, I was just reading about impending failure of the Oroville Dam, a prime example of America as the seat of greed. It was well-known that the spillways were inadequate and crumbling due to 50 years of use. However, the Reagan-ites of Southern California refused to tax themselves in order to save Oroville and Yuba City, 450 miles away.
It’s sad that everyone, especially the rich, think that they can blow-up the United States and then fly to their bolt-hole in New Zealand or Australia — or if you’re not so rich to a shack in Panama or Thailand. I suspect that we will soon find ourselves to be unwelcome pariahs in those places.
And, if you’re a freelancer like I am, you get to pay both sides of the FICA tax, employee and employer. Fun, fun!
They may be unwelcome by the masses, but money still talks and, if you haven’t got any, well you just stay right where you are.
200,000 people (even if they all voted) is not a political threat to the state and feds.
As the interview with Michael Hudson makes clear, Social Security is indeed a “welfare program” funded by a tax, not a savings plan. The benefit paid out has nothing to do with “contributions.” Eligibility for the benefit is based on having worked sufficient quarters — not on the amount of money contributed.
Since when is a tax calculated on how much a given taxpayer personally benefits from a particular government service: i.e. bailing-out AIG, sending pallets stacked with $1B in cash to bribe Iraqi officials, etc? Hudson’s point is that not only do the wealthy not pay an equal share of this tax, but that all the money raised by the FICA tax and sloshing around the federal budget was then used as one of the chief justifications for cutting other taxes on the 1%.
Neoliberalism is OUT-DATED. Rather, for the past four decades, it’s been fiat currency for the .01% and gold standard straitjacket ideology for everyone else.
“The mainstream view is no longer valid for countries issuing their own non-convertible currencies and only has meaning for those operating under fixed exchange rate regimes,
‘The two monetary systems are very different. You cannot apply the economics of the gold standard (or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors and politicians continue to use the old logic when discussing the current policy options. It is a basic fallacy and prevents us from having a sensible discussion about what the government should be doing. All the fear-mongering about the size of the deficit and the size of the borrowings (and the logic of borrowing in the first place) are all based on the old paradigm. They are totally inapplicable to the fiat monetary system’ (Mitchell, 2009).
We might now consider the opportunity afforded by the new monetary reality, effectively modelled by MMT. A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.
However, the political layer, in the way it interacts with monetary reality, has a detrimental effect on the power of democratic governments to pursue public purpose. In the new monetary reality political arrangements that sprang up under the old regimes are no longer necessary or beneficial. They can largely be considered as self-imposed constraints on the system; in short the political layer contains elements which are out-of-date, ideologically biased and unnecessary. However, mainstream economists have not grasped this situation – or perhaps they cannot allow themselves to- because of the vice-like grip that their ethics and ‘traditional’ training has on them.
MMT provides the best monetary models out there and highlights the existence of additional policy space acquired by sovereign states since Nixon closed the gold window and most nations adopted floating exchange rates. We just need to encourage the use of the space to enhance the living standards of ordinary people.”
Heterodox Views of Money and Modern Monetary Theory (MMT) by Phil Armstrong (York College) 2015
https://www.youtube.com/watch?v=d57M6ATPZIE
Hear, hear!
What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism. Those mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as “taxation” is, at least theoretically, the limit on state spending and therefore power, then “representation” actually means something, and so representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years, can survive a bit longer.
The very real and useful core of MMT, which describes what we see happening since the gold standard fell, and is therefore unimpeachable from a certain objective turn of mind, is Janus-faced. On the one hand, it acknowledges what the Framers knew intuitively when they gave the Federal government the power of issuing money: the sovereign makes the money. On the other, as often used here, and especially in your comment, it is a rationale for a government unrestrained by property rights and representative constraints on its power of expenditure. That will not end well, simply because it will not last long, and it will end in a military despotism or landed aristocracy (if you’re lucky). Because it always has, and you are not going to change that, are you?
In one of the recently discovered lectures (1940) by Karl Polanyi, in referring to post-war Europe (post 1918) he argued:
“The alternative was between an integration of society through political power on a democratic basis, or if democracy proved too weak, integration on an authoritarian basis in a totalitarian society, at the price of the sacrifice of democracy.”
It is still the same issue today which PhilM nicely illuminates when he states: “..What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda to undermine the mores underlying centuries of private-property-based liberal capitalism. These mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as “taxation” is, at least theoretically, the limit on state spending and therefore power, then “representation” actually means something…”
The national security state already has a potentially totalitarian hold on us and in the future the MMT scenario “as a rationale for a government unrestrained by property rights and representative constraints on its powers of expenditure” might nicely finish us off.
It would no longer be the neo-liberal present where the whole of society must be subordinated to the needs of the market system, but the other extreme, where the whole of society must be subordinated to the needs of the state supposedly working in the “public interest.”
Thank you for your reply. You said it better than I did, especially with the citation of Polanyi, one of my personal heroes.
You say that like it’s a bad thing :-)
State capitalism? If this is supposed to be a topical reference I don’t get it.
How so? Did “taxation” restrain Bush from spending trillions on invasions? Can’t you have representation without taxation?
I thought that was the Catholic Church…
“Property rights”—the private monopolisation of the gifts of nature—at least in their traditional form, seem to me to be the third fundamental flaw in our political economy, along with Capitalism (narrowly defined) and our bogus monetary ludibrium. We need a new Church.
The fourth flaw in our political economy is people. If we could eliminate them, we would not have property rights, or capitalism by any definition, narrow or broad; or a new Church.
There, now I have solved the problem using your method, only taking it to its logical conclusion, which is, clearly, ad absurdum. Pigs will fly before you have a functional society without property rights.
You don’t seem to realize that what you rightly cite as an evil, the invasions of George Bush, was a problem that arose from a form of government that can in no sense be described as representative; that his deficit war spending is what MMT theory expressly validates as a legitimate tool of the monetary sovereign (as called for in the original post); and that those are exactly what need to be stopped for the people to regain control of the government, and exert their sovereignty once more, so that it can be run for their benefit.
MMT: great stuff. With you 100%. The issue is corruption and this culture of privilege and corruption we live in. You better believe the government will be issuing currency for other than the public interest. The fact is we live in an MMT economy now, it’s just that the currency created by the government is being passed out to the ethnically privileged .001%. The talk of deficits and national debt is all a smoke screen to cover up this fact. It is way past time to educate the masses on this theme, kudos to Michael Hudson & Steve Keen.
Agreed, mates. Functional Finance, where you spend with policy pursuits without having to borrow or tax – with the relief valves being inflation and the exchange rate – ie there are resource limits to the spending that can be done this way.
Billy Mitchell is another still banging away on this and him and his ilk are needed in these very uncertain times.
I always wondered who the benevolent dictators would be… it just seems clear to me that we are already operating under MMT and with MMT on steroids the same current grifters would be working the printing machine.
J is for Junk Economics: Amazon’s “#1 New Release in Business & Professional Humor.” Facepalm.
OMFG, you’re not making this up!
Bezos really is a contraction of Beelzebub…
Destruction of the family by public and private corporations, with the assistance of disruption by multiple industrial revolutions … is key.
One part of society parasitical on the productive part .. starts small. $1 per $1000, then $10 per $1000 … until it gets to $1000 per $1000. Neither bought politicians, nor bought citizens, stays bought.
Of course we shouldn’t expect women and children to work … that is destructive of reproduction and child raising. Some women should work … some children should work … but only a few. Otherwise obvious system dynamics will reduce the net population in quality and quantity.
You’re going to privatize the roads, so that now you’re going to have to pay to use the road to drive to work, if you don’t have public transportation.
This is a zero-sum game for the elite. They’re already soaking us. If they soak us on tolls, they’ll have to take less money soaking us another way.
In contrast, Fed Gov reducing spending is not a zero-sum game for the elite. That means less money to be soaked up from the public. Unless of course, the public compensates by taking out more private debt. In which case, ka ching for the elite again.
That said, I don’t think the mind-set really is to reduce Fed Gov spending. Rather, the mind-set is to reduce entitlements so that other Fed Gov spending can be increased, namely on defense, intelligence communities, etc. And I really don’t think the elite have much of a dog in that fight. After all, the elite suck up all the money regardless of how it’s spent by the Fed Gov. So my guess is that this campaign to reduce entitlement spending is being waged by the other agencies in the Fed Gov and the eco-system that feeds off them.
In the 1980s Greenspan pushed for massive increases in FICA. And Reagan spent it on Star Wars. Recently I’ve read that that wasn’t really a missile shield project but a cyber technology project. Today we read that the CIA has disseminated all this accumulated and obsolete technology; leased it out to private contractors; or variously bribed the Europeans with it. Etc. Fast-back to the 1930s and FDR took the same SS money for WW2. In the 60s, JFK agonized about the budget and the value of the dollar and could see no reason to go into Vietnam, but oops. LBJ bulldozed through Congress our Medicare plan, which upped SS contributions, and he went promptly into Vietnam, spending it all and stuffing the retirement funds with treasuries. Shouldn’t we all be looking at how transitory these achievements (or disasters) have been. Maybe nothing more than boosting the economy for a few years every other decade or so. Money could achieve much more than this if we accepted as fact the fleeting benefits of misspending it and instead concentrated on a steady economy benefiting all. Hubris rules, but it doesn’t ever make things better.
‘it’s a myth that Social Security should be pre-funded by its beneficiaries’ — Sharmini Peries
If it’s a myth, it’s one that’s incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.
After about a century of experimentation, we know how to fund pensions securely: estimate the present value of the future liability using an appropriate discount rate, and then keep it funded on a current basis.
Social Security grossly violates this model in three respects. First, it is only about 20 percent funded, headed for zero in 2034 according to its own trustees.
Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been half their current level and funded higher benefits.
Third and finally, Social Security is treated as an off balance sheet obligation in the Financial Report of the United States. Unlike the legally enforceable obligation of private pension sponsors to make good on their promises, the government refuses to take responsibility and put itself on the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which Congress can cut back or cancel at will. So much for “security” — there isn’t any.
Social Security is part of a general pattern of government taking a sleazy, second-rate approach to its social promises, by exempting itself from well-established prudential rules mandating best practices. Frank Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians. He got his wish.
>we know how to fund pensions securely: estimate the
C’mon Jim you can do better than that. Here is dictionary.com, do you see the problem with your statement?
know:
verb (used with object), knew, known, knowing.
1. to perceive or understand as fact or truth; to apprehend clearly and with certainty:
estimate
verb (used with object), estimated, estimating.
1.to form an approximate judgment or opinion regarding the worth, amount, size, weight, etc., of; calculate approximately:
If it’s a myth, it’s one that’s incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.
You’re incorrect.
Read Luther Gulick’s memo to FDR. Read to the end:
https://www.ssa.gov/history/Gulick.html
Thanks for the link. FDR was smart enough to originally design Social Security as “the third rail”..
Republicans have done a good job of trying to redefine the word entitlement. . According to the Oxford Living Dictionary:
Some of Frank Luntz’s best work. From Wikipedia:
The Progressives need a new FDR that is as good at emotional management as the Republicans
If only soc sec financing was on as solid footing as DoD/war financing?
it’s a myth that Social Security should be pre-funded by its beneficiaries’ — Sharmini Peries
If it’s a myth, it’s one that’s incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974. It is true, this is the way SS started out; but, it was changed in 1939. No longer would there be the huge reserve initially planned and SS took the form of pay-go which remained intact until the changes made in 1983 and an economic growth caused the current TF we are currently depleting. The myth is your believing the TF part of SS still exists as written in 1935.
After about a century of experimentation, we know how to fund pensions securely: estimate the present value of the future liability using an appropriate discount rate, and then keep it funded on a current basis. With your appropriate commission of course.
Social Security grossly violates this model in three respects. First, it is only about 20 percent funded, headed for zero in 2034 according to its own trustees. As I stated SS is not intended to have the size TF which you desire it to have. Today it exists as pay-go with a TF which came into being from the increase in payroll tax withholding and subsequent economic growth. Decreases in economic growth, a crash in your arena – Wall Street, decreased PR, etc. has decreased the length of the present TF.
SS does not violate anything as pay-go. You are attempting to apply your model to it and it does not fit. If we hit 2034 or whatever year and the TF is gone or further out. SS still pays out at 70-something percent based upon current revenues. By law, Congress must take action if 1 year’s funding is not available to payout. To add to SS continuance, many of us baby boomers will be gone.
Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been half their current level and funded higher benefits. Yes and your 60-40 split of stocjks and bonds would have saved us for sure in 2008. I think it was Main Street which bailed you and Wall Street out and paid dearly for doing so with reduced income and lost jobs. Investments in low-return Treasuries kept SS safe and more secure than the 60-40 split you advocate.
Third and finally, Social Security is treated as an off balance sheet obligation in the Financial Report of the United States. Unlike the legally enforceable obligation of private pension sponsors to make good on their promises, the government refuses to take responsibility and put itself on the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which Congress can cut back or cancel at will. So much for “security” — there isn’t any. Do you really believe Congress will ever touch the third rail? I do not think so. Even Trump is not that stupid. SS is secure in the Treasuries it buys. If those go bad, even you on Wall Street will cease to exist. As someone who has been to SCOTUS, what case are you citing?
Social Security is part of a general pattern of government taking a sleazy, second-rate approach to its social promises, by exempting itself from well-established prudential rules mandating best practices. Franklin Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians. He got his wish. Nonsense, it was not the gov who blew up the economy in 2008; it was Wall Street and forced a increased dependence upon the government. Of course the fools were dumb enough to believe Wall Street would regulate itself and establish a clearing house for derivatives none of which happened. The great maestro failed main Street. The sleaziness came from Wall Street and banks which could not control their greed.
> Franklin Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians.
If only there were a solution for political problems outside politics!
When you lend money to the profligate, they are happy. When you ask to be repaid, they are furious. It turns out that is just as true when workers who payroll taxes on their whole income “lend money” to the wealthy by paying excess amounts to the SS trust fund which in turn, enabled tax cuts for the wealthy. The wealthy are incensed that the SS trust fund, which has “lent” trillions to the treasury is now demanding to be “repaid” with interest.
That’s the trick about S.S. that gets me. You cannot pay in 15% of your income with some amount of reasonable compounding interest for your entire career and not have a massive nest egg at the end. But the math is done straight up such that there never was interest on the payments, so we are entitled to very little, despite every other form of investing on the planet returning some kind of interest.
It’s one of the reasons I argue for a Sovereign Wealth Fund to retain and manage all SS recepts, so at least the contributions and return on investment are accounted for in plain sight, so nobody can bait and switch.
And heaven forbid the Sovereign wealth fund could also be used as government bank that loans (our) money direct to citizens, without private banks getting a cut.
It ain’t utopia, but it is a way of playing their game and still winning results and the pr war even in the face of the most anti-sociailst conservative.
This, this, this!!! Compound interest on a lifetime of 15% contributions!! What kind of would do we live in that that isn’t acknowledged as a HUGE thing.
I knw, SS isn’t a personal savings account aor investment fund… I am not saying that. But it is OUR fund, and we deserve an accounting of it that includes interest deposits.
I think it’s pretty logical to think that when a retiring cohort represents a very large percentage of the population, a pension system that depends on 7-8% returns when GDP growth is 4% can be viewed as a Ponzi scheme.
The wealthy are incensed that the SS trust fund, which has “lent” trillions to the treasury is now demanding to be “repaid” with interest.
This brings up an interesting point. I believe the wealthy don’t care about the payout from Fed Gov bonds, as Fed Gov bonds are the yield of last resort. In which case, any payout from maturing Fed Gov bonds will get plowed right back into more Fed Gov bonds. Including interest paid out – that simply gets plowed back into more Fed Gov bonds as well. If the wealthy had better things to spend the money on, they wouldn’t be buying treasuries anyways. [Which makes the national debt perpetual and perpetually growing.]
But, the soc sec trust fund will operate differently. They do have something better to spend the money on: payouts to retirees. So they won’t be recycling maturing bonds back into new bonds. But even so, somebody else will be hoovering up all the cash that is paid out to retirees. And eventually all that money will end up in the hands of banks or other entities that have nothing better to do with the cash. And they’ll plow it right back into bonds again. [Unless they’re taxed of course … who am I kidding, lol.]
Bottom line, I don’t get where all the angst comes from regarding how to finance soc security.
Somebody who finally gets it correct.
I believe the counter argument might be; “look at the return would be if we sunk the 15% payroll withholding in 60% stocks and 40% bonds.” Then too what if one had to start withdrawing from SS in 2008 after Wall Street and TBTF trashed the economy? You are correct of course, special treasuries are the way too invest the Payroll Withholding and use other funds to gamble on Wall Street.
There are also those who keep insisting on looking out 75 years and reducing SS needs to a fair market present value as if it is some type of capital investment and assigning a degree of risk to it. I believe the first argument would be Treasuries are amongst the safest investment which can be made. The second argument might be knowing what may be in 75 years. The final argument what would a percentage of risk to for return.
Knowing what the economy would be doing in 10 year increments is tricky enough. What the experts here wish for is an ability to look out 75 years. My crystal ball is too cloudy to look out so far. Student loans are one of the safest loans which can be made as there is no escape and the very SS we discuss here can be garnished as well as Unemployment as well as being denied access to federal programs. Investing SS Payroll Taxes in special Treasuries is a safe investment as you have said also and which can be loaned back to ourselves or simply rolled over. Having a TF out to 2034 was never a realistic plan and was only done to cover baby boomer retirement. Using it in the GF while paying back at special Treasury rates is no crime and far better than a lockbox or Wall Street.
Paying out to retirees is the purpose of the TF at this point and spent in the economy. What I hear as the counter is a fear there will be no TF in 2034. As I have said, there never was a law which said there must be a TF this large. By law there must be 1 year of funds available for SS payouts at anyone time. If it is not available, then Congress must act. If Congress defaults, then whatever the percentage of revenue receipts are to requirements will be paid out (74% now if it is 2034).
If you do the present value analysis of SS for 75 years, one could argue whether it makes sense for SS and whether instead it makes sense to invest in the Wall Street and TBTF haven of safe investments (tongue in cheek here). Hence the argument by the investors here. Think of the $billions rolling on to Wall Street and TBTF looking for investments.
Best to stay with SS and the way it is funded today. The cruelty of Payroll Tax Withholding is an investment by the lowest paid worker and is far kinder than the cruelty of Wall Street and TBTF thrashing those investments and returning with a pittance of what is paid out today in SS.
We need to keep up with the Feudalism 2.0 Moniker.
We continue to refine society towards only 4 classes of people:
Warlords/Politicians
Productivity Owners
Rent Extractors
The Oppressed
Over the last 35 years the productivity owners have been making a run, vacuuming up all the productivity improvements leaving everybody else stagnant, before considering inflation, but with the robotic age coming, they are just getting warmed up.
>but with the robotic age coming, they are just getting warmed up.
Hmmm.
Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?
Apparently not an actual quote, but one Reuther certainly endorsed.
You know “they” are just planning to kill 2/3 of us off, don’t you? The elite are evil and sure many of them are stupid, but far from all of them.
“You’re turning the economy into what used to be called feudalism. Except that we don’t have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary ‘financial/real estate/public enterprise’ class that is transforming the economy.”
Spot.On.
From Marx’s “Capital”, Chapter 26 (The Secret of Primitive Accumulation):
“The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d’industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus.
The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation.“
Historical analogies tricky. Feudal serf as prototype for modern era working class may work. As opposed to something a little more appealing, like rights bearing Democratic citizen.
But a new working class devolution into medieval serf is something I don’t see.
That’s why a man needs a 10-bagger with a reasonable initial investment. Say around $300 or $400G. That’s 3 or 4 million — enough to live in a place where you can lay back and hire servants. This is not something that should be particularly difficult. With just a little luck.
The surfing is reasonably good in the Dominican Republic. Why not there? I can’t think of a good reason. A villa and/or perhaps a country house in the higher elevations? They have high peaks reaching 10,000 feet and highlands where country home with a fireplace is not entirely a form of pretension.
Food delivery may be a problem though. I don’t know if there’s an easy way to get whatever you want delivered in 20 minutes. What if you get hungry at around 11:35 pm and don’t feel like cooking. You’d have to wake up your servants and if you were at all a humanist — as I am — you would find it morally objectionable to do that. They should have a right to sleep during off hours.
I guess you could get something out of the fridge but that may be a lot of work, especially if you’re stoned on reefer. Or drunk. God forbid you had to heat it up on a stove. Well, iit’s not easy is it. If everybody had a 10-bagger then who’d do tthe cooking and who’d do the laying around? That’s a deep thought. Some people like to cook! Some people like to farm and grow gardens. Somee like to build houses! Why can’t everybody do what they want to do in a harmonious ensemble and then lay around and drink wine and smoke reefer? It seems hard to understand why anybody needs to save money in the first place, because if things worked ‘efficiently’ everybody would just do what they wanted to do naturally and with perfect harmony and collaboration, and you wouldn’t need money at all, ever.
One of the biggest single problems with our economy over the past 30 years is that the tax cuts have been for the wealthy who then save the money. As a result, the money velocity of a tax cut is horrendous. Simultaneously, the economists are wringing their hands over the plunging velocity of money over the past few years and the companies are getting their earnings increases from cost cutting and share buybacks because their sales aren’t increasing.
If you want high velocity of money, programs like Social Security, unemployment insurance, welfare, food stamps (all the programs the GOP wants to slash) have their benefits spent virtually instantaneously (well within 30 days when the next check will show up). Having a safety net also means those same people will be willing to spend some of their savings instead of hording it all.
So the irony is that if the business owners want their revenues to rise, they are probably going to have to forego some of their tax cuts and let the social programs get funded instead. Maintaining and increasing Social Security benefits means that the baby boomers will continue to be able to shop at their business. Decreasing those benefits and reallocating the funds to tax cuts to people who will then buy a van Gogh to store in a safe means that the businesses will lose sales and eventually that van Gogh will lose value as the fundamental underpinnings of asset values get eroded.