Yves here. While the arguments made in this article will be familiar to many readers, it’s a good piece to circulate to friends, family and colleagues who have or are in danger of swilling the Peterson Foundation anti-Social Security Kool Aid.
By Steven Hill, a senior fellow with the New America Foundation. Excerpted from his new book Expand Social Security Now!: How to Ensure Americans Get the Retirement They Deserve (Beacon Press, 2016
Social Security is bankrupting us. It’s outdated. It’s a Ponzi scheme. It’s socialism. It’s stealing from young people. The opponents and pundits determined to roll back the United States to the “good old days” before the New Deal regularly trot out a number of bogeymen and bigfoots to scare Americans into not supporting their own retirement well-being. That hasn’t worked too well. Americans of all political stripes remain strongly supportive of Social Security and other so-called “entitlements” like Medicare. But the other reason for plastering the media waves with a chorus of myths and lies is to stir up a political climate that causes politicians of both parties to cease looking for better alternatives other than to cut, cut, cut, or even to maintain the inadequate status quo. Below are rebuttals to some of the biggest whoppers regularly told about one of the most popular and successful federal programs in our nation’s history.
1. Social Security is going broke and will bankrupt the country.
Social Security is not going broke, not by a long shot. The Social Security Board of Trustees released its annual report to Congress in July 2015, and among all the tables, charts, and graphs in that big fat report, it would be easy to miss the most important take-home message: Social Security is one of the best-funded federal programs in U.S. history. That’s because it has its own dedicated revenue stream, which is composed of the insurance premiums paid by every worker (deducted from our paychecks by what is called “payroll contributions”), which are automatically banked into the Trust Fund. Even the Pentagon and the defense budget do not have their own dedicated revenue stream.
In fact, Social Security has not one dedicated revenue stream, but three. Besides the payroll contributions, Social Security is also funded by income generated from investing all those set-aside wages into U.S. treasuries. That money earns a sizable return on the investment. And Social Security is also funded by revenue that comes from levying income tax on Social Security recipients (yes, your Social Security check and that of other Americans is treated as income and taxed—and it brought in $756 billion to the Trust Fund in 2014). Those three revenue streams combined have banked $2.8 trillion in the Trust Fund and resulted in a $25 billion surplus in 2014.
Bankrupt? That charge does not even pass a good laugh test.
Indeed, because Social Security has its own funding source, and by law is not allowed to spend any money it does not have, it is actually impossible for Social Security to add to annual operating deficits or the national debt. Moreover, the Social Security Board of Trustees is required by law to report to Congress every year about the financial fitness of the program. The annual trustees report projects its revenues and payouts, not just for the next five, ten, or twenty years, but for the next seventy-five years. It’s one of the few programs anyone can identify that has had the wisdom to plan for the future, rather than planning around short-term political calculations and the next election cycle.
Over the next twenty years, as more and more of the huge population bloom known as the baby boomers continues to retire, Social Security is projecting a modest shortfall of just 0.51 percent of gross domestic product (GDP). If nothing is done to plug that gap, sometime in the 2030s the Trust Fund will have enough to cover only 75 percent of benefits. But there are so many budgetary ways to cover that shortfall, it becomes clear that the problem is not the finances of finding the money but the politics of partisanship and paralysis. No other government program can claim that it is fully funded for almost the next quarter century. What government critics ever say that the Defense Department or the Departments of Energy or Education are going bankrupt? Yet those programs don’t have dedicated revenue streams, and certainly no one plans or projects costs for those programs over the next seventy-five years.
For example, simply removing the payroll cap and taxing all income brackets equally would not only be fairer to all Americans, it would also raise all of the money and then some to plug any Social Security funding shortfalls twenty years from now. Opinion polls have demonstrated that most Americans—even 70 percent of Republicans—think if they pay Social Security tax on their full salary, others should as well. That’s just one example of the many adjustments we can enact that would make the U.S. retirement system more fair, robust, and stable, and better adapted to the realities of today’s economy.
2. Social Security is unsustainable because we have fewer workers for every retiree, even as our society is “greying” and people are living longer.
Another charge leveled by critics is that the number of workers compared to the number of non-workers—what is known as the dependency ratio—is declining, and so as a result Social Security is unsustainable. President George W. Bush really pushed hard on this point in his bid to gut the program and turn it into private accounts. In his 2005 State of the Union address, President Bush said:
“Social Security was created decades ago, for a very different era. . . . A half-century ago, about 16 workers paid into the system for each person drawing benefits. . . . Instead of 16 workers paying in for every beneficiary, right now it’s only about three workers. And over the next few decades, that number will fall to just two workers per beneficiary. . . . With each passing year, fewer workers are paying ever-higher benefits to an ever-larger number of retirees.”
President Bush’s key strategist, Karl Rove, had the president tour the country to promote his privatization plan for Social Security, and he repeated his talking points everywhere he went, in state after state. President Bush must have set some kind of record: rarely has anyone been so wrong so often about Social Security as the president was during his “privatization or bust” tour.
Yet this claim by not only President Bush but key Republican and even some Democratic leaders reflects a deep misunderstanding. The “dependency ratio” is not just a factor of the number of workers compared to the number of retirees. It has to be configured according to the number of total dependents, including children. A different picture emerges when children are included.
The fact is, declining birthrates have resulted in a fall in dependent children, so the rise in the number of retired will be partly offset by a decline in the number of dependent children. According to Gary Burtless, an economist and demographic expert at the Brookings Institution, when the decline in children is factored in, total dependency ratios in many countries in 2050 will look more favorable than the ratios were in the 1960s. In the United States, for example, the dependency ratio peaked in 1965, when there were ninety-five dependents (both children and retirees) for every one hundred working adults. By 2050 the figure will be eighty dependents for every hundred workers, which, while much higher than the highly favorable figure of forty-nine dependents in 2000, will still be markedly lower than the number of dependents in 1965.
How did we as a society manage to get wealthier in the 1960s and ’70s despite a much higher dependency ratio? The answer, in a word, is “productivity.” Labor productivity is a measure of the amount of goods and services produced by each worker, which in a well-functioning economy increases over time due to the implementation of technology, greater education and job skills training, as well as more efficient business practices. If our labor productivity continues to increase, and the political system passes on the economic gains in the form of a broadly shared prosperity, then the rising tide will float all boats. Political analyst Michael Lind has argued that “productivity growth can solve much or all of the pension funding problem,” and as proof of that he points out that if the ratio of workers to retirees goes from 3 to 1 today to the expected 2 to 1 in the future, that is quite a minor shift compared to a change from a ratio of 16 workers to 1 retiree in 1950, or even 8 workers to 1 in 1960, to 3 to 1 today—a shift made relatively smooth and painless by education, training, and technology-driven productivity growth over the past half century.
That doesn’t mean that we can ignore factors like dependency ratios, but the fact is that as long as our economy is healthy, robust, and growing, creating jobs and increasing productivity, and the political system is inclusive and passes on the increased prosperity to the general public in the form of higher wages and a robust safety net, there is no reason that the greying of society or the ratio of workers to dependents should hamper the nation’s economic future.
3. IRA s and 401(k)s have replaced private pensions and Social Security. Americans want to be self-reliant on their own private retirement accounts, because you can do better investing on your own.
One would think that the volatility and havoc wreaked by the stock market in recent years would have laid to rest the notion that “self-reliant” Americans can invest and save on their own. It’s really not that easy to build up a private nest egg in savings that an individual will need to cover their needs during their post-work years. The fact that three-quarters of Americans nearing retirement have less than $30,000 in their private savings—less than 5 percent of what they will need—shows what a bust of an idea this really is.
For years, advocates for deregulation and entitlements have pushed for privatized retirement accounts—401(k)s, IRAs, and other private savings vehicles managed by Wall Street’s financial managers, which skims off the top their own lucrative fees. At the same time, businesses have pushed to shut down their “defined-benefit” pensions, which have long provided a guaranteed monthly payout for life, just like Social Security’s lifetime annuity. Now that we have nearly three decades of experience with replacing pensions with 401(k)s and IRAs, and of Americans trying so hard to stuff their retirement piñatas, it’s clear that most American retirees are no more secure than before. In fact, they are much less secure.
The 401(k) system that was positioned in the 1980s to replace pensions was sold to American workers as the new and improved successors to the guaranteed payout of a defined-benefit pension. Business leaders and the politicians took away what worked and replaced it with an experiment. But that experiment has failed, and proven to be more fragile and inefficient than the system it replaced. Besides having failed to produce enough retirement savings for the vast majority of Americans, the 401(k) system has forced everyday Americans to face a number of significant risks, the most obvious being that you can lose your personal savings to unpredictable stock market gyrations or a housing-market downturn, especially since most people have little expertise in how to navigate the ups and downs. But there is also the uncomfortable fact that, with wages flat over the last few decades, millions of individual workers have been unable to save enough. Consequently, as we have seen, 80 percent of the federal subsidy for individual retirement savings goes to the top 20 percent of income earners—the people who need it the least.
4. Social Security is stealing from young people and saddling them with a level of overwhelming debt.
Billionaire Peter G. Peterson has been one of the pioneers of this kind of intergenerational doom-saying. Headlines about the old stealing from the young certainly grab the media spotlight. But this one is an old, old trope that never made any sense. Peterson first raised it back in 1982, in the midst of the deliberations of the Greenspan Commission. Social Security, Peterson wrote, “threatens the entire economy. . . . The Social Security system will run huge deficits . . . these deficits will push our children into a situation of economic stagnation and social conflict and create a potentially disastrous situation for the elderly of the future.”
But Peterson hasn’t been the only Cassandra prophesying a generational war between young and old. More recently, the Washington Post’s Robert J. Samuelson took up the cause. “We need to stop coddling the elderly,” he wrote in a 2013 column, calling Social Security and Medicare “a growing transfer from the young, who are increasingly disadvantaged, to the elderly, who are increasingly advantaged.” In a 2014 column, Samuelson continued his anti-elderly and antigovernment debt diatribe, writing, “Giving the elderly as a class special treatment heaps the costs of deficit reduction on workers and children.”
Pitting the elderly against children makes little sense for many reasons, but one obvious one is that today’s children will one day be seniors themselves. And they will need the retirement benefits that people like Peterson and Samuelson are trying to cut from retirees. Robbing Peter to pay Paul might make sense from a maniacally focused budget buster’s perspective, but it makes little sense from a public policy perspective. If that makes sense, then why not cut funding from cancer research, or diabetes treatment, since those ailments mostly affect older people and not the young. But obviously the young today could be attacked by those ailments tomorrow. Society benefits as a whole when it tries to address conditions that affect humanity as a whole.
5. We have to raise the retirement age because people are living longer and the nation can’t afford to pay for all these aging retirees.
Wrong. We do not have to raise the retirement age.There are common-sense changes we can make to Social Security that would not only safeguard it financially for the future, but would actually allow us to double the monthly benefits for retirees. For example, we could increase tax fairness by lifting the cap on the payroll tax so that wealthy Americans make the same percentage contribution as every other American. At the same time, the payroll contribution base could be extended to profits from investment income, such as capital gains. This would raise additional revenues in a progressive fashion that could be used to enhance the program for all Americans.
6. Social Security is un-American and too “socialistic” for most people in the United States.
Un-American? Too socialist? Social Security remains one of the most popular and successful government programs in history—opinion polls show nearly 70 percent of Republicans don’t want it to be cut or hurt. So if Social Security is too “socialist,” Americans must all be a bunch of closet socialists. Millions of Americans from all political persuasions now depend on Social Security, and no amount of divisive rhetoric, or even Pete Peterson’s billions of dollars, can change that fact.
7. The United States already has the world’s highest living standard, with an overly generous retirement system for seniors. We must be more realistic.
The United States is quite a bit less generous to its retirees than other developed nations. The Organisation for Economic Co-operation and Development (OECD) tracks and compares features like national pension systems. According to its numbers, the U.S. pension “replacement rate” for the average earner—the share of gross income the pension is expected to replace—is 38.3 percent, which is below the OECD average of 54.4 percent and 58 percent for countries in the European Union. For low-income workers—defined as earning 50 percent of the average wage—the United States was even more stingy, with a replacement rate of 49.5 percent compared to the OECD average of 71 percent and 73.9 percent for EU countries. Like in the United States, retirement pensions in most of these other nations are funded by regular payroll deductions from both workers and employers.
On other replacement metrics like “transfers in retirement income,” which measures the share of retirement income made up by both public pensions and social welfare assistance, the United States also looks stingy. The OECD average is 58.6 percent while the U.S. average is only 37.6 percent, barely half the average of the EU countries at 70.6 percent and just above Mexico and South Korea. Consequently, the poverty rate for seniors in the United States is substantially higher than in most other OECD countries, nearly 20 percent compared to 12.8 percent in the OECD and 8.9 percent among EU countries in the OECD. The U.S. rate is even higher than in Chile and Turkey.
My proposal for Social Security Plus shows how to greatly expand the retirement payout for America’s retirees, as well as how to pay for this expansion. This proposal would not only double the current payout, it would also make our retirement system fully portable. That’s the type of bold step that our country needs. Our American nation is heading into an anxious era driven by a new, high-tech economy in which more workers will have to gain access to a portable safety net without the benefit of a single employer or a regular workplace. Many workers will have multiple employers, none of whom would be expected to provide much of a safety net under the current, antiquated model. If we are going to provide adequate resources for our retired seniors, we have to update, upgrade, and modernize our retirement system.
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Right, the big shots are blatantly trying to steal social security, like they try to steal everything that’s not nailed down. It’s pretty sad the the dem prez Obama also was willing to go along with this money grab by the banksters. Another reason that it felt good yesterday when I changed my registration from dem to repug. I can still vote for whomever, but when you’re officially a member of the dems their spokespersons act like they own you, and assume you will toe the party line. It feels good to no longer be a member of this corrupt lying bunch of thieves. If Bernie somehow emerges as the candidate then I will officially be one of the repugs that votes for Bernie.
Just out of interest, EOTW, why did you go “repug” and not simply “independent”?
There is no advantage whatsoever to going independent. As a registered repug, I can vote in a primary or caucus if I want. I am just glad to not be associated with the dems for a while.
BTW, the day after I switched parties, I looked on Max Keiser’s website and there’s an article by a NY Daily News writer that did the same thing, so I don’t feel like the Lone Ranger.
http://jdalt.com/book/the-millennials-money/
While it remains true that the number of dollars any individual can spend is ultimately limited to what he or she can “earn,” the number of dollars individuals can spend collectively—as a sovereign nation—is (with one cautionary rule) unlimited.
NC readers may want to consider a view of reality
What are you talking about? Democrats aren’t/weren’t talking about privatizing Social Security. Currently and for many decades an SS funds not spent immediately on payment are used, by law, to buy non negotiable interest bearing treasury bonds.
Personally, I would prefer that excess cash was used to buy state & municiple bonds for infrastructure projects including a national system of high speed high capacity internet connection service starting with rural communities and least affluent urban/suburban areas.
Have government agencies start paying back or retiring those bonds on a 20 year schedule like a mortgage.
Sorry, Bill Clinton was most assuredly ready to privatize Social Security, but the Monica Lewinsky scandal broke just as he was ready to launch that initiative. He’d cut a deal with Newt Gingrich.
And the Federal government never needs to pay back debt. It is a fiat currency issuer and can always create more currency. Federal deficits are necessary and desirable to offset chronic shortfalls in business investment. Corporations set return targets that are higher than what is optimal for them and the economy as a whole.
I remember reading somewhere that the projected shortfalls in Social Security are entirely dependent on economic growth, and that the SSA has been purposely touting projections based on low economic growth, in order to lobby for “reforms” to the system. If growth tracks with the historical average in the U.S., then there will never be a shortfall.
SSA has not, one member has been pushing “reforms” like upping age or reducing benefits rather than just scrapping the salary cap.
In fact, it would be actuarially sensible to have those with salaries at 500K and up, pay 10% since they live longer.
Currently the least affluent pay in and frequently do not live long enough to collect at all. Illegal workers using borrowed or made up SS numbers can never collect thus subsidizing the rest of us.
There is a very good way to insure Social Security and give working class Americans a great boost. Cut the withholding rate in half and apply the new lower rate to all income.
It’s pretty rich for a billionaire like Peterson to run around with his hair on fire about how ‘we’ don’t have enough money for Social Security. Billionaires like Peterson don’t have enough money, and they never can, and never will.
B/c they are empty, internally.
There is a saying,
“the rich man is the one who is satisfied with his lot”
These folks are never satisfied. It’s why they feel poor. B/c internally they are. lol.
‘For those want most, alas, who already have plenty.’ — Tagore
Forbes Magazine for decades used to have a saying on their back page Thoughts.
With all thy getting, get understanding.
They stopped displaying that some years ago, indicating that they were now only in favor of the getting, but no longer of the understanding.
I miss Malcom — relative to Steve, anyway.
And, of course, they pay in less as a percentage of their actual income, because of both the various loopholes for them AND the hard Social Security cap.
We create the money. There is no such thing as a Social Security shortfall, except in the diseased minds of politicians who are either unable or unwilling to comprehend reality! The only question concerning the issuance of Social Security benefits is how much (in terms of resources) the benefits will cover! Inflation is the key in that instance. If the country decided to “save” huge gobs of money, tax like hell, come out with a huge surplus–and then plan to put that towards SS: we would be in a depression the likes of which the modern world has never seen!
Please, please, please, please, please READ UP ON MODERN MONETARY THEORY! It is a theory like the Theory of Gravity!
I was hoping that somebody would mention MMT! What the decision about Social Security comes down to is that politicians could spend the necessary money easily but they have absolutely no interest in the lives of the “little people” – be they the poor, be they blacks, be they immigrants, be they seniors. The attitude is “fuck em”: only policies that create large capital accumulation are wanted – dispensing small amounts is for suckers!
Yes, I agree with an expanded social security program but there is no need to increase payroll taxes to get there.
Another important pillar supported by MMT is the job guarantee program. The important thing is to have a vibrant economy that is producing things for retirees to buy as well as providing sustainable income for the ‘suppliers’ of these goods and services.
You’re preaching to the choir around these parts.
This paragraph was a real face-palmer for me (“…and face to palm is holy palmers kiss”):
So the government takes tax money, invests it in it’s own debt and then pays a “sizeable return” on it? How is the Federal government both making the investment and paying a return on it…almost like some sort of shell game….
And then the insanity of taxing SS income. Here’s some money from the government…but wait, give us some of it back, we didn’t mean to give you that much!!
The mental contortions that people put themselves through to avoid addressing the fact that the US government faces no financial budget constraint are simply astounding. No wonder we get such crappy policies when everyone and their brother is entirely confused.
The Federal Reserve creates US dollars. The Federal Reserve is part of the US government. You wouldn’t think that those two facts would be so controversial, but if you take them as given, people will crawl out of the woodwork to tell you you don’t know what you’re talking about.
I have for some time been questioning whether the SS Fund was maximized for the beneficiaries for the last 70 years.
When the surplus was building – did the Fund buy treasuries to match the actuary obligations – ie: Long bonds 30 year for 80% of the principal? and why wasn’t longer term bonds – greater than 30 years – with corresponding yields for duration made available by the Treasury?
what was the duration of investments for Life Insurance Companies with the same responsibility for the last 70 years?
during periods of high interest rates – early 80’s – did the SS Fund buy as much long dated bonds as possible and hold them or was the yield stripped out for reasons that don’t relate to the fiduciary responsibility of the Trustees?
If an analysis shows the Fund yield was not maximized, can a class action suit be brought on behalf of all future beneficiaries for non performance of the Trustees?
There could be Trillions in claims on the basis of the fiduciary responsibility of the Trustees – let the Treasury pay if so – and take it out of the discretionary budget for DoD / CIA / NSC for as long as it takes to pay it back
Right. Social Security is a de facto pay as you go system. IOUs written to ones self to be cashed in in 30 years are worthless. In the end, real goods and serivces will have be provided to pensioners, not because they have been sitting in a bank earning interest, but because the wheat, cotton, wood and steel was produced by workers that year to support the needs for non workers that year. (This is also the reason why MMT doesn’t mean we can print our way out of shortfall. Sure, you can print all the money you want, but it doesn’t alleviate shortfall on real goods and services in 20 years. All it will manage to do is redistribute it a bit.). The trust fund exists only on paper. Productivity improvements are obviously key to preventing declining standard of living.
It seems to me that it is reasonable to conclude that social security benefits will either be reduced to 75% of current levels in 20 years, or the payroll taxes will have to go up to compensate. I see no problem raising taxes on unearned income to cover the shortfall. We seem to have enough investment capital these days.
This contradicts what you said earlier about resources.
The question is not do we have enough money to take care of seniors, but rather do we have the resources?
So why then is it “reasonable” that SS benefits hacked? With millions out of work? And no indication that we lack the material resources (goods and services) to make it happen?
my understanding is that the issues is less to do with SS than with the budget deficit. While SS was building its surplus, it was “artificially” reducing the federal deficit (revenues greater than benefits paid out). As the boomers retire and the surplus starts to get drawn down, each year the revenues coming in will be less than the benefits paid out – the net effect will be a larger government deficit. Its all artificial because it never should have been in the budget in the first place … but it did allow the appearance of smaller deficits, which of course were not real, and now leads for calls for reform because it will make deficits appear bigger.
Deficits are badly misrepresented. There is an annual budget deficit which is simply what the Govt. spent beyond what it collected in a given year in taxes: this number means nothing in and of itself as our Govt spends by issuing new fiat money and then destroys that same money when it collects taxes.
The accumulated Federal Deficit that burns the hair of balding men like Pete Peterson, the 19 trillions we’re all supposed to panic about, is the stock of privately held dollar denominated wealth: to want to reduce it is to want to reduce that stock. Why? What makes a world with less private dollar wealth better?
You’re right SS has little to do with this and the confounding of the two clarifies neither. The key to supporting more seniors is ensuring that the goods and services they need are available to them: first seniors must be able to access them either as public goods or for pay, for which case they must first have money; second these goods and services must exist in the real, non- money world, requiring real resources and ongoing employment, training and investments.
None of these things are currently part of the discussion of either SS or the Deficit, and yet it is precisely these things on which the future depends.
Ah the deficits canard. This is, incidentally, what Pete Peterson is promoting: “The deficits will devour your grandchildren!”
But we have debt-based money. If you pay me with an IOU and I use that IOU to pay someone else, then that IOU is a “money thing.” Most of us are familiar with bank accounts that are our asset, but the bank’s liability. A check assigns the liability to the payee.
…and the Fed carries currency on its books as a liability–i.e. part of the “deficit.”
Reducing “debt” (not like household debt because government creates the money) is very bad in current circumstances. See this for the rest of the story.
One more thing: Between Reagan and Bush 41, the R’s raised payroll taxes eightfold to “pay for” Social Security.
One has to wonder where people get dollars to pay taxes if government doesn’t spend them out into the economy first.
Thank you, Yves, great post.
SS is a false promise, like all govt programs, falling further behind inflation every day, locking people into false choices among necessities. Like the young, seniors should get themselves a part time job to handle the losses. If you get SS, and the govt employees you pay get three pensions, including SS, along with much better interest rates, what do you expect to happen?
The good news is that the fools and their money are soon parted, and the elders are pretty good at barter.
Paying people to bankrupt you when they have recourse to bankruptcy and you don’t is insulting and injuring yourself. A better answer is not to depend on experts trained to farm people, and learn something about real versus stated inflation.
Are you having Creamy French or Thousand Island with your word salad?
Brilliant. Are we two?
The biggest error people make is assuming that government is a cafeteria with a menu. If you take one, you get it all, because it’s a closed system run by experts with MAD financing. Everything affects everything and government growth is embedded in each round of the positive feedback loop, transferring control to whoever issues the money, which is what all the experts are fighting over.
If you learn instead of comply, it doesn’t matter who issues the money or who writes the laws, because expert systems fail every time.
The government is whoever happens to be controlling it at the time, and its not the voter until it blows up.
I would suggest your contribution be added to the list of Myths and Lies but it would have to make a bit more sense first.
The socialists depend on capitalists for slave labor and the capitalists depend on the socialists to dumb down the population. Problem is they are running out of supply and automation didn’t quite work out the way they hoped.
True disagreement increases the value of communication, but a brain dead zombie response subtracts. Challenge your own assumptions first.
What is nature getting in the transaction.
Work is not pushing paper and digits around in a circle to collect arbitrary debt as money, and neither is cutting down a healthy tree to put it in the fireplace.
Wow! that sounds like investing in Wall Street , PE and Hedge Funds these days!
Yeah, cause that rural electrification sure didn’t work out. Also those public schools I attended obviously did me no good, as I’m now just barely literate. The promise of a social security check is a false promise…until it arrives in the mail. WTF are you talking about?
Well that’s true enough. SS should be indexed to inflation, and to a better measure of inflation than CPI or [shudder] C-CPI.
Three pensions? I know a number of Federal employees and the lucky ones have one pension, the unlucky ones have squat, just like the rest of us. And your ire is entirely misdirected. You point it at public servants for having the audacity to not have been screwed quite as bad as workers in the private sector. Hating someone because they haven’t been oppressed as much as you is not a good look. And I have no clue where your “much better interest rates” are coming from. Mortgage rates are mortgage rates, ditto for credit cards, regardless of who writes your paycheck…apparently you think Federal employees all have access to the Discount Window or something?
Here’s a tip: there is a very big difference between the criminals who, by-and-large, now run our Federal agencies and the rank-and-file employees, most of whom are no more venial or selfish than anyone else, and most of whom are legitimately trying to do a good job and serve the citizenry. Bitching about them, because some of them still have decent benefits, is directing your fire at your allies. Your real enemies are considerably higher up.
And, for the record, taxes do not fund federal spending.
Yeah, cause that rural electrification sure didn’t work out.
Thank you so much for pointing this out. It always amuses me when Glenn Reynolds (who pays some of the lowest energy rates in the country thanks to the TVA) rants about government energy programs.
Tesla lit up Chicago. America has largely been riding on his dead coattails ever since.
ok, something to work with here, but not much.
typical emotional.
you disagree with me and then agree with me that SS is a false promise, because the issuer knows inflation will eat it alive.
you know a number of Federal Employees. You obviously do not know them well. The first thing you learn in orientation is about all the pension benefits. That’s what lulls them deeper and deeper into the rabbit hole over time, fear of losing the pension investment. Its a competition to collect as many pensions from as many sectors as possible.
What ire. I’m just restating the data. Where did I say I hated government or private workers. I am not oppressed. I am more fortunate, and have worked harder, than anyone I ever met.
And what is it about Federal Employees. Where did I isolate Federal Employees. Yes, government employees get discount loans all the time.
I didn’t say any were more venal or selfish than any others.
I have no enemies. I don’t think in terms of good and bad.
Who said taxes fund federal spending.
Glad to be a mirror for you, but it is you who are misdirected.
Obviously, I am correct. The majority builds its own prison, a psychological one.
As provided, the common mistake is to assume that everything does not affect everything in a closed system. You try to correct something in one spot and five other things change, all creating make work. To even begin you have to look at the forest.
we have come circle again. remember when I used to respond? it just gets more emotional. Nothing wrong with emotion, and if it helps to get emotional at me, thats ok, but where does it end?
As provided, the vast majority follow blindly along, and are upset to find themselves up a creek.
you are new. I have worked for over 1000 public, private and nonprofit corporations. you need something far better than you know a few people, and many of the big hitters you are upset about have been on the wrong end of my work.
In this sharp and controversial exposé, Mariana Mazzucato debunks the pervasive myth that the state is a laggard, bureaucratic apparatus at odds with a dynamic private sector. She reveals in detailed case studies, including a riveting chapter on the iPhone, that the opposite is true: the state is, and has been, our boldest and most valuable innovator. Denying this history is leading us down the wrong path. A select few get credit for what is an intensely collective effort, and the US government has started disinvesting from innovation. The repercussions could stunt economic growth and increase inequality. Mazzucato teaches us how to reverse this trend before it is too late.
http://www.amazon.com/The-Entrepreneurial-State-Debunking-Private/dp/1610396138/ref=dp_ob_title_bk
Disheveled Marsupial…. might be an environmental or industrial expsure thingy to too much Nash or Hayek ke, but your bias is all consuming…
Always good to see skippy.
Have I ever pretended not to be biased,?
Our three biggest problems over here is replacing nutrition with cardboard food, replacing science with political mythology, and allowing centralized energy distribution.
Thank for weighing in, in what would otherwise be emotional vapor. How’s the housing market out there?
RE is reflection of Gawds of the free market, the whore is making the rounds it seems, so it seems a question of whom enabled that orgy… eh…
On food I concur and that Green thingy… Profit.. oops… Prophet spread across the planet… you know whom I mean…
Disheveled Marsupial… it might help if you could reference your stuff than just mental venting… I don’t know you and trust is an issue… eh…
I’m a developer, no copy and paste stuff using other people’s libraries. Gave up the friend and enemy thing long ago. The folks at the top see everyone as the enemy and call everyone friend. There was some sunshine in government for a while, but in a dark phase now. Time to metabolize in time others can’t see. The proof will be in the pudding when the machine war starts in earnest.
If you have worked for over 1000 various corporations, that would be a few weeks to a few months per corporation worked for, I am guessing. What kind of work are you speaking of here?
I was a consultant, for the “entrepreneurial state.”
Now I’m an AI guy
All the “nicest” people show up for a Navy IT job.
Most of open-source went with the Nazis, into the digital utopia you now see, but that happens. The empire machine is tireless. Didn’t do IBM much good, and before this is done, Silicon Valley will run its course as well. And we’ll be back to the gals running RE.out of NY.
DC,
It’s time for a Navy modernization, and as you may surmise, it’s not a one sided affair. Open source has scattered to the four winds accordingly, to prep. What you are looking at is the completion of discovery.
Bias is what you want, but even in this playground what you see is chameleons.
The issues are not separable as debated. The best approach is to take what is useful to you in your situation and ignore the rest. Competing for influence is a waste of time, and it will always be.
The thing about guys like Thiel is that they’re glory hounds. All the venture capitalists and angel investors are the same. They ride in very late with plenty of funding, long after the hard-yards of R&D have been done because they want a low-risk, 10-banger. Even then, they want you to hand over all the IP.
They’re very, very good at marketing themselves and claiming glory for supporting “innovation” when the product is a market success.
If you ask the average Joe, to rank these entities according to which one takes the most risk and supports the most innovation:
– venture capitalist
– angel investor
– commercial bank
– crowd-sourcing
– government
They will almost always rank government last and venture capitalist first which is completely wrong.
In actuality, it’s the government that supports the Lion’s share of innovation expenditure (particularly in Australia). Guys like Thiel won’t spend a cent on Pure-Basic Research, and shy away from even Applied Research. Development yes, once a huge amount of innovation has already been conducted to convert myriad streams of mostly government-funded R&D into something with clear market potential.
People simply have no idea how much of a role government funding played in most of the technology they use because the government is terrible at marketing itself. Here, where I work (government-funded R&D), we even have a policy that requires us to spin-off projects that look commercially viable. Yes, you read that right and I couldn’t believe it when I first found out about it. We are REQUIRED to divest the winners, retaining only the losers. The winners are picked up by people like Thiel who take all the glory, most of the IP and almost all of the money, while the real source gets jack-shit.
Unsurprisingly, that policy is yet another product of neoliberalism. The State must never be seen to be innovative, productive or profitable. “Privatise the winners, socialise the losers”.
Now this could be well and good in a healthy symbiosis. Turns out that the government is very good at doing Research and some Development, whereas the private sector is better at doing late stage Development and Marketing. In a healthy symbiosis, the public sector would feed the private sector with leads (which it does now), and the private sector would pay it back through taxation to be reinvested in more innovative research. The public would be aware of the value of both parties in the relationship.
That’s not what happens though. It’s a completely one-sided relationship. The $$$ boys dodge tax, claim glory and paint the government as a useless, ugly, lumbering dinosaur; and the ignorant think that Steve Jobs created the iPhone…
http://www.amazon.com/The-Entrepreneurial-State-Debunking-Private/dp/1610396138/ref=dp_ob_title_bk
Dishevel Marsupial… hows your gig going….
Souds
Going to be quite interesting in June, pulling a leg out from under SV
Unfortunately, they own the govt these days, and the majority is always risk averse, until it’s way too late.
The critical thing to know is that the right doesn’t care about Social Security runs out of money in its trust fund. The right has no intention of ever letting the trust fund be accessed. In effect, the left id worried about the last dollar in the trust fund, while the right is worried about the first.
[To prevent accessing the trust fund, a cut of 30% in benefits will have to be made. Look for that number.]
Exactly right. The SS trust fund is being used to mask the revenue negative effects of the tax cuts benefiting mostly the top 1% for the past 30 years: income tax cuts, capital gains tax cuts, carry interest tax cuts, inheritance tax cuts, depreciation allowance increases, etc.
When the SS trust fund is no longer available to mask the revenue negative effect the Petersons and others might have to pay more in taxes. The Bush tax cuts might be rolled back to 1999 levels. The capital gains tax returned to 1990 levels. Oh, the horror!
You never, ever hear Peterson say he’s worried about the deficit in connection with tax cuts he’s enjoyed for 30 years and counting.
Unfortunately, Steven Hill subscribes to the biggest myth of all: That federal taxes fund federal spending.
Wrong, wrong, seven times wrong.
While city taxes fund city spending, and county taxes fund county spending, and state taxes fund state spending, federal taxes do not fund federal spending.
The U.S. government is Monetarily Sovereign. It is 100% sovereign over its sovereign currency, the U.S. dollar.
It can create dollars at will, and it can control the value of those dollars (i.e. inflation). It never can run short of dollars. It neither needs nor uses taxes to fund spending. Even if all federal taxes, including FICA, fell to $0, the federal government could continue spending forever.
The federal government creates dollars and it destroys dollars.
To pay its bills, the federal government sends instructions to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. At the instant the bank obeys those instructions, dollars are created.
Dollars are destroyed when the federal government receives taxes. The federal government does not “store” tax dollars anywhere. Try to find the answer to the question, “How much money does the federal government have?” and you will not find it anywhere.
The federal government does not “have” money; it creates unlimited dollars ad hoc, by paying bills.
The entire article is wrong in every way, and only continues what has become known as “The Big Lie,” the lie that federal taxes fund federal spending.
The Big Lie is what makes people wrongly believe the federal deficit and “debt” are too high and a burden on taxpayers.
This is the worst, most misleading article nakedcapitalism has published in years. The very worst.
Really surprised at you, Susan.
In light of your response to the article, the implication is that Social Security can’t / won’t go bust. You didn’t offer an opinion on the relative health, or philosophical merit of SS, nor of the Government’s ability to create and or destroy ‘money’ at will. Ironic the biggest blockbuster hit of the year is, “Hamilton”— and even more amazing is the move to remove Jackson from currency (re-write History?) and replace with a freedom-fighting black female.
Now DAT’S ammonia!
JB, Social Security will “go bust” only if Congress and the President use The Big Lie to “prove” SS has run out of money. Thus SS will be healthy so long as a Congress and the President don’t “sicken” it.
As the the philosophical merit of SS, it is valuable, and in fact, benefits could and should be increased and FICA eliminated. See: Ten Steps to Prosperity
I already addressed the federal government’s ability to create money, an ability that is infinite. It creates dollars by sending instructions to banks. So long as the federal government doesn’t run short of instructions, it won’t run short of money. That is what “Monetary Sovereignty” means.
The federal government (unlike local governments) destroys money by collecting taxes.
I urge you to read about Monetary Sovereignty.
In short, there are two ways money is created and two ways money is destroyed:
Money is created when:
1. Borrowers borrow
2. The federal government pays a creditor
Money is destroyed when:
3. Borrowers pay back loans
4. The federal government collects taxes.
Unfortunately, regarding MMT, we may be facing a daunting cognitive barrier: most people can not think beyond their own direct experience (not to mention the relentless propaganda). Everyone knows and has direct personal experience with their personal finances and simply extrapolates that as their mental model of how government is financed.
I find it nearly impossible to have a civil discussion regarding MMT – if you want to be regarded as a raving loon, simple float the idea that government spending is not dependent on tax revenue.
I don’t know how we overcome this in time to prevent ever-increasing human misery and environmental destruction. It’s not necessary – there’s the tragedy.
Yes, to demonstrate how difficult the task is, consider this: Stephanie Kelton is Bernie Sanders’s economics adviser.
No one knows MMT better than her, yet neither she nor Bernie feels confident enough to tell the public the truth.
The public acts like a group of recalcitrant teenagers, who resist all information from experts, in favor of what their ignorant peers tell them. The Big Lie is firmly rooted, and not all the facts in the world seem to be able to pull it out.
I often go back to Mark Ames’ essay, We The Spiteful:
That’s what a life/culture that posits competition and exchange as the place where all blessing flow does to people IMO.
I was hoping someone would make this point. There is no ‘ T ‘ in MMT . What you have described is the operational reality, but we have been brought up to believe that money is a mysterious ‘ thing ‘ and the keepers of the mystery and only they can explain it. So knowledge ,even false, or fake knowledge is power and therein lies the rub. To wit ‘ money doesn’t grow on trees ‘ etc. We must believe as though our very life depended on it that money is a ‘ thing ‘ . How hard it is to believe otherwise . The psychological issue – I think – is one of ownership. And yet we already have these phrases in the language e.g. ‘ spending power ‘ which suggest otherwise; that money is an energy or maybe more accurately a flow. Think of all those billions Apple et al has locked up ‘ offshore ‘ ( not the place to debate what that means in reality ) . What use is it other than to say ‘ my pile’s bigger than yours ‘ . Well our ancestors came to agree collectively that the earth wasn’t flat and we, and our progeny, might come to agree that money isn’t a thing that we can neither create nor own, even if appearances suggest otherwise .
Thanks very much for this post. Great antidote to the Peterson sponsored fear mongering.
One important point that is not mentioned enough is that the benefits paid out to social security recipients are immediately recycled into the real economy to provide needed goods and services. Keeping such a system healthy by limiting corruption and looting is key. It provides the foundation for a strong society.
People who invest in each other will always be stronger and more resilient in the face of social pressures and natural disasters.
Good article, but omits the effects on SS revenues of decades of wage stagnation and inequality [which has put an increasing share of total wages beyond fica taxable limits].
No benefits are paid to Social Security. However, if you mean FICA, it does not fund Social Security.
The government pays SS benefits by creating dollars ad hoc. If you receive SS benefits, the federal government sends instructions (not dollars) to your bank, instructing your bank to increase the balance in your checking account.
At the moment (and not before) your bank does as instructed, dollars are created. FICA plays no role in this. FICA dollars are destroyed, not recycled into the economy.
Because the federal government creates dollars ad hoc, by paying bills, it has no need to own dollars, and in fact, owns no dollars. If you don’t believe this, try to find out how many dollars the federal government owns.
Even if FICA were totally eliminated and SS benefits doubled, SS still could continue paying benefits, forever.
‘Social Security is one of the best-funded federal programs in U.S. history.’
Social Security is less than 20% funded, as a percentage of the reserves it should have to meet its liabilities. That’s a worse funding status than even Illinois and New Jersey state pensions.
The same 2015 Trustees report cited by Hill shows Social Security’s reserves reaching zero ($0) in 2034. At that point, absent new funding, benefits would have to be cut about 25 percent.
Hill euphemizes the 2034 crack-up by saying “the Trust Fund will have enough to cover only 75 percent of benefits,” when in fact the zero-balance Trust Fund will not have enough to cover ANY benefits; Soc Sec at that point will be living hand-to-mouth on FICA taxes. Confusing stocks with flows is a rookie error. But in Hill’s case, it’s likely an intentional deception.
Artful dodgers like Hill, with their cherry-picked rhetorical flakery, provide political cover for the Depublicrat establishment who are letting Soc Sec’s 17% funded status continue its slow-mo slide toward zero. With false “friends” like Hill, Soc Sec hardly needs enemies.
By refusing to responsibly fund Social Security benefits — and even increase them by improving Soc Sec’s scandalously poor investment performance — Soc Sec mossbacks like Hill help keep retirees and prospective retirees poor, scared and insecure … as ol’ Frank intended, when he explicitly made Soc Sec a political program, subject to the whims of 535 venal Kongress Klowns.
Compare their pensions to your Soc Sec benefits, and you’ll see how that worked out! :)
False Choices or Real Possibilities
FICA does not fund Social Security. You have been told The Big Lie.
The federal government is Monetarily Sovereign. It creates dollars ad hoc, by paying its creditors. It never can run short of its sovereign currency, the dollar.
Even if all federal tax collects fell to $0, the federal government could continue spending forever.
Cities, counties, and states, being monetarily non-sovereign, do use tax dollars to fund spending. The federal government does not use tax dollars to fund spending.
Federal finances are not like your finances. The above link provides a fuller explanation.
As long there is a differance between the CPI and real inflation (food on the shelf, property taxes and other rent extractions) all retirement systems (SS, FERS, CSRS, 401’S,…) are on a downward spiral. People born in the 30’s and 40’s have been riding a nice wave, if born in the 60’s its been the trough after the wave.
While I wholeheartedly agree that Social Security isn’t going broke, I would point out that payroll deductions do not ‘fund’ Social Security. They are simply the vehicle for moving consumer demand from workers to retirees so as not to create inflation; reduce the income of one group while you increase the income of the other. But, because retirees don’t purchase the same number or type of goods/services as workers, and Social Security payments don’t increase their spending by same amount, the transfer doesn’t need to be a 1:1 ratio to effectively balance the spending by the two groups. This means that it never has to be about how much it is funded. If payroll deductions are only 75% of payments in 2050, but the total spending of the two groups doesn’t create inflation because one isn’t spending in same sector or some other reason, then who cares – spending and inflation are in balance.
Similarly, the worker’s productivity is the key to supporting the number of retirees more so than the amount of dollars they contribute. If there are not enough workers to create the goods/services retirees need to purchase, then it doesn’t matter if you tax them $5 or $5000 to pay for Social Security, it will still ‘go broke’ in that the goods needed to survive will not be created to buy. A good example is medical services. If we don’t have enough healthcare workers, which are a service in higher demand from retirees than from workers, then you will have an imbalance and inflation/scarcity will be the result. You can’t shift purchasing of healthcare to another commodity in the basket – which is why the way they base inflation for purposes of Social Security on the CPI is such a joke.
I agree that FICA takes from the middle class. Social Security pays the middle class, though FICA dollars do not “pass through” from taxpayers to SS benefit receivers.
FICA pays for nothing and is a 100% drag on the economy.
Being Monetarily Sovereign, the federal government is the absolute sovereign over the dollar. It can create as many as it wishes (by spending), destroy as many as it wishes (by taxing) and control the value of the dollar (inflation) by fiat.
It arbitrarily can decide what purchasing power the dollar will have.
The key word is “sovereign.” The federal government is uniquely sovereign over our sovereign currency. It doesn’t need FICA to prevent inflation.
No there is not “pass through” as you say because the dollars don’t fund SS at all, they act as a drag on the spending of workers to in effect shift it to retirees. In today’s economy, it could have an inflationary effect if there were zero FICA deduction, but there is really no shortage of goods for retirees to purchase. The only problem I see is in healthcare and ramping up availability of services they buy competes with workers who also are under-served in healthcare services with so many under-insured or uninsured.
I’ll believe all this talk about self-sufficient Americans not needing any socialist government pensions when these thieves start calling for the end of the payroll tax.
In reality of course, they just want to divert it to their own coffers, with Uncle Sam to do the accounting and enforcement and lots of talk about how Americans are now independent and self-sufficient because their pension money is being fondled by high-paid private sector operators instead of handled by government bureaucrats.
Its always the embedded assumptions, not the derivative details.
I’m always reminded of what Luther Gulick wrote of his discussion with FDR on funding Soc Sec.
https://www.ssa.gov/history/Gulick.html
A discussion of the vulnerabilities of SS from a very different perspective (not Pete Peterson’s) is a recent blog post by David Martin, “Zombie Capitalism”. He mentions actuarial issues, but that is just the tip of the iceberg. He describes a house of cards scenario I’ve not heard elsewhere. Warning–it is provocative.
He says there will be follow-up posts, which I eagerly anticipate. On an earlier post this year he discussed rate-linked issues which have led to a major misrepresentation of the state of the funds.
Only an economist can call 300 Billion dollars a “modest shortfall” with a straight face.