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More Misdirection from Rampell in the Service of Generational War

letsgetitdone's picture

In my last post, I took issue with a recent column by Catherine Rampell, who tries to make the case that seniors haven't paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. Rampell relies on an Urban Institute study to make her case. Since that post, she's offered another that replies to some of the questions raised by commenters on her earlier effort. I'll reply to that new post shortly, but first I want to present key points emerging from my analysis of Federal monetary operations in my reply to her earlier post. See that post for the full argument.

First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its reserve keystroking into private sector account activities that today represent most of the reality of Federal spending.

Second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax. Or that millennials, and other age cohorts, are paying for seniors' entitlement benefits, or for the difference between what seniors' payments were before they began to receive benefits and what they are getting paid afterwards.

Third, the whole neoliberal construction of Government finance, which assumes that the Government is a currency user with limited financial resources, is false. The Government (including Congress, the Treasury, and the Fed) is a high-powered money creator of reserves, currency, and coins. It is the only high-powered money creator. It is the high-powered money monopolist.

Fourth, Catherine Rampell, as well as all the conservative and/or austerian, and most of the progressive pundits and politicians of all stripes, are wrong to spend time debating who does or should “pay for” entitlement benefits with their taxes. Federal taxes don't pay for anything. So, payments made to the Government “for” entitlement benefits should be required, if at all, only for other purposes than “paying for” such benefits. These purposes are outlined in my previous post on Rampell's views.

Fifth, entitlement benefits aren't in competition with other needs for scarce Federal funds, and what seniors have paid in FICA taxes aren't important for the level of benefits we decide to allocate to them. The issue of how much people should be taxed; is entirely separate from the question of how much seniors ought to be getting in entitlement benefits. The whole debate over what's been paid in and what seniors get out is all sound and fury signifying nothing but neoliberal madness and moral bankruptcy.

Sixth, the Treasury has no fiscal solvency problem, under current law, provided it has an appropriation mandating it to spend, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its tax revenues. The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, while adding the net financial assets of Federal debt instruments to that sector, and getting the Fed to place an equal amount of reserves in its accounts. But, this way of getting the necessary reserves can be interrupted by debt ceiling crises.

Seventh, however, there are other ways to get reserves into Treasury accounts that get around any refusal to raise the debt limit. The best way any spending gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to cause the Fed to generate needed reserves. I've explained how this would work in my kindle e-book, as well as in many blog posts. I've also explained in my book why using PCS to get reserves for deficit spending and repaying previous debt would be no more inflationary than using debt instruments for these purposes.

Eighth, just as Congress, along with the Federal Reserve and the Treasury, can work together to solve self-created entitlement crises, it can also legislate the deficit spending needed to fulfill all the needs Rampell is worried about. It is a question of will and intention, not a question of financial capability. Rampell should not write disingenuously as if a future entitlement funding crisis is an inevitable fact of nature, rather than an aspect of “shock doctrine” and a political choice.

Ninth, so the proper frame to use when evaluating the question of how much the Government ought to subsidize one generational cohort as opposed to another isn't the competitive neoliberal framing used by Rampell at all. The framing Rampell should be using is the Economic Bill of Rights/we take care of our own framing consistent with an equality-seeking democracy whose citizens look at themselves as bound to one another by ties of obligation and responsibility in a common endeavor to attain economic and social justice, and a decent life for everyone.

Let's now turn to the issues raised by Rampell in her new post answering her commenters. First she considers how much her analysis changes across categories of earners, relying on the Urban Institute study to help her answer that question.

She finds that the monetary value of entitlement spending on seniors exceeds the amounts paid in taxes across all categories of earners, and that the difference is primarily explained by Medicare benefits. This analysis and finding carry over her neoliberal framing to her new post.

For her the issue is whether seniors, by getting more than they paid in taxes, are taking scarce financial resources away from other generations and the task of fulfilling other needs apart from those of the elderly. The alternative framing of an Economic Bill of Rights and “we take care of our own” still isn't on her radar, and probably won't be as long as she works for The (no loner "progressive”) Washington Post.

Next, she considers the fairness objection that earlier working generational cohorts paid for the benefits of their seniors and now that they're no longer working it's only fair that today's working population pay for their benefits. She grants this objection “up to a point,” and then points out that the baby boom generation was very large and the senior cohort they supported was relatively small, so the burden on the boomers per individual worker was much smaller than the burden on each individual worker now that the boomers are in the senior group.

Here she neglects to mention the productivity gains in the economy since the 1970s that greatly increase the capability of each worker to produce enough goods and services to sustain others. And she also neglects to mention, that while earlier generations of workers were taxed only enough to match the benefits of seniors on a pay-go basis, workers since 1983 have been paying almost twice as much in FICA taxes as before, under the mistaken idea that tax revenues in a fiat currency system can be “saved up” to fund senior benefits when the workers retire.

But details such as these miss the point because they continue to reflect a neoliberal idea of fairness from an individual's microeconomic point of view. The real issue here is the economic rights of the various generational cohorts and whether the active workers in the economy can produce enough goods and services to allow all of them to be exercised. It is not the false issue of whether individuals are getting out more than they “paid in,” or whether some generational cohorts support more people than other generational cohorts. Rampell can't see the real issue because she's focused on her false assumptions about scarcity of Federal Government financial resources, rather than questions of economic rights and whether our collective capability to produce real goods and services allows us to satisfy them all.

However, she begins to approach the resources question a bit when she focuses on international senior dependency ratio statistics providing those ratios for 23 nations for 2010 and projected ratios for 2050. As of 2010 the US dependency ratio was 19 per 100 workers, while the projection for 2050 is 36 per 100. These ratios are not bad placed in the context of what other nations face. For example, Germany, Italy, Spain, South Korea, and Japan all are projected to have dependency ratios of 60 or higher, with Japan rising to a high of 72 per 100 people. These ratios dwarf the 36 per 100 projection for the US.

Of course, dependency ratios alone aren't enough to get at the question of the real burdens on workers whose production of real wealth in the form of goods and services must support both seniors and the whole economy. One also must know what gains in productivity will be made between 2010 and 2050. Between 1970 and 2010 productivity in major US economic sectors more than doubled. If the same rate of productivity growth happens over the 2010 – 2050 period 100 workers will be more capable of supporting 36 seniors than 100 workers now are of supporting today's 19 seniors.

Other nations may have more difficulty than we, but many nations are already supporting many more seniors per 100 workers than we are, with much more generous retirement benefits than we have. Those with sovereign fiat currencies are far from collapsing under the strain, suggesting that we probably can very well afford to expand senior benefits rather than trying to cut them.

Rampell's third and last issue in her second post is whether it is fair to charge seniors with getting too much out their entitlement programs when, if the tax money collected from them to “pay for” entitlements had been placed in a savings vehicle, they might have realized a larger “return” than they've gotten from SS and Medicare. Rampell replied to this question by noting that the Urban Institute study controlled for that by using a discount rate of inflation plus 2% to measure the value of benefits.

So, again we see Rampell's inability to rise above the neoliberal framing of her arguments. The point is that entitlement benefits have nothing to do with “rates of return” on payroll taxes. Payroll taxes are not collected for the purpose of investing them wisely, because there is no need to make such investments at all.

One very important purpose of payroll taxes is just to drain reserves out of the private economy, i.e to actually destroy the money through taxation. But, destroying money by taxing it has nothing to do with the level of senior benefits the Federal Government can “pay for.” The Government can always generate the money it needs to implement any level of senior benefits it legislates and implements when it needs to do that.

So, the issue is never whether a better investment could have been made with that tax money. If we want better “return on payroll taxes” than we need to get the Congress to legislate either higher senor benefits or either lower or no payroll taxes at all. In fact, if no payroll taxes were collected at all then the rate of return on payroll taxes relative to benefits would be infinite (actually, undefined, but as the taxes collected get more and more miniscule the return approaches infinity as a limit) even if benefit levels weren't raised at all.

The point, again, is that how much the Government allocates in financial support for seniors is a matter of evaluating how much we think is necessary to allow them to live out their years in dignity and with a modicum of security in the face of the vagaries of old age. It is not about giving them a better or a worse return on their payroll tax “investment.”

There are some things, in fact many things, in our society that our best viewed through a prism other than the neoliberal market-oriented model of individual gain or loss. Health care is one of these, so is security in old age, education for all, food security, basic housing and the other necessities identified in FDR's Economic Bill of Rights. Catherine Rampell can't see that, perhaps because she was born into, and then educated, in a time when it was the fashion to view every problem from the viewpoint of the kind of market-based solution a policy wonk could design to fix what ails us, and, “incidentally” enrich some private sector entrepreneur.

The times however, are a changin', once again. I hope this time for the better, so that we all begin to see clearly how seeing the world through the neoliberal lens of how can we divide and profit short-changes us all, creates plutocracy, and destroys democracy. Perhaps in that world there will be no place at our major media outlets for austerity apologists whose main stock in trade is fomenting generational warfare and distracting attention from the primary problems of inequality, subverted democracy, and human survival that face us.

(Cross-posted from New Economic Perspectives.)

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transcriber's picture
Submitted by transcriber on

Lets, you're amazing, and I appreciate your many efforts to educate us. Sometimes I think the answer would be for each proponent to put up a working model of their financial system, and then we could see if it's a body/ecology (and where the flow is broken), or if it's a hose that just shoots money at rich guys in space. If I could just look at the whole picture...

Reading along, I have some questions:

- In Fourth... "Federal taxes don't pay for anything. So, payments made to the Government “for” entitlement benefits should be required, if at all, only for other purposes than “paying for” such benefits." Yet we're also told that we had a more equitable, functional society post WWII when the very rich were taxed up to 90%. Didn't their taxes pay for education, infrastructure, all that kind of stuff that's being privatized now? I have a disconnect there. Like, if we got what we wanted, jobs and income and the rest of it, would we care if the rich kept getting richer? Do we gear together at all?

- Sixth... here's where I really need that model. My brain always fails here. I get dizzy. One man's asset is another man's debt, one man's ceiling is another man's floor... it's all Escher to me. I'm sorry. Just so you know.

- "For her the issue is whether seniors, by getting more than they paid in taxes, are taking scarce financial resources away from other generations and the task of fulfilling other needs apart from those of the elderly." See, isn't that funny. When it's money, must save for other generations! But when it comes to the environment and nonrenewable resources, it's pump out as much as we can as fast as we can right now, fuck the grandkids, fuck the planet, fuck tomorrow. I know, too many syllables.

- "Here she neglects to mention the productivity gains in the economy since the 1970s that greatly increase the capability of each worker to produce enough goods and services to sustain others." Why am I thinking of fantasy money indexes, while fewer workers = rising unemployment? I wonder what they're talking about? (Doesn't match my experience.)

- "Between 1970 and 2010 productivity in major US economic sectors more than doubled." Remember (hazily) in Fahrenheit 451 when he gets on the bus and the new speedometer says it's like going 400 mph, but it feels like 15? Because it really was 15? The infrastructure was falling apart? Things kept saying they were new, improved and so much faster, but they weren't. (The only real number there is 451, I made up the others. Happens.)

- the platinum coin -- who decides whether to create/deposit/spend it? President? Treasury? It's already authorized under some act of Congress already, no? I'm wondering if it's a forward subversion of Congress's powers. (Also wondering black budget black hole -- is Congress authorizing Fed keystrokes to pay for all the NSA/CIA etc stuff they don't even know about?)

Sorry to be dense, but I'm dense. My feelings would not be hurt at all if you walked away. But I am reading and thinking and thanking you.

letsgetitdone's picture
Submitted by letsgetitdone on

Yet we're also told that we had a more equitable, functional society post WWII when the very rich were taxed up to 90%. Didn't their taxes pay for education, infrastructure, all that kind of stuff that's being privatized now? I have a disconnect there. Like, if we got what we wanted, jobs and income and the rest of it, would we care if the rich kept getting richer? Do we gear together at all?

Their taxes didn't really pay for all that. Since 1933, it's been about the Federal Government being able to issue fiat money. However, it's true that we had a more equitable society because the tax system was more effective at leveling inequality than our system is now. On your last question, I think we still should care if the rich keep getting richer because they use the money to corrupt the political system. I'm one who thinks we need to take excessive financial wealth from them, so they have to think about giving away $100 million to a politician.

See, isn't that funny. When it's money, must save for other generations! But when it comes to the environment and nonrenewable resources, it's pump out as much as we can as fast as we can right now, fuck the grandkids, fuck the planet, fuck tomorrow. I know, too many syllables.

I agree completely. Reality is completely opposite, when it comes to the earth and non-renewables we need to save as much as we can. Wen it comes to money we can just allow the Government to pump it out.

Why am I thinking of fantasy money indexes, while fewer workers = rising unemployment? I wonder what they're talking about? (Doesn't match my experience.)

Doesn't have to be fewer workers rising unemployment. It can be shorter hours. It can be freeing people up for other productive activities. But to make these things happen we need the government to structure more equitable distribution of nominal and real wealth.

Remember (hazily) in Fahrenheit 451 when he gets on the bus and the new speedometer says it's like going 400 mph, but it feels like 15? Because it really was 15? The infrastructure was falling apart? Things kept saying they were new, improved and so much faster, but they weren't. (The only real number there is 451, I made up the others. Happens.)

Thanks. Farenheit's one of my favorite books and movies ever. I'm old enough to have read it when Bradbury first published it. And we do need to rebuild that infrastructure whether we go 400 mph or 30.

- the platinum coin -- who decides whether to create/deposit/spend it? President? Treasury? It's already authorized under some act of Congress already, no? I'm wondering if it's a forward subversion of Congress's powers. (Also wondering black budget black hole -- is Congress authorizing Fed keystrokes to pay for all the NSA/CIA etc stuff they don't even know about?)

The President decides whether to order the Treasury to order the Mint to create and deposit it. And yes, it is authorized under a 1996 law. I don't think it's a subversion of Congress's powers because the reserves the Fed would place in Treasury accounts can only be used to spend Congressional appropriations, which includes paying back debt. The reserves can't be used for any other purpose. And yes, Congress is authorizing the NSA/CIA stuff they don't know about. If they didn't appropriate the money it could not get to these agencies.

Hope that helps transcriber.

mellon's picture
Submitted by mellon on

is astronomical. Some very, very large figure. Its increasing exponentially, as is the sum total of human knowledge, and technology's rate of increase, generally.

That's why as time passes, we're rapidly needing fewer and fewer workers to produce the same amount of goods or services.

A saying which is a better than average way of thinking about science..goes something like "we're learning to do more and more with less and less. Perhaps eventually we'll almost be able to do everything with nothing".

So the younger generation need not fear the future unless we really screw up- (which is kind of what's happening.)

transcriber's picture
Submitted by transcriber on

But what's the reality index? What does unit of money mean? They're bubbling and churning money and 0s out of nothing -- they need the souffle so the .1% can skim their bonuses off the top -- but how much real money is there, and can you even say that sensibly anymore when air is mixed with real and it's all called money?

That's why as time passes, we're rapidly needing fewer and fewer workers to produce the same amount of goods or services.

There's a ton of undone work now. Infrastructure goods and services, education, health. The only "needs" being met are those of the people bubbling and liborring the account books and putting out the reports that say what they need them to say. If they need the bus to say it's going 400 mph, the bus will say it's going 400 mph, because what they need is their X percentage off the top, so it's 400X on paper. But on the road it's dragging its bus butt to do 15 anymore. Is what I'm wondering.

Put another way, Stephanie Kelton talks about the huge loss of $value from all the unemployed being unproductive. If the .1% could make money the old fashioned way, why wouldn't they want that $value to exist? It's kind of funny, not, to be so worthless. We are so productive we must have austerity. Huh? There must be a way to say that in an equation that matters. Because there are huge needs being unmet and there's a lot of nonsense being talked. Is what I'm wondering.

letsgetitdone's picture
Submitted by letsgetitdone on

"If the .1% could make money the old fashioned way, why wouldn't they want that $value to exist?"

Because they can find sure things in financial manipulation and control frauds. It's so much easier than doing it the old fashioned way and taking risks.

The financial people really aren't capitalists; they're just cheaters, manipulators, and thieves. AS Hugh says it's a kleptocracy now.

mellon's picture
Submitted by mellon on

The biggest change we're seeing is just thats its increasingly possible to run businesses using technologies that connect directly to one another without an intervening layer of people.

People are not exploiting other people in such businesses. Because there are so few of them and they tend to be well paid.

That's basically the future of work.

letsgetitdone's picture
Submitted by letsgetitdone on

Depends on what you mean by exploitation. When people use technology to manipulate the markets and gain unfair advantages over others they certainly are exploiting people, though not their own employees. When they use technology to actually circumvent state and local taxes as was done in the MERS mortgage system, that's theft. When they use technology to package fraudulent derivative packages and then blow up the world economy in the course of trading off these packages that's control fraud they haven't yet been prosecuted for.

letsgetitdone's picture
Submitted by letsgetitdone on

I know. But so many of them are not honest. In any event, where they are I have no problem with automation replacing people as long as there's a Federal Job Guarantee program to back people up.

letsgetitdone's picture
Submitted by letsgetitdone on

We badly need to cut the full time work week to 30 hours while more than compensating for that with a sharp rise in the minimum wage. Companies that can't adapt to that don't deserve to exist. We shouldn't be letting businesses to exploit working people so they can stay in businesses that don't produce enough gross profit to support both owners and workers with a decent living.

letsgetitdone's picture
Submitted by letsgetitdone on

I feel fine about it, as long as the gains from automation are distributed among all of us and not simply hoarded by the businesses doing the automation. My general position is that wages and work weeks need to reflect the gains in productivity that are being made from automation and that income and profits going to high level managers should not exceed 50 times the minimum wage of workers. If companies violate this rule their corporate charters should be forfeit. See here.

mellon's picture
Submitted by mellon on

The problem is, they're pretending this isn't happening.

That's not a very good omen for our successful navigation of this major human challenge, perhaps the biggest challenge in human history to date.