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Most people in Washington do not understand how our fiscal & monetary system works.  While most of them "know" that we are no longer on a gold standard, few understand the consequences.  This is especially true of conservatives who think that the United States is going to somehow "go bankrupt".  This is despite the fact that the U.S. can make money at will, which makes it's budget constrained by inflation, not revenue.  If believing in fictional budget restraints was a purely conservative psychosis, I probably wouldn't worry that much.  The problem is that conservatives often pull otherwise reasonable liberals into their budgetary fantasies.

Case in point was the Social Security "deal" between Ronald Reagan and the Democrats in congress in 1983.  It was the largest redistribution of the tax burden from the wealthy to the working class, but was celebrated as a "a happy day for America" by the democratic leadership in the house.  Because they didn't understand how our (relatively) new fiat money system really worked, they thought they were saving social security.  Instead they increased the size of a regressive tax to make room for Reagan's tax cuts for the wealthy.

To see how this budgetary 3-card-Monte trick hurt us let's first take a look at how it was supposed to "save" social security.  The problem was that, among other things, the coming retirement of the baby boomers was going to increase the ratio of retirees to number of workers which would cause more money flowing out of the social security trust fund than in and would cause it to go broke.  Therefore the leaders of the time figured they would plan ahead and build up the social security trust fund so that the baby boomer generation could help fund their own social security benefits.  Problem solved, right?  Wrong.  If you don't see why this didn't "solve" the problem, don't feel bad.  Most of the country, and probably no one in the government got it in 1983 and most still don't get it now.

To understand why this didn't really solve anything, let's look at a more simplified example of the problem.  Let's say there is an island of 100 people.  There are 98 adults and 2 children on this island.  When the adults are all about 40, they realize that when they are 65 or 70 there will only be 2 people left on the island to take care of them, grow their food, fix their houses, and take care of their medical needs.  To "solve" this problem, all the adults hoard their money until they are old.  When they all retire or are too old to work, they give all their money to the 2 young workers on the island.  Does this extra money help the 2 workers do their work?  Of course not.  What they need isn't money, it' more goods and more workers.  Or at least machinery and technology that will make them more efficient at growing the food, fixing the houses and providing medical care to everyone.  No matter how much money the 98 adults save, it won't help the last 2 kids take care of them when they are older.

After taking a look at the island example, you can start to see how the social security trust fund isn't going to solve the underlying issue.  People in Washington are obsessed with money.  So when they hear about the problem of more retirees, they think it's a money issue.  But it's not a money issue.  It's about the amount of resources that our economy can produce.  If you have fewer workers, you're going to produce fewer goods and no amount of money is going to change that.  Even setting aside the absurdity of the federal government "saving" dollars(because it can create dollars at will), you can see the absurdity of the entire nation trying to "save money" to fix the problem of fewer workers.  Money is not a durable good that can benefit future generations by previous generations saving money.

To understand how  badly the 1983 deal not only didn't solve the issue, but made it worse, let's go back to our 100 person island example.  While the 98 adults of the island were all trying to save money for their retirement, they cut a lot of corners in their life.  They built smaller houses with cheaper materials.  They tried to "save" money by spending less on educating the only 2 children on the island.  To save even more money, they continued to farm using old farming equipment instead of buying big tractors that would make farming easier.  So what happened once the frugal adults retired?  They found out that the 2 children couldn't keep up with the work because they didn't have any tools to make them more efficient, and even worse, they didn't have the education they needed to make them as efficient as the adults.  By saving money for retirement, the adults actually made the problem worse because now the children didn't have the tools needed to do all the work that needed to get done on the island.

This lesson can be applied to the U.S. situation. So what was the end result of the 1983 increase in social security taxes?  It didn't solve the REAL problem of more retirees and less workers.   And worse, it resulted in the federal government taking more taxes from the poor and working class while Reagan and his allies were at the same time cutting taxes for the wealthy.  It nearly increased the regressive social security tax.  The SS tax is regressive because it is a flat tax and is capped at a certain level of income.  Finally, with the increased Social Security tax, it made room for tax cuts that mostly benefited the wealthy to stay in place from the Economic Recovery Tax Act of 1981 and future tax cuts.  Finally, the absolute worse thing it did was that in the federal government's effort to be frugal with the social security trust fund, it is in turn spending less on education, less on research and technology, and less on infrastructure investments that will all help our kids create the same amount of goods and services with fewer people.

The working class got Shanghaied into higher taxes by thinking that they were providing for their own retirement.  Meanwhile the deflationary effect of the higher payroll taxes was counteracted by lower taxes for the wealthy.  All of this was sold as a "good deal" because nobody really understood how the fiscal and monetary system worked.  That is the legacy of the 1983 "Social Security deal".

Please don't take any of this to think that I'm one of these "the social security trust fund is an illusion" people.  I do believe that it exists, it should be payed out to retirees on schedule as it was intended.  However, I also believe that we shouldn't worry about it running a deficit and should rewrite the Social Security Act to allow it to run a deficit.  The point of all this is to get the left to understand how our lack of understanding the money system can allow us to be duped by conservative "deals" and institute counter-productive policy.  We cannot allow ourselves to be dragged into the conservative fantasy that the federal budget has revenue constraints.  I have no hope of convincing conservatives of this because they are emotionally and ideologically invested in fictional budget constraints so that they can institute their plan to destroy popular social programs.  Such as when they wanted to "privatize" social security.  They tried to sell it as "people will be able to better save their own money".  Demonstrating that they both want to destroy social security, and the fantasy that everyone saving more money will solve the problem.

So what is the solution to the retirement problem?  Their are several REAL solutions to consider.  All you have to do is to temporarily take money out of your thinking.  I am not necessarily advocating all of these, just listing them as possible solutions.  I am listing them in the order of what I believe would be the most effective solutions.

First of all, while we have the workforce now, we need to build things whose value will last.  For examples of this, think of things like the Hoover Damn, interstate highways, and other projects that have a lasting benefit for society.  

Second, we need a more efficient work force.  This can only happen if we invest in our children's education and in new technologies - like factory automation - and other things that can increase the amount of output that 1 person can accomplish.  In other word's our government should be spending money on these things, not trying to save money for later.

Third, encourage immigration of young workers from other countries.  That will increase the number of workers without increasing the number of retirees.

Fourth, we can encourage older workers to stay in the workforce.  Conservatives mostly advocate this by trying to raise the retirement age and reduce social security benefits.  While this "stick" methods might work, progressives can offer "carrot" methods.  For instance, better protection for age discrimination.  Don't force companies to pay for older employee's health benefits(have the federal government cover them).  OSHA can have special regulations for older employees to take care of unique needs.

Fifth, we can save foreign assets.  Granted this is a "money" solution.  The difference is that instead of saving our own currency, we save foreign currency.  That way we can employ other countries to give us the needed goods and services we'll need.  The problem with this is that it would require massive government intervention to enforce this.  We would have to setup trade barriers so that we sell as many goods to other countries and buy as few goods from them as possible to gain their foreign currency - basically the opposite of what we're doing right now.  This has several risks.  First of all the government would have to spend resources enforcing these trade barriers, and second of all, we risk losing our investment if the foreign country devalues and inflated their currency.  I don't have a lot of faith that this would actually work, that's why I list it last.

Overall, I think the first 3 solutions are the best ones.  Unfortunately, most politicians instead of instituting those polices keep talking more about "saving money" now.  I suppose a sixth solution would be to make the social security tax a progressive tax.  This doesn't really solve the underlying problem, but it would certainly shift the tax burden from the poor back to the super rich and undo the damage of Reaganomics.  It would also help to "share" the burden.

The information in the diary is heavily influenced by a concept known as Modern Money Theory. It's a relatively obscure "post-keynesian" (despite some of the ideas it's based on influenced Keynes theories) economic school of thought that starts with basic facts like "government can create all the money it wants" and ends with a way we could have both stable prices(i.e. low inflation) and truly FULL employment in this country. So if that sounds like a really good thing to do, or you just want to learn new ways to demolish false conservative talking points, I highly encourage you to follow me as I do more diaries on Modern Money Theory.
If you can't wait for me, then I suggest you check out these sites that have more information.
Warren Mosler's Blog and Website

Some scholarly papers at the Center for Full Employment and Price Stability

Also, please follow the MMT tag here at DailyKos. I am not the first Kossack to have stumbled upon MMT.

Originally posted to maddogg on Fri Mar 11, 2011 at 12:12 PM PST.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, Income Inequality Kos, Social Security Defenders, German American Friendship Group, and Community Spotlight.

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Comment Preferences

  •  Excellent Diary!!! (18+ / 0-)

    So few understand. Social Security actually saved Reagan's ass. So few know or see the truth.

    Practice tolerance, kindness and charity.

    by LWelsch on Fri Mar 11, 2011 at 12:17:11 PM PST

    •  Thanks. (6+ / 0-)

      Our Dime Understanding the U.S. Budget

      by maddogg on Fri Mar 11, 2011 at 12:40:20 PM PST

      [ Parent ]

      •  Yes, a brilliant analysis maddogg. (8+ / 0-)

        But, we will need to break this essay into about 20 sub-pieces to look at many critical issues, in more detail.

        My primary concern is that you may create confusion with some of your minor pieces, and the way you talk about them could side-track on worthwhile tangential
        issues, we will lose attention span, and audience.

        But, so many other gems of insights rescue us that is is worth the effort.

        For example, your first example of the 100 people depending on only 2 workers situation leave out that our actual Social Security Hero's of the past, correctly expected that births, and immigration rescue the systems.

        And, your points about investment in foreign assets invites much further discussion of exactly what percent this should be.

        And, you completely overlook the incredible exclusive option on Americans have, of manipulating our own currency to our advantage due to the fact we are the worlds reserve currency.  

        We can and should inflate ourselves out of these problems by expanding money supply at a rate of at least 4% a years, thereby depreciating past debt.

        This is essentially a transfer of wealty from savers to future consumers, which exactly what we need to do to transfer wealth from the top 2% to the rest of us.

        We have the highest concentration of wealth in some 40 or so years don't we?   I don't remember the exact numbers, so apologize in advance for any errors of either fact or logic.  But, I am certain I can successfully adapt around or through any such objections.

        The Social Security Trust fund is adequately funded through the mid to late 2030s and imbalances then can be easily fixed by uncapping the income limit.  Which I support.

        I look forward to addressing about a dozen of your other excellent points, with a focus of linking them to a specific Democratic Party national budget priorities and action plan.  

        Also, the fact that there is no actual financial crisis in the Social Security Trust Fund.

        This is a smoke screen fiction advanced by the Repubublican and Libertarians to distract and sabateoge our advances in wonderful social programs initiated in the New Deal and Great Society policies.

        And "I pitty the poor fool who tries to fuck with the integrety of Social Security and Medicare systems and funding."

        This is a line-in-the-sand, for me and a lot of other  unbashed progressive-liberal activists here at DKOS.  We've been willing to turn our heads in shame, and
        remain supportive through the FISA reversals, undated Patriot Act extensions, telecom immunity, insuficient improvement to our lack of adherence to the Geneva Conventions and our own Constitution: but I will roast in hell before I remain silent about any attacks against Social Security and Medicare, and any other similar attacks against all other minority groups who are getting insuficient resources.

        Just say......'

        lol

        The means is the ends in the process of becoming. - Mahatma Gandhi

        by HoundDog on Fri Mar 11, 2011 at 05:50:06 PM PST

        [ Parent ]

      •  Great diary and brilliant analysis... (11+ / 0-)

        So, without better education, infrastructure and a thriving manufacturing base, no amount of money thrown at the problem will sustain an aging population relying on Social Security.

        That seems to me too logical a formula for people in the halls of power to comprehend. They're plagued with an inherent aversion to investment in the future.

        We need at least a couple of decades of conservative-free governance in this country to fix this and many other problems we'll be facing in the very near future.

        The history of the CIA's involvement with the American press continues to be shrouded by an official policy of obfuscation and deception -- Carl Bernstein

        by markthshark on Fri Mar 11, 2011 at 05:50:56 PM PST

        [ Parent ]

        •  Very well said. (4+ / 0-)

          Increased immigration would be a great way to replace the middle class.  Unfortunately they'd prefer Donkey Island.
          Do you remember Donkey Island from Pinocchio?   We're all donkeys now.

          If you don't stand for something, eventually you stand for nothing.

          by dkmich on Fri Mar 11, 2011 at 06:18:26 PM PST

          [ Parent ]

        •  Conservative-free governance (0+ / 0-)

          We lost that last November if we assume had it  2006-2010. Even that is open to question. We need more of an active electorate that is NOT conservative. I do not count voters who miss off-year elections. Neither do I count anyone who boycotts elections.

      •  This is a great analysis of (3+ / 0-)
        Recommended by:
        cotterperson, ozsea1, whaddaya

        Social Security.  It really doesn't matter if old people have their "retirement" invested in banks, stocks, pensions, or Social Security,  if there aren't enough productive young people to support them, it's worthless.  

        I disagree with raising the retirement age, and allowing more immigrants.  The larger the labor pool, the cheaper the labor.  At the turn of the last century there was 1 farmer for every 7 people.  Now it's about 1 for every 400.  Productivity has replaced the need for increased population.  It should make our lives better, but instead it has been used as weapon against us.  

        Improving our education and infrastructure is absolutely imperative if we're not to become a 3rd world country.  

        The real problem with Social Security is the fact that it is so regressive, and since the 30 year war on the middle class, the people who actually pay the tax have had their taxable income shrinking.  

        I do not like thee, Doctor Fell, The reason why I cannot tell; But this I know, and know full well, I do not like thee, Doctor Fell.

        by opinionated on Fri Mar 11, 2011 at 05:57:24 PM PST

        [ Parent ]

  •  "The Great Switcheroo", (13+ / 0-)

    that's what I call the '83 deal, switching progressive income taxation for the regressive payroll tax. They got away with it by allowing 2 years to pass. First the big tax cuts then, 2 years later Soc. Sec. suddenly needed "saving".
    People couldn't see the two as connected.
    Americans are stupid.

    •  I wouldn't say that. (4+ / 0-)
      Recommended by:
      bnasley, Words In Action, ozsea1, Azazello

      I don't think the American people are stupid.  However, the forces working against them are very powerful and are not above lying and cheating to gain even more power.

      Our Dime Understanding the U.S. Budget

      by maddogg on Fri Mar 11, 2011 at 02:26:25 PM PST

      [ Parent ]

      •  For my part, I'm tired (12+ / 0-)

        of making excuses for my countrymen. I'm tired of pulling punches. They have no critical thinking skills and believe that TeeVee keeps them adequately informed. They do not read.  Election after election they vote, or don't vote, against their own best interests, and mine. I have watched stupid people destroy my country in my lifetime and I don't like it. None of this had to happen, the 30-year class war, the senseless invasions and etc.
        Stupid people allowed it happen, stupid people wrecked my country.

        ¡Viva Baja Libre!

        by Azazello on Fri Mar 11, 2011 at 02:40:40 PM PST

        [ Parent ]

      •  Not stupid, hoodwinked... (5+ / 0-)
        Recommended by:
        psyched, maddogg, ozsea1, pensivelady, Azazello

        that's why they call it a "con"... short for "confidence"... our confidence was betrayed, intentionally...

        Americans aren't stupid, we're or the most part trusting, good-hearted, well-intentioned human beings who don't realize that not everyone is so well-intentioned or good-hearted...

        •  Americans have allowed (7+ / 0-)

          Their government to literally murder millions around the world.

          I don't care what the goddam excuse is, there is none that is valid or absolves us, each and every one of us is guilty.

          Since we allowed these monsters their international depredation, we didn't even recognize it when they turned their same "bust out" economic policies that they used to control the third world (and if that didn't work we funded Fascist death squads and sometimes laid waste to entire nations all on our own to get "our" way) on us.

          We are at the mercy of monsters. Serves us the fuck right, too. We are them.

          "The rich will strive to establish their dominion and enslave the rest. They always did... they always will. . ." Governeur Morris

          by Dave925 on Fri Mar 11, 2011 at 06:41:54 PM PST

          [ Parent ]

        •  No: stupid. (3+ / 0-)
          Recommended by:
          JuliaAnn, Azazello, cameoanne

          Azazello's particular point that the majority of Americans lack any sort of critical thinking skills is spot-on accurate.

          Americans have become incapable of thinking.

          - bp

          "I don't care who your goddam emperor is: his clothes still suck"

          by b00g13p0p on Fri Mar 11, 2011 at 08:46:59 PM PST

          [ Parent ]

          •  So, only stupid people get conned? (1+ / 0-)
            Recommended by:
            Azazello

            Nonsense... smart people get conned out of everything they own all the time...

            It's got very little to do with stupidity and everything to do with willful, premeditated deceit and larceny...

            Blaming the victims of a multitude of crimes, smart people deceived, terrified or intimidated into acting against their own best interests seems counterproductive to me...

            I didn't "allow" any monsters to do shit, and I don't think the vast majority of other Americans did either, anymore than the elderly homeowner who gets fucked by a home improvement scammer "allowed" him/herself to be taken advantage of...

            Certainly there are very, very many stupid motherfuckers out there but that doesn't shift the blame from those who've perpetrated this ruse... we're are the victims of a massive, long-running criminal enterprise at the hands of very proficient criminals...

    •  stupid based on poor infomation (1+ / 0-)
      Recommended by:
      Azazello

      is actually misinformed.

      For the average American to assume some due diligence on the part of press and some members of ones own party isn't unreasonable.

      fact does not require fiction for balance (proudly a DFH)

      by mollyd on Fri Mar 11, 2011 at 08:08:15 PM PST

      [ Parent ]

      •  But "misinformed" is a state... (3+ / 0-)
        Recommended by:
        vahana, Azazello, cameoanne

        ...caused by deliberate inaction, or a deliberate choice, whichever way you want to look at it.

        As Azezello so correctly points out, Americans have become incapable of critical thinking.

        The majority of people just don't want to think about anything.

        This is how you end up with Sarah Palin, birtherism, creationism, and "chemical trails".

        Do a google search on that one for a taste of just how deliberately ignorant people have become.

        - bp

        "I don't care who your goddam emperor is: his clothes still suck"

        by b00g13p0p on Fri Mar 11, 2011 at 08:51:41 PM PST

        [ Parent ]

        •  How hilarious! (1+ / 0-)
          Recommended by:
          Azazello

          Of course, I had half a mind there was a typo, that you might have really meant "chemical trials," as in testing chemicals for safety.  But I did start my quick research with Googling "chemical trails" and became quite entertained.

          "Deliberately ignorant" describes people's reactions perfectly.  The Air Force, several scientists, and God knows how else have spent untold dollars and hours repeatedly investigating and discrediting the "chemtrails" theory, but the true believers will not be reassured.  If there's one minor point to make in America's favor, it's that Canada and Britain have their share of "chemtrails" proponents, too.

          I think the Internet is the culprit: more precisely, the issue is some people's having not yet developed the level / kind of literacy needed to understand the Internet's limits and to use this technology effectively.  The analogous adjustment occurred in the European Renaissance (and was repeated as Europe's imperialists encountered unlettered cultures in Africa, America, and elsewhere) as oral cultures confronted books:  when authority was attributed to a physical person's body language and oratory, community position, family and individual reputation, and other identity attributes, what gave authority to a writer who could not be seen or met except as represented by his (occasionally, her), words on the page?  People who thought they knew what made an in-person speaker trustworthy had to learn--as authors themselves were working to evolve--what made text authoritative.  The printing press and the flowering of literacy it promoted in Europe exacerbated these concerns by increasing the number and expanding the distribution of books to a newly forming middle class.  If, centuries later, we still have people who take printed text at face value and lack the skill to recognize satire, parody, parable, etc., then we should not be surprised that (these same?) people get carried away by hoaxes on the Internet.

          I'm sorry this comment sounds so pedantic.  Yes, it does boil down to agreement with "The majority of people just don't want to think about anything."

          "It is the right of the people that they shall not be deprived of hope." [Willie Stark in 1949 film version of Robert Penn Warren's All the King's Men]

          by vahana on Fri Mar 11, 2011 at 09:41:44 PM PST

          [ Parent ]

  •  Japan and several (7+ / 0-)

    western European countries with strong safety social nets, excellent universal health care systems, and universal retirement benefits are older today than the US will be once the peak of the Boomer retirement is reached.  So, it's not exactly a mystery how an industrialized country that can support a large retired population.

    wrt to the 1983 Social Security changes, agree that Congress blew it.  First it should have remained separate form the federal budget.  Second, absent a truly creative investment that would return the excess funds when needed, they shouldn't have been collected.  That actually wouldn't have been the difficult part; what would have been is hiring non-corrupt, non-ideological, and highly skilled people to manage it.  

    •  I Would Not Call Japan's Safety Net Strong (2+ / 0-)
      Recommended by:
      psyched, ozsea1

      Lots of well groomed salarymen in business suits are homeless and living under tarps in the city parks.

    •  Deliberately Done (2+ / 0-)
      Recommended by:
      Marie, vahana
      "...wrt to the 1983 Social Security changes, agree that Congress blew it.  First it should have remained separate form the federal budget.  Second, absent a truly creative investment that would return the excess funds when needed, they shouldn't have been collected.  That actually wouldn't have been the difficult part; what would have been is hiring non-corrupt, non-ideological, and highly skilled people to manage it..."  

      By 1983, the Social Security taxes and expenditures had been incorporated in the overall Federal budget for 15 years, due, alas, to LBJ and the accounting tricks needed to hide the expenses of the Vietnam War.  So, that little legerdemain cannot be laid at the feet of Greenspan and the Reaganites, no matter how much we might like to do so.  We might as well be honest about these things.

      That second point is one which truly needs to be addressed.  During the Social Security discussions the topic arose about what to do with the excess funds which would accumulate because of the increased FICA taxes.  Much was made of the fact that the higher Social Security taxes would help improve overall industrial productivity, thereby allowing a future smaller workforce support the retiring Boomers.  Part of this would be done because the higher FICA taxes would allow a lower corporate income tax rate to finance increases in productivity.  One alternative considered on how to lower the cost of capital was for Social Security to invest directly into the stock market and other business ventures, via a fund like CalPers.  

      The conservatives went ballistic and absolutely forbade it, wouldn't even consider it.  They knew that having the workers' taxes invested in business would ultimately enable the workers to own the businesses and control the executives.  Instead, the forced Social Security to invest in those pieces of paper Dubya so arrogantly derided.  

      The conservatives caused this crisis and disaster.  They got the productivity increases everybody agreed were desirable and now want the plutocrats to keep all of the gains which were financed in large part by the higher taxes levied on labor.  In their universe, only contracts with capital need to be honored.  Contracts with labor are built around an "anything goes" ethos, allowing for whatever can be elicited from the ignorant dupes they call their employees.  That's what's happening now with the cat food commission and the right-wing push to steal everything which isn't bolted down for their plutocrat overlords.  Besides, they need to get it outside the country before the mobs do come looking for them.  They just expect to have signs up in their former dwelling saying, basically, "So long, suckers!"

      "Love the Truth, defend the Truth, speak the Truth, and hear the Truth" - Jan Hus, d.1415 CE

      by PrahaPartizan on Fri Mar 11, 2011 at 08:46:44 PM PST

      [ Parent ]

    •  or maybe..... (1+ / 0-)
      Recommended by:
      Marie

      don't spend all the excess revenue before you need it.  I don't buy the 98-2 island analogy one bit.  It doesn't fit the situation.  The ratio is much better (more like 58-42), the technology has been built, the population is moving toward a more highly skilled, highly educated work force.  If the money was still in the "box" and the "box was locked" we wouldn't have to devalue our currency to get out of this mess.  We'd have been just fine if we hadn't been building bridges to fucking nowhere for the last thirty years.

      •  Technically, we didn't spend the excess (0+ / 0-)

        Social Security revenue.  We just didn't park it where it was easy to get when it's needed.  That's the problem with government accounting and a government that is also highly irresponsible.

  •  We could easily prevent a SS deficit. (5+ / 0-)

    All we have to do is remove the income cap (currently at about $106,000 annually) and it’s fixed forever. It’s not like the rich can’t afford it.

    •  By increasing monthly checks (0+ / 0-)

      to the disabled and retired to a livable amount and while passing the same law to say Congress goes unpaid after 5 yrs and stay that way until they find a way to fund it from the defense budget.

       wishful thinking but with the right liberals in office...ha, still willful thinking.

  •  'double' is an urban myth (2+ / 0-)
    Recommended by:
    Catesby, ozsea1

    FICA rates devoted to Social Security went up from 1983 from 10.6% combined to 12.4% or nearly   2 points. And that only over a ten year period. Somewhere along the line someone translated '2 points' to '2X' and introduced the term 'doubled'.

    You are not doing Soc Sec a favor by introducing such obviously disprovable claims. Thanks for nothing.

    Please visit, follow or join our Group: Social Security Defenders

    by Bruce Webb on Fri Mar 11, 2011 at 04:57:02 PM PST

  •  Social Security Brought Down the Berlin Wall! nt (0+ / 0-)
  •  Sigh... (6+ / 0-)

    ...Money in the U.S. is created by the issuance of debt.  The more debt there is, the greater the money supply; the less debt there is, the lesser the money supply.  If there are no buyers of debt, there is no increase in the money supply.  So it is possible to run out of money sufficient for current operating expenses, for example, if the pool of debt buyers suddenly dried up).

    (This is also why it it not possible for everyone and every entity in the U.S. to repay all debt; the money supply would completely vanish.)

    This can't be happening.

    by TheOrchid on Fri Mar 11, 2011 at 05:23:32 PM PST

  •  Here is what I would consider the (5+ / 0-)

    best "carrot" to convince me to work past the age when I would otherwise retire --- if I had more paid vacation time or a shorter work week without losing benefits.  But I doubt that will ever happen in my current job.  There is just too much pressure to be "productive".  Our productivity is measured as a percentage of the billable hours out of the number of "potential" working hours in the year, regardless of how much paid time off we have.  So people with more vacation allowed have no real incentive to take it, since it will lead to loss of "productivity" (by their definition) and the potential to be laid off.  So it really benefits younger people who have more energy to work longer hours.  It makes me feel like I'm expected to perform like a machine.

  •  tip, rec. and tweet (3+ / 0-)
    Recommended by:
    psyched, maddogg, ozsea1

    I enjoyed your diary and found the theory very interesting and as relevant as any of the others.  Michael Moore flirted with this when he said American wasn't broke, the money was just all in the wrong place.  

    If you don't stand for something, eventually you stand for nothing.

    by dkmich on Fri Mar 11, 2011 at 06:12:34 PM PST

  •  how can we tell people to stay in the work force (4+ / 0-)

    when 20% of us are un- or under-employed?  To use your island metaphor, one of your two children isn't contributing anything to island society because all the jobs are taken by the 98 adults.

    When they came for the manufacturing jobs, I remained silent; I did not work in manufacturing. When they came for the unions, I remained silent; I was not in a union. When they came for me, there was no middle class left to speak out.

    by schroeder on Fri Mar 11, 2011 at 06:31:24 PM PST

    •  Just an example of 'cutting corners' (1+ / 0-)
      Recommended by:
      psyched

      When everyone tries to hoard cash reserves it can damage the economy through deflation and it causes unemployment.  The federal government must be willing to accommodate those personal savings desires by running budget deficits to prevent cyclical unemployment.

      Our Dime Understanding the U.S. Budget

      by maddogg on Fri Mar 11, 2011 at 07:17:58 PM PST

      [ Parent ]

      •  I don't think that's the cause of unemployment (0+ / 0-)

        You don't think 40 years of paying companies to ship jobs overseas has anything to do with it?  A corporate culture that worships downsizing thinks nothing of paying an utter failure of a CEO $20 million?  If taking on debt magically created jobs, where were the jobs during the Reagan years?  Or the Bush years?  Or now?

        When they came for the manufacturing jobs, I remained silent; I did not work in manufacturing. When they came for the unions, I remained silent; I was not in a union. When they came for me, there was no middle class left to speak out.

        by schroeder on Sat Mar 12, 2011 at 05:42:26 AM PST

        [ Parent ]

  •  What a load of crap! (0+ / 0-)

    What sort of thought experiment can be based on the notion that a social structure could possibly exist in which there are 98 adults and 2 children.  Shame on you all for recommending this.

    •  Yeah (0+ / 0-)

      I don't get this at all.

      First off, the US has a much younger demographic then Europe and Japan due to immigration.

      Second, no one understood fiat currency?

      I think they understood it all too well.

      Alan Simpson said at the Senate budget hearing the other that socail security is not a retirement program and it never was meant to be one.

      Well it is now Simpson because you criminals stole the wealth of the middle class and abandoned the poor and made sure unions which projected wages and benefits were destroyed and took out pensions and replaced them with 401ks.

    •  Not being so completely literal... (2+ / 0-)
      Recommended by:
      psyched, vahana

      ...might be a good starting point.

      Just what do you think "thought experiment" means?

      Or was that a very feeble attempt at sarcasm?

      - bp

      "I don't care who your goddam emperor is: his clothes still suck"

      by b00g13p0p on Fri Mar 11, 2011 at 08:56:38 PM PST

      [ Parent ]

  •  Ok, as usual, I'm confused (0+ / 0-)

    Are you saying that even if benefits aren't cut (either directly, or indirectly by raising the retirement age), and even if every last cent of the SSTF (including interest) is paid back to make up for the coming long-term deficit between payroll taxes collected and benefits paid, there is still a problem with SS?

    If so, what is it? I don't get what the problem is. Are you talking about inflation and the real buying power of promised benefits? Are you talking about how even if paid back as currently promised, without cuts, SS simply won't be enough for most people to live on? Or are you saying that the TF will run out WAY before 2040, and if so why? Or is it something else entirely?

    Are you saying that the TF will never be paid back?

    "Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" --Alexander Hamilton

    by kovie on Fri Mar 11, 2011 at 09:05:44 PM PST

    •  Stop thinking of money (1+ / 0-)
      Recommended by:
      psyched

      The problem isn't social security.  The supposed 'lack of funds' that everyone is obsessed with is a symptom of the problem.  The real problem is fewer workers and more retirees.  If we keep treating the symptom(social security funding) we risk making the actual problem worse.

      Once one realizes this, you can see that the social security trust fund is merely an accounting issue.  As I said in my post:

      Please don't take any of this to think that I'm one of these "the social security trust fund is an illusion" people.  I do believe that it exists, it should be payed out to retirees on schedule as it was intended.  However, I also believe that we shouldn't worry about it running a deficit and should rewrite the Social Security Act to allow it to run a deficit.

      Our Dime Understanding the U.S. Budget

      by maddogg on Fri Mar 11, 2011 at 09:18:06 PM PST

      [ Parent ]

      •  Why should I stop thinking of money? (0+ / 0-)

        It's how we keep score, get paid and pay the bills, the form of capital we use in "capitalism". The fewer workers/more retirees "problem" was forseen over 30 years ago, and whether or not it was a good solution to it, it's why payroll taxes were raised and the trust fund created. Assuming that nothing else is changed, economic forecasts are reliable, nothing catastrophic happens and the US doesn't default on its debts, between remaining workers and the trust fund, SS is fully funded for at least 30 years. So what's the problem?

        And, more importantly, the solution?

        "Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" --Alexander Hamilton

        by kovie on Sat Mar 12, 2011 at 12:27:51 AM PST

        [ Parent ]

  •  I saw the title in my stream (1+ / 0-)
    Recommended by:
    maddogg

    and I figured it would be something about how the Republicans are walking all over the 'leaderless' Dems, and all is lost, yada yada yada. As I clicked the title anyway, just to check, I thought to myself "the only way that title isn't bullshit is if the author is talking about Reagan in the 1980s."
    So I'm happy to see the diary, and I think it is excellent work, but I'm pretty sure Modern Money Theory is mostly bogus. Governments can't create money at all; all they can do is print cash. The "money" to back up that cash gets created when they sell T-bills.
    I understand, honestly, that in the terms of an economic model it's all the same, but just because governments aren't economically bound to limit their budgets by revenue, that doesn't mean they aren't bound to limit their budgets by revenue (plus the good faith they can convert to bonds). A government that tried to act as if MMT was functional and said "the math proves it will work" will collapse just as quickly whether or not the math actually works.
    I don't think the issue of Modern Money Theory is at all necessary for your analysis, either. I knew in 1983 that Reagan's "deal" didn't solve the (imaginary) problem; it was obvious even then that it was intended only to undermine the system. Perhaps it is simply a peccadillo of mine, but I think the diary would have worked better if you'd not even have mentioned it, and for that matter stuck with explaining the situation and saved the prescriptive suggestions for a different diary. Especially the 'let SS run a deficit'. That's as counter-productive as it could possibly get. No, balance it with revenues from the wealthy. They can always become less wealthy if shouldering the burden of supporting the society from which they draw their wealth becomes too great for them.

    •  Why I mix in MMT (2+ / 0-)
      Recommended by:
      psyched, the tmax

      The reason that I mention MMT is because without having previously studied it, I, myself, would not have seen the underlying problem.  Studying MMT got me to look at the macroeconomic policies in terms of allocating resources, not "who has money".

      just because governments aren't economically bound to limit their budgets by revenue, that doesn't mean they aren't bound to limit their budgets by revenue (plus the good faith they can convert to bonds)

      Governments are bound by what it's economy can produce.  If it attempts to spend more money than what it's economy can produce, the result is inflation.  While it is true then that budget deficits have an inflationary effect there are several reasons that budget deficits and inflation don't always align.  If there are any deflationary effects in the economy, the federal government must be prepared to counter-act them to prevent deflation and maintain a low level of inflation.

      That's why I say that Budget Deficits don't matter, the only thing that matters is inflation.  Usually this means we have to run some type of deficit of constantly varying size.  On the rare occasion(during a roaring good economy) we can run surpluses.  However, in the long run, the overall debt doesn't matter.  Japan has a 200% debt to gdp ratio and their inflation is still low.  Ours is only 97%(It's 67% if you include the social security trust fund)

      Our Dime Understanding the U.S. Budget

      by maddogg on Sat Mar 12, 2011 at 07:33:55 AM PST

      [ Parent ]

      •  budget deficites don't matter (1+ / 0-)
        Recommended by:
        maddogg

        but you don't need MMT to understand why. Perhaps it is simply the "governments can print money" thing that bugs me, since it roundly misses the point regardless of whether you think it is a good thing or a bad thing.

        Governments are bound by what it's economy can does produce.  If it attempts to spend more money than what it's economy can does produce, the result is inflation.

        •  What is your definition of 'print'? (1+ / 0-)
          Recommended by:
          psyched

          The government has been creating unbacked greens everyday since 1971.  If it creates too many it'll cause inflation, if it creates too few, it'll cause deflation.

          A budget deficit is not the only thing that has an effect on inflation.

          Our Dime Understanding the U.S. Budget

          by maddogg on Sat Mar 12, 2011 at 08:32:46 PM PST

          [ Parent ]

          •  That there: (0+ / 0-)

            the "creating" part. The reason creating "too many" causes inflation is because printing money isn't "creating" money; it is just printing cash. Unless the economy has the "money" (value) to cover those greenbacks, inflation occurs. If the opposite happens, and there is more money than greenbacks, deflation.

            Budget deficits don't have any effect on inflation, didn't I just say that? Deficits don't matter. That's like saying if you have a mortgage on a big house you are poor and if you have a mortgage on a small house you are rich but if you are homeless then you are very rich.

  •  Congratulations (1+ / 0-)
    Recommended by:
    maddogg

    on being selected for the Community Spotlight. That seems to be about the best new way to get an audience for one's diary.

    I'm still not clear how the selections are made; I read about it once but can't find the source again. I guess it means having a quality diary that the selectors feel merits attention.

    The concepts of Modern Monetary Theory are hard to wrap one's brain around. I almost totally agree with them, even though I often find my thoughts reverting to the common idea of money as a durable thing. It takes some effort to train yourself to relate to money as a conceptual entity. I sometimes despair that the economic wizards of the world who control our money system will ever understand this.

    We just have to keep plugging away at attempts at explanation. Really glad you're doing these diaries, and as a commenter said, take one chunk of the topic and work on it in the most understandable way.

    Thanks again.

  •  Don't run for Congress (2+ / 0-)
    Recommended by:
    maddogg, psyched

    Making sense isn't allowed in Kabuki theater  DC Bubble-land.

    An imbalance between rich and poor is the oldest and most fatal ailment of all republics - Plutarch

    by Anthony Page aka SecondComing on Fri Mar 11, 2011 at 11:19:58 PM PST

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