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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.)

Originally posted to Money and Public Purpose on Sat Apr 19, 2014 at 12:32 PM PDT.

Also republished by Pushing back at the Grand Bargain and Social Security Defenders.

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Comment Preferences

  •  Repub'd to Soc Sec Defenders (1+ / 0-)
    Recommended by:
    denise b

    Not that I agree with your actual analytical line as to the relation between FICA and SS benefits, or lack thereof, but because discussing the economics of this is always good and clearly we are pulling in the same direction asto defending benefits.

    My question would be this: the Feds run all kinds of insurance plans with varying amounts of directness from Flood Insurance regulated through FEMA to Federal Deposit Insurance via the FDIC to a backup insurance of private pension plans (FPGB?) all of which have specific premiums credited to specific funds that are reserved for specific payouts and 'protected' (sorta) by fairly strict accounting of flows in and out. On my reading either you believe that all of that is just fungible or at least unimportant given the money creation abilities of the Treasury and Fed in collaboration.

    And while I vaguely get the logic of MMT I am quite skeptical of its application to specific federal insurance programs that under law are funded by specific premiums that are in turn segregated (by accounting anyway) from other funds of the government including insurance and non-insurance Trust Funds. It just seems to elevate an obvious legal point: no Congress can thoroughly bind a future one, into some abrogation of the strictures of current law, not least as it applies to Social Security.

    Oh and another question (which some might think along the same lines as mine): how many angels can dance on the head of a pin?

    (Which historically and philosophically was not as vacuous as it appears).

    Like I said we seem to be pulling in the same direction on the policy. So that's all good.

    SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

    by Bruce Webb on Sat Apr 19, 2014 at 06:31:44 PM PDT

    •  The MMT logic on this is pretty straightforward (0+ / 0-)

      Here are the broadest facts that we think everyone can agree on:

      1) FICA is the most regressive Federal tax
      2) Real median incomes have been just about flat since 1980. This means there is not enough aggregate demand to sustain a full employment economy.
      3) Whether Govt tax revenues are $1 or $100T per year, the operational reality of having a sovereign fiat state currency means that the ability of the state currency monopolist to spend money is always infinite. We can not run out of digital dollar entries on bank balance sheets.
      4) This sovereign ability to issue an infinite amount of dollar tokens means that REAL constraints are what is important, not nominal dollar constraints.
      5) It follows logically that taxes do not fund spending. It does not follow that taxes are not important. Taxes regulate aggregate demand, penalize behavior, and guarantee value for a fiat currency.
      6) Real median incomes have only gone up as unemploymment approaches and gets below 5%.

      https://research.stlouisfed.org/...=

      If these 5 facts define our current economic and monetary system, what are the implications?

      Why do progressives support a very regressive tax on workers?

      If aggregate demand is too low to generate full employment and thus real median income growth, suspending FICA is the fastest way to increase middle and working class incomes, as FICA is a very regressive tax its multiplier is relatively high.

      Thats the MMT position and framework in a nutshell.

      Taxes dont fund spending
      FICA is regressive
      Demand and employment are too low
      Suspend FICA to increase demand and employment

      "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

      by Auburn Parks on Sun Apr 20, 2014 at 01:57:05 PM PDT

      [ Parent ]

      •  I don't agree with 'Fact' no 1 (0+ / 0-)

        That MMT folk seem to start from that as an undeniable point from which to start the discussion is the crux of the problem.

        MMT: let's agree that FICA is a tax.
        Me: I don't think that is the most accurate or productive way of thinking about it.

        MMT: having agreed that it is a tax and given that there is a cap on income to which FICA is applied the it is clearly regressive.
        Me: Wait, wait! I didn't agree in point 1!!

        MMT: real median incomes have been flat since 1980.
        Me: we'll except during that brief but important period when they weren't. During which Soc Secs Acturial projections dramatically improved

        MMT: any sovereign that can issue debt in its own currency has an infinite ability to do so.
        Me: hmm, that seems to translate HISTORICAL 'Full Faith and Credit' based on actual repayment into a UNIVERSAL law covering all such sovereigns past and present. Can we talk.

        MMT: since all these points are indubitable and so "define our current economic and monetary system" ---
        Me: is my mike on?

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Sun Apr 20, 2014 at 02:24:42 PM PDT

        [ Parent ]

        •  "I don't agree with 'Fact' no 1" (0+ / 0-)

          Which federal tax is more regressive?

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 02:41:49 PM PDT

          [ Parent ]

        •  FICA is a tax. There is no way around it. Sorry (0+ / 0-)

          you just have to accept something so obvious.

          "MMT: real median incomes have been flat since 1980.
          Me: we'll except during that brief but important period when they weren't. During which Soc Secs Acturial projections dramatically improved"

          Umm Bruce, Real incomes are lower today than they were in 1989

          https://research.stlouisfed.org/...=

          So you deny clear facts and obvious logic that a tax is actually a tax.

          "hmm, that seems to translate HISTORICAL 'Full Faith and Credit' based on actual repayment into a UNIVERSAL law covering all such sovereigns past and present. Can we talk."

          Absolutely, as a technical matter every state has been sovereign with this authority. Just because modern fiat banking and monetary systems hadn't been used before they were invented doesn't mean that the authority hhasn't always been there.

          For example, We have gone off and on and off the gold standard a number of times in our history. Greenbacks during the Civil war, Continentals during the Revolutionary War. Other pre-revolution states issued paper scrip that was fiat. FDR took us off in 1934 domestically to spend for the Great Depression and WWII, then we went back on during the Bretton Wooods period 1946-1971, and then off again till today thanks to Nixon. I can provide sources and links if you'd like.

          "MMT: since all these points are indubitable and so "define our current economic and monetary system" ---
          Me: is my mike on?"

          Yes exactly, MMT describes that actual reality of the modern monetary system.

          Spending ability is infinite, the Govt issues the dollar, therefore taxes can't fund spending. These are simple factual observations like the sky is blue or the earth is spherical.

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 02:50:18 PM PDT

          [ Parent ]

  •  The defense of Social Security doesn't require (0+ / 0-)

    MMT. It is bone simple: IT'S A TRANSFER PROGRAM!
       It doesn't matter who put how much in. Current workers pay taxes that pay for the benefits of retirees and the disabled.
       It's as simple as that.
       

    •  FICA is a regressive tax. Taxes dont fund (0+ / 0-)

      federal spending. Give workers a raise by removing a regressive tax. If we get too much inflation at full employment, start to re-institute FICA.

      Its as simple as that.

       

      "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

      by Auburn Parks on Sun Apr 20, 2014 at 01:59:13 PM PDT

      [ Parent ]

      •  Yes simple as the 'Fiat Money' (0+ / 0-)

        Of the Goldbugs and Randites. Who seem to have drawn the exact opposite policy prescriptions from your set of "facts"

        At the level you explain it MMT is undistinguishable from any other faith and catechism based system. "So saith Randall".

        Are FDIC premiums paid on deposits simply a fungeable tax collected by the Federal government that has no relation to payouts by the FDIC? Is there really and truly no relation between the Federal Gas Tax and appropriations out of the Federal Highway and Transportation Trust Fund in which those sums are 'deposited' dollar for dollar? Are dollars collected at the Gates of National Parks and allocated to those same Parks in rough equivalence to where they were collected not "really" paying for services at that park?

        Because you seem to be presenting ALL collections by the Federal Government as "taxes" and denying that they could be "insurance premiums" or "fees for service" because at the global level "taxes don't fund federal spending"? And so damn all provisions of current law which restrict expenditures from certain funds to uses authorized under the laws that established those funds and their source of funding.

        So sorry I can't just accept your certitude that "It is all as simple as that". Because as any number of wise bloggy elders have reminded us over the years:

        "Everything is simple. If you ignore the complexity."

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Sun Apr 20, 2014 at 02:40:00 PM PDT

        [ Parent ]

        •  Its not me Bruce, its these guys who I heard it (0+ / 0-)

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 02:51:25 PM PDT

          [ Parent ]

        •  Here's a good point: (0+ / 0-)

          "Are FDIC premiums paid on deposits simply a fungeable tax collected by the Federal government that has no relation to payouts by the FDIC?"

          Yes, by definition. The laws that govern the way FDIC insurance works are not natural laws. They did not come down from God. They were invented by Congress. They have been changed numerous times by Congress.

          After 2008 they upped the FDIC coverage from $100K to $250K. Do you think Congress does not have the authority to remove the FDIC cap altogether, effectively making all bank deposits Govt guaranteed and thus banks public utilities?

          Sure, Congress might not do that. But you must recognize that they could.

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 02:54:57 PM PDT

          [ Parent ]

        •  d (0+ / 0-)

          "Because you seem to be presenting ALL collections by the Federal Government as "taxes" and denying that they could be "insurance premiums" or "fees for service" because at the global level "taxes don't fund federal spending"? And so damn all provisions of current law which restrict expenditures from certain funds to uses authorized under the laws that established those funds and their source of funding."

          Please provide the relevant quote where I presented ALL COLLECTIONS as taxes.

          I did not, you are strawmanning. Although we could maybe technically get that abstract, I don't think its useful to consider National park fees as taxes. I don't think there should be national park fees, but that doesn't mean I consider them taxes.

          FICA is a tax, its witheld from your paycheck along with your income taxes. Every definition of FICA on earth says that it is a tax. FICA is what I was referrring to specifically. I would appreciate if you stayed on target with what we are talking about and not try to put words into my arguments.

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 02:58:31 PM PDT

          [ Parent ]

        •  "Everything is simple. If you ignore the complexi" (0+ / 0-)

          Smart discussions require a general operational framework. Its helpful if that framework accurately reflects reality.

          Physicists use a common framework, as do biologists and brain surgeons.

          Spending = Income
          Govt deficits = Non-Govt surpluses
          The US Dollar comes from the US Govt, per the Constitution
          The Govt controls its own interest rates.

          In order to understand macroeconomics, you must get at least these basics right.

          "The Earth is my country and Science my religion" Christiaan Huygens. The gold standard ended on August 15, 1971, its time we start acting like it. If we can afford full employment killing Germans, we can afford full employment during peace-time.

          by Auburn Parks on Sun Apr 20, 2014 at 03:01:54 PM PDT

          [ Parent ]

          •  Accounting identities are not natural laws (0+ / 0-)

            And not understanding that seems to be at the root of much of the problem here.

            I don't find any of those EXACTLY right. For example it is somewhat of a stretch to identify the Federal Reserve with the U.S. Government. And it would be interesting to see where in the U.S. Constitution it states that "the US Dollar comes from the US Govt". Or in fact actually mentions the 'dollar' as such as opposed to coinage. The relevant section of that document is here:

            Section 8
            1:  The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

            2:  To borrow Money on the credit of the United States;

            3:  To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

            4:  To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

            5:  To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

            6:  To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

            Now you can make the case that 'dollar' is implicit somewhere in the discussion of 'Money' 'coin Money' 'securities and current coin' but I don't see anything in this language that would have prevented the permanent installation of something like the Banks of England and the Bank of Scotland each of which issued THEIR OWN bank notes. Are really a solid argument why the Federal Reserve Bank, itself not established until 1913 is somehow not only implicit in the Constitutions language but is also a simple part of government. I mean was the Federal Reserve Act simply codifying the status quo ante?

            On a purely intellectual basis I see no difference between your bare assertion of these "simple" facts and the similar statement of "simple" economic laws found in places like Mankiw's Principles textbook. In each case you are simply defining "macroeconomics" in a way that incorporates your own assumptions as definitional.

            In effect you are making the claim "If it ain't MMT it ain't economics".

            And that you don't see that the claim that FICA is simply a tax and doesn't fund benefits wouldn't equally apply to every other fee or premium charged by the Federal Government and all its agents and agencies, or that you don't have a problem construing it that way to me reveals simple Procrusteanism. Lop off and/or stretch what you need to to make the subject match the bed.

            SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

            by Bruce Webb on Sun Apr 20, 2014 at 08:28:13 PM PDT

            [ Parent ]

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