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.)