Joe Firestone: What Social Security/Medicare Solvency Problem?

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives

For years now, economists using the ideas of Modern Money Theory (MMT) have been telling us that the so-called long-term “funding” problems of Social Security (SS) and Medicare emphasized incessantly by supporters of austerity are faux problems. The MMT economists believe this because the US is a currency issuer of a non-convertible fiat currency, has a floating exchange rate, and incurs no debts in any currency except US dollars. So, the US Government can issue whatever financial resources it needs to carry out its obligations without raising any solvency issues. The only problems involved in carrying out these obligations are problems of political will, not problems of financial incapacity, which is why, from an economic point of view, they are faux problems.

There are other economists who also believe these are faux problems, even though they don’t subscribe to the view that the government can’t become insolvent. They also view them as problems of political will because they think that the SS long term “solvency” issue can be easily solved by Congress just by lifting the payroll tax cap on income; while the problem of rising health costs threatening long term Medicare “solvency” is easily solved by passing a Medicare for All bill such as HR 676, which creates a single-payer for most health care services and puts the private insurers out of business, while holding down provider costs through negotiations.

Still other economists and fiscal policy analysts, believe, or say they believe, that the Federal Government does have fiscal limits, that the Government can only fund activities through taxing or borrowing, that deficit spending must be avoided or kept to a low level because it corresponds to growth in public debt, which will eventually create spiraling interest rates in the bond markets leading to financial insolvency for the United States, or at least to very damaging periods in which the US must impose extreme austerity on its citizens and forgo economic growth, because it must, at all costs, reduce its public debt substantially, and in short order.

These “austerians” suggest that this last fate be avoided by cutting deficits now, and, even more, by implementing long term deficit reduction plans that cut entitlements. Since the passage of the stimulus bill in 2009, the counsel of austerians of varying degree has dominated the US Government leading to conflicts among some who want to lower deficit spending to extreme levels and others who want to lower deficits more gradually and to levels a bit higher than their “starve the beast” opponents. Despite conflicts among them, the austerians have, through a few rounds of “debt ceiling,” fiscal cliff,” and “sequester” conflicts managed to implement considerable deficit reduction with serious costs to the economy and efforts to decrease unemployment substantially.

This conflict has created the present situation where the sequester and recent increases in Social Security taxes have set the stage for a “grand bargain” that would begin deep cuts in entitlements by implementing the Administration’s “chained CPI” proposal. But, a number of things have now happened to slow down the austerity train and even threaten its derailment.

Reality, the Austerian Retreat, and Entitlements

The first of these things has been the record of austerian deficit reduction efforts from 2010 to the present. The impact of austerity on economies the world over has been abysmal. Unemployment in many economies, including many of the Eurozone nations is now at levels not seen since the Great Depression, and in is even higher in some nations, especially among younger workers. In addition, in many nations brutal cuts in government spending have only increased deficits and debts while creating greater unemployment.

Nations like Canada, Australia, New Zealand, and the US, which haven’t implemented extreme austerity after initial stimulative reactions to the crash of 2008, but also have put in place efforts at deficit reduction in response to increasing influence of the austerians, haven’t suffered as much as other nations that have implemented full bore austerity. But they have suffered losses in employment and economic slowdowns as a cost of lowering deficits. The UK, which like the US, could have chosen to be less aggressive about deficit reduction, instead elected a Conservative-Liberal coalition that bought into the dogma of “expansionary austerity” and created a declining economy suffering periodic dips after the initial recession.

Second, the intellectual underpinnings of austerity have recently taken a big hit from academic studies showing spreadsheet errors, and various other errors in analysis, in the major academic studies supporting the idea that public debt-to-GDP ratios cause slower GDP growth. More and more analysts and observers now seem to believe that it is likely that low growth causes high public debt, rather than the opposite belief, which had fueled the austerity efforts of politicians and government officials.

Third, in the United States, the deficit reduction outcomes of Congressional/ Executive conflicts, while reducing actual deficits somewhat, have reduced projections of future deficits even more, and are perceived as both having reduced actual deficits and as holding back economic recovery. So, political sentiment has been gradually building against additional austerity efforts. There is now much opposition to further deficit reduction including opposition to proposals providing for entitlement cuts. And there are claims from progressives that “austerity is dead,” and advocacy that we should no longer make deficit reduction the centerpiece of fiscal policy but should immediately shift to an emphasis on creating jobs.

This past week saw a recent important defection from the ranks of advocates for austerity. The Center for American Progress (CAP) published a report by Michael Linden which concludes:

What does it mean to reset the debate? First, it means starting from the understanding that there is no longer a looming fiscal crisis—if there ever even was one. . . . .

Second, resetting the debate means discarding other fiscal theories that have fared poorly over the past several years. . . .

Third, we must recognize that there are costs to elevating deficit reduction above all other concerns. . . .


. . . . we can no longer afford to pretend as if the benefits of deficit reduction always, in all circumstances, outweigh the costs. And we cannot allow the continued perception of a deficit-reduction imperative to prevent us from fixing the sequester and avoiding more economic damage.

It is time to reset the entire budget debate. No more pretending that the sky is falling. No more rash actions to cut the deficit without regard for real-world impacts. No more calls for an ever-elusive grand bargain. No more super special committees or draconian automatic punishments intended to force action. Improving our national finances is still an important goal—that has not changed. But so much else has, and the debate must change too.

It is good to see this beginning of wisdom, and even implied opposition to entitlement cuts, in a report from an organization with direct lines to the White House. But it’s important not to mistake this report, with its fine rhetoric, for actual opposition to the Federal Government continuing to pursue an inadequate level of deficit spending to simultaneously contain the growth of debt while somehow creating substantially lower levels of unemployment than we have now.

Progressives and Centrists like CAP still don’t understand that austerity is destroying private sector net financial assets by cutting government spending and/or raising taxes in such a way that Government additions of net financial assets to the non-government portions of the economy (government deficits) fall to a level low enough that they are less than the size of the trade balance, whether in deficit or in surplus. Right now the trade deficit is 3.5% of GDP. That means Government deficits must be at least 3.5% of GDP to prevent contraction in net private sector financial assets. That’s a roughly a $560 B deficit in 2013, just to remain in place. CBO’s latest projections are for a deficit of $642 Billion this year, a bit higher than break even; but not by very much. The deficit could well be smaller than that, however, since it’s dropping fast.

If the economy recovers further, it’s likely that the trade deficit will grow larger as a proportion of GDP. If the Government deficit isn’t allowed to grow, then the result will mean declining net financial assets and greater inequality since the scramble for declining net financial assets will favor the economically well-positioned over most of the rest of us.

The question is: will the progressives and centrists who have had enough of austerity be ready to run deficits large enough to both compensate for the trade deficit and also allow enough saving of net financial assets to fuel renewed aggregate demand and the growing consumption needed for an expanding economy? Since deficits large enough to do both might range anywhere from 6 – 10% of GDP or more, I doubt that they will be up for that, because despite their protestations about leaving austerity behind, their de-emphasis on deficit reduction doesn’t mean they’ve abandoned their fear of increasing debt-to-GDP ratios, or their belief that high debt-to-GDP ratios are hurtful to economies.

In fact, a recent “austerity is dead” post at Think Progress (a project of the Center for American Progress Action Fund) in advocating for Michael Linden’s recommendations to repeal the sequester at least for the next few years, and invest $82 Billion (roughly 1/2 of 1 percent of GDP) on “pro-growth investments” to create jobs, cites the CBO projection favorably that shows the deficit falling sharply right now, and falling below 3% annually in 2014 and staying below that level until 2019.

But that projection is actual government austerity from now until 2019, barring a substantial decrease in our trade deficit over that period. Also, if there’s no private credit bubble during this time, it’s very likely that the economy will do nothing but stagnate until 2019 and beyond. We are looking at a Japanese “lost decade” scenario for the US economy.

And most “progressives” don’t see it because while they joyously proclaim that “austerity is dead,” they also, with equal joy, plan for austerity-level deficits of 3% or less for the foreseeable future. Now hear this CAP, Campaign for America’s Future, and other “village” DC/New York progressive organizations: Warren Buffett’s 3% deficits are the very essence of austerity, as the Eurozone well knows.

Make no mistake about that. So, when you tell us that “austerity is dead,” please don’t tell us at the same time that you’re planning to maintain deficits at the 3% level or below, and with them austerity for the indefinite future.

And how about the more determined austerians? What do they think about the death of austerity? Well, generally, they don’t believe it. They still hold that high debt-to-GDP ratios are problematic for growth. And while they’re now willing to grant that it may be wise to back off deficit reduction somewhat in order to emphasize job creation a bit; austerians like the Peter G. Peterson Foundation, and the Washington Post editorial writers, are still persuaded that now is the time to pursue arrangements for long term spending reductions in Social Security and Medicare entitlements. So, for them, and for the White House, pursuit of a “grand bargain” is still not off the table that the President has so persistently set, since at least the beginning of 2010.

In brief, the hard-core austerians still believe that deficits and the GDP ratio are very important and must be reduced even at the cost of considerable economic pain for those who aren’t wealthy. Given their view, it’s unwise for people who really think that austerity is, or should be, dead to relax now, because it’s a good bet that if the austerians can make a deal with the Republican right to reduce entitlement spending, then they will do just that, and also spring their deal on Congress suddenly and at the last moment.

The No Debt/No Inflation Platinum Coin Solution to the “Long Term Entitlement Solvency Problem”

So, let’s address a solution to the long-term entitlement spending solvency problem that really kills austerity for entitlements dead. Of course, it’s a faux problem in the sense that there is no economic or financial solvency problem, since the Federal Government can never involuntarily run out of money to pay Social Security and Medicare obligations, as long as Congress is willing to provide the authority to meet those obligations. But there is a real political problem in that Congress may decide not to do that because spending on entitlements in future years may exceed FICA tax revenues year after year until “the trust funds” cannot “cover” the deficit between annual tax revenues and annual spending.

The austerians want to solve this political problem by cutting back on entitlement benefits. “Progressives” want to solve it by eliminating the income cap on FICA taxation. The advantages and disadvantages of both solutions are very well-known so I won’t repeat them, but will just point out that both will subtract net financial assets from the economy, and offer a third solution that doesn’t have that problem.

That solution is for the Executive Branch to use its Platinum Coin Seigniorage (PCS) authority under 31 USC 5112(k) and 31 USC 5136 to mint a single proof platinum coin each year to cover any shortfall between FICA revenues and spending on Social Security and Medicare. If that were done annually in advance, based on projections, then there would be no further depletion of the “trust fund” credits, and no further political issue of Social Security and Medicare insolvency.

This solution also has at least the following other advantages.

— It requires no Congressional action to implement. The necessary authority is there already;

— It will not increase spending, beyond that already scheduled for Social Security and Medicare, so it won’t add any inflation beyond that already built into the system;

— It will not increase the public debt subject to the limit, so that worry needn’t trouble people;

— It will educate people about the fact that the Government can spend without having to tax or borrow if it needs to do that;

— It will educate people about PCS as an alternative to taxing and borrowing;

— It will educate people to the idea that neither the Treasury nor the Government can become insolvent because it can always mint coins;

— It will educate people about the fact that the US Government need not ever borrow back its own previously issued currency from anyone else, unless it wants to;

— It will educate people to the idea that their grandchildren won’t have a burden of public debt that they can’t always easily pay back by using PCS;

— It requires neither an increase in taxes nor cuts in Social Security or Medicare benefits.

— Also, if benefits were increased in the future there wouldn’t need to be any tax increases to “fund” them.

— It would be a great political success for any President who did this, because it would have the effect of safeguarding the major components of the safety net for good, and that President would be remembered by a grateful populace for having done that.

There are, of course, some disadvantages to this third solution, too.

— The opposition to the President will attack she or he for using PCS, claiming that it is the dreaded “printing money,” practiced, so infamously, by the Weimar Republic and Zimbabwe. This may be an effective attack in holding down the President’s approval rating for a limited period of time; but once people observe that no inflation results from using PCS, this attack will fade away; it’s effectiveness destroyed by experience and reality;

— To make PCS effective, the President may have to force the Federal Reserve Chairman to create reserves in exchange for Treasury’s platinum coins. This may create a firestorm politically if the Fed Chairman resigns in protest. However, eventually, the President will find a successor who will credit the Mint’s Public Enterprise Fund (PEF) account for platinum coins with very high face value, because the law is clear that in cases of disagreement between the Fed and the Secretary on matters of interpretation, the opinion of the Secretary is to prevail.

— The opposition may attack the President for “grabbing more power.” This may make a few headlines; but since the President’s action would halt any further depletion of the Social Security and Medicare “trust funds” it is hard to see the public either disapproving of the action, or getting motivated by any perceived power grab.

— The opposition to the President in Congress may become enraged by the loss of leverage against entitlement spending they experience as a result of the Administration using PCS to stop depletion of the “trust funds.” However, I can’t see this anger going anywhere unless it somehow gets extended to the country at large. But, then again, the only reason why most people would get angry at this is if inflation were somehow triggered using PCS. Since this is a very unlikely prospect, the anger in Congress will just go to ground in the sweep of events.

Two weeks after the minting each year, there will be other issues to fight about. After a few years of use, PCS will be institutionalized as the way to ensure the sustainability of Social Security and Medicare regardless of fluctuations in the economy and in tax revenues.

So, that’s it. Using PCS to cover the shortfall between entitlement spending and FICA revenues is a quick and relatively easy solution to the political problem of ensuring that the Social Security and Medicare “trust funds” are sustainable, provided that a president will use it. When will this, or the next, or the next president make this happen and really kill “austerity” politics targeting the entitlements that most Americans love so well? When will this or some future president hear the voice of the people?

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  1. nonclassical

    ..what does it matter what is decided NOW, when we already are aware repubLIEcon anti-government fundamentalists will win 2016, and as quietly as possible continue dismantling of “transparency, oversight, accountability”, AND
    further their corporate masters’ desires for “austerity”=privatization of government assets…(asset chase indeed). This without even considering anti-democratic-“the people’s representative government” bushbama “Trans-Pacific Partnership” he guarantees he will sign.

    1) “What does it mean to reset the debate? First, it means starting from the understanding that there is no longer a looming fiscal crisis—if there ever even was one. . . . .”

    2), “resetting the debate means discarding other fiscal theories that have fared poorly over the past several years. . . .”

    What indeed does it mean to “reset the debate”, as anti-government fundamentalists double down on “free market should regulate itself” corporatism?? The real debate still concerns transparency, oversight, accountability, NONE of which, promised by bushbama, has been applied.
    THESE are the “fiscal theories” that have fared poorly…and neither political party will speak TRUTH to financial powers who insist they not hear…

    These very financial powers who, calling for “austerity” over last 20 years, have financialized their OWN ASSETS, to write off profit$ on taxes-shown definitively
    by Satyajit Das-“Extreme Money”, along with other financial charade…

      1. nonclassical

        Seriously, Joe??

        Your own thesis was quoted, parts one and two…”What does it mean to reset the debate?”….that debate over “free market should regulate itself” financial fundamentalism…??

        Notably, you did not discuss “austerity” = paying down debt to asset ratios, from the standpoint of corporate behavior, which behavior I contrasted…you appear to see no relevance…(Satyajit Das’, “Extreme Money”)

        1. Joe Firestone

          I still think we’re not communicating. Resetting the debate by saying government austerity is dead, long live austerity, isn’t my thesis. It’s Linden’s. I reset the debate a long time ago when the call for government austerity started. I’ve been writing against it and I’m writing against it now. That’s what my e-book is about cited above is about.

          AS for “austerity” = paying down debt to asset ratios, from the standpoint of corporate behavior, which behavior I contrasted. Well, you can write about that, if you like. Austerity in the private sector both in households and in corporations is an important topic. But the topic I chose to write about was government austerity and self-styled progressive’s failure to understand what it is so that they tell themselves and everyone else that it’s dead and then go right on practicing it. I don’t think I was obligated to write about the topic you called attention to in this post, and I’m not sure why you’re bringing up the issue here.

          Finally you can quote something from my post, alright, but that’s not proof that you’re saying anything relevant to it. I think you just used the quote as a hook to go on to raise the subject that you wanted to write about. That’s OK, but it doesn’t necessarily have anything material to do with my post.

      2. Susan the other

        Because although PCS is a very logical solution to entitlement shortfalls, which are due mostly to a dysfunctional economy, and PCS would be a good start toward MMT, it will not do much about the erosion of opportunity and the depression level unemployment we have. Unless something can be done to convince austerians that we need 10% deficit spending as opposed to 3% deficit spending, stabilizing entitlements will not prevent the economy from dying a slow death. Or maybe not?

        1. Joe Firestone

          Hi Susan, This post addressed how PCS could take the SS and Medicare long-term solvency problem off the table. It wasn’t intended as a PCS proposal to create full employment, restore opportunity, or help us solve many of the other important problems we face. I have addressed these matters in the context of a PCS-enabled solution in my e-book. So, if you’re looking for that follow the link in the text.

          Next, the austerians don’t have to be convinced that we need 10% deficit spending. Other Americans who now think we can’t afford 10% deficits need to be persuaded that the programs we could enact if we are willing to run those deficits are needed, and can be “paid for” using PCS without increasing the public debt they dislike so much. Once they’re convinced of that we’ll have won the argument with the austerians and and austerity will really be dead in the public sphere.

          1. Gary

            This is not disagreement. I also see PCS as a way to ‘force’ MMT into public awareness, if libs didn’t all claim it was ‘crazy’ for no apparent reason.

            I also liked Randy Wray’s suggestion to call the austerian’s bluff and NOT raise the debt ceiling by stop holding Treasury auctions, stop giving rich people a safe place to store their savings, stop letting investment funds buy safe assets and force them into risky assets or into FOREIGN bonds like Canada, Japan, Australia, Britain.

            THAT WOULD END THE DEBT CRISIS in about one year. Most of the outstanding debt would be gone … ‘cept for remaining notes longer than 12 mos term.

            Not that this actually needs to be done, nor is it necessarily an appropriate policy, but it’s a like game of intellectual chicken. It exposes how the current system of Govt Debt is WELFARE for the RICH and semi-rich … by definition, the poor aren’t earning interest on their savings.

            FINE! You guys say the national debt is a crisis? STOP issuing Bonds, stop adding to it, let it melt away. Let people’s savings languish in Reserves. How ya like me now?

            (I think that ELIMINATION of interest-bearing DEBT would HURT the USA in terms of attractiveness of the Dollar for trade. Sellers might be less enthusiastic about acquiring Dollars. THAT conservative policy might kill the “reserve status” of the Dollar that conservatives keep whining about.)

            Dear Congress, now explain WHY you have forbidden the Govt’s central bank to purchase T-Bonds directly to create (exogenous) money, and tell us WHY you still mandate that (insolvent) TBTF banks and capital firms be allowed priority status at closed Tsy auctions, when THAT is the cause of the “debt” that Congress claims is such a crisis.

            Randy’s important side-note, on what some might call a “frightening change”, was that these changes to existing rules would be LESS strenuous than what was breezily implemented to kill Glass-Stegal, in order to allow unlimited unregulated derivatives to rule the roost, for the first time in human economic history (as described by Lynn Stout – Commission Critiques – with Wm Black).

            The above would be a few relatively minor tweaks.

            How quickly would the Rich and Big Business (and Upper Middle Class) be saying about this kind of proposal to End the Debt by closing the Bond Auction Window, that “this is class war”. They THINK “liberal programs” are the cause of Debt. What happens when they find out that it’s THEIR savings, and they are denied the opportunity to buy Bonds?

            That would clarify things, would it not?

          2. Moneta

            I believe that austerity is the kiss of death but I also strongly believe that if a large percentage of printing goes to fund services for people who do not work and have no wealth to transfer, you will be jeopardizing the future of your country.

  2. jake chase

    Firestone tells us “right now the trade deficit is 3.5% of GDP. That means Government deficits must be at least 3.5% of GDP to prevent contraction in net private sector financial assets”

    This really isn’t a problem for corporatists who masquerade as “reality based austerians”. One of the principal corporatist goals is to eliminate private sector financial assets held by the 99%, thus making everyone dependent upon low wage employment, except for insider looters and those in the toadying professions. During the past five years, austerity and ZIRP and free booting speculation in manipulated markets fueled by a Fed determined to preserve bankster fiefdoms have been doing an excellent job of denuding even those American outliers who somehow remained financially afloat after the 2008 crash.

    America’s problem isn’t economic, just political. The same people who believe social security and medicare will bankrupt us simultaneously justify endless “defense” boondoggles and endless pointless wars in the name of “national security”, and they no longer even need an identifiable enemy.

    The corporatist economic model envisions a United States of Mexico, perhaps without the chickens littering the dirt roads and the endless squalor, but technologically sanitized in a reinvented upside down suburbia. They expect to capitalize upon an army of hopelessly indebted suburban “students” and “homeowners” forced to cue up every morning for minimum wage construction and landscaping work, and drop off every evening in front of ESPN after a satisfying nachos dinner at Taco Bell, a liter of Coca Cola and a Viagra enriched sexual performance.

    There’s your New Millenium American Dream. How do you like it so far? Personally, I am far less fearful of those Platinum Coins. The only consequence I can see is the elimination of Congressional power, and that Coin would be more efficient than incarcerating all of the Senators and Congressmen for taking the bribes they have been selling out for since the early days of our Republic.

    1. Joe Firestone


      “This really isn’t a problem for corporatists who masquerade as “reality based austerians”. One of the principal corporatist goals is to eliminate private sector financial assets held by the 99%, thus making everyone dependent upon low wage employment, except for insider looters and those in the toadying professions.”

      I agree this is a goal for some of them, maybe for most of them, but I think it’s a dangerous game. They can lose control if they boil the frogs too rapidly. If there’s another financial crash soon, then the banks will be seen to be insolvent, and it will be very difficult politically to bail them out again. Then the corporatists could lose control because the banks and the Street would become much less powerful almost overnight.

  3. Bruce Krasting

    So we’re back to Platinum coins again? I thought that idea was discredited 6 months ago.

    From the Social Security 2013 report:

    – The cash deficit at SS will be $950Bn over the next ten-years (base case assumption)

    – The NPV of the next 75 years is -$9.6 Tn (up from 8.6Tn in 2012)

    – The NPV of the long term for SSA -$23Tn (Up $2.6Tn from 2012)

    So how many coins have to be minted? $1Tn gets only a decade. So let’s just mint a 10Tn coin. Just silly…

    1. Rodger Malcolm Mitchell

      The “platinum coin solution” never was discredited. Instead, it was ignored by the President and Congress for one very good reason: It would benefit the middle- and lower-income groups, and narrow the gap between the rich and the rest.

      The President and Congress have been bribed by the upper .1% income group (via campaign contributions and promises of lucrative employment later) to widen the income gap.

      It is the gap that makes people rich and powerful. Without the gap, no one would be rich and powerful, and the wider the gap, the richer and more powerful they are.

      So the President, who claims to side with the middle- and lower-classes, raises FICA and urges a “Grand Bargain,” which would cut social spending — all to widen the gap.

      The “platinum coin solution” isn’t really a physical solution. It doesn’t really pay for anything. It is a psychological solution in that it could eliminate all excuses for not paying for Social Security and Medicare (for all).

      The coin could be in any amount — $1 trillion, $100 trillion, $1,000 trillion — which demonstrates the ignorance of debt limits and austerity.

      If we had an honest President and Congress, there would be no need for the platinum coin solution. They simply would admit to the world that deficit reduction for a Monetarily Sovereign government is nuts.

      1. Joe Firestone

        Right on Rodger. The coin is a political trick. But even with an honest president it may be a very good thing to do because say, a $60 T coin, would end the welfare embodied in security interest payments to get electronic credits the government can always generate for itself.

        1. Don Levit

          I understand what you are saying, but we do not need psychological tricks or psychological answers.
          We need real financail solutions.
          We need solutions which are transparent abut any effect on the budget.
          For example, you wrote that Social Security cash payments would exceed cash benefits in the future.
          That is incorrect.
          It occurred in 2008.
          The budgetary effect: While the U.S. Government can “”always” redeem bonds to pay for the cash shortfall, it adds to the deficit and to the debt held by the public.
          The debt is to be paid from future revenues, which means our children and grandchildren, not us.
          Every action has a corresponding reaction, unless, of course, one is dealing in magic.
          Don Levit

          1. Joe Firestone

            Do, spare me the Newtonian homilies please. As for this:

            “For example, you wrote that Social Security cash payments would exceed cash benefits in the future.
            That is incorrect.”

            It is incorrect? Only one problem, where did I say that? If I did it’s a typo. The whole point of the post is to address projected shortfalls with PCS supplements to prevent these shortfalls.

            As for “the grandchildren,” they won’t have to worry about our SS or Medicare debt burden because since we would not be issuing bonds to supplement any shortfalls there wouldn’t be any public debt for this purpose or any interest on that debt either.

            As for other public debt, we can pay that as it falls due using PCS too. Doing so won’t be inflationary because all we’ll be doing is replacing net financial assets (in securities) with other net financial assets (in bank reserves). There’s no evidence showing that reserves are more inflationary than securities. In fact, there’s plenty of reason to think that securities are more inflationary because they produce higher interest payments, and also they can be leveraged more than reserves.

          2. F. Beard

            The debt is to be paid from future revenues, Don Levit

            No. No. No. No.

            Sovereign debt is simply a form of fiat that pays interest. Therefor to pay it off would merely involve swapping new fiat for the bonds as they come due.

            which means our children and grandchildren, not us. Don Levit

            No, Donny boy. Only in your usury loving dreams is that going to happen. Why? Because it isn’t just is why.

          3. Moneta

            If the young are working to take care of retirees with no money or wealth to transfer, this means they are not amassing wealth. They are essentiallyt working for free, Mother Teresa style. And, yes, it implicitly means we are pushing the boomers’ old age funding issues off to the younger/future generation so they get no retirement themselves.

            The issue is that the boomers spent their productive years and energy on futile consumption which is now mostly in the dump. It’s called planned obsolescence.

            At the end of the 60s, the US reached a limit. The average house was about 1400 square feet. Instead of getting the message, they exported jobs, tacked on debt and built McMansions. Most Amercians don’t seem to understand that their material lives need to shrink drastically… unless they manage to renege on their trillions of debt and squeeze emerging markets to keep their overploated lifestyles for another few decades.

            You can’t ask the young, a baby bust generation BTW, to renovate the country , maintain the inefficient infra AND to fund unfunded retirements and health care. It won’t happen. Something will give.

          4. Calgacus

            Don Levit: The debt is to be paid from future revenues, which means our children and grandchildren, not us.
            Every action has a corresponding reaction, unless, of course, one is dealing in magic.

            NO NO NO. Government debt is not paid from future revenues. That just isn’t how it works. It never worked that way. It can’t work that way. People pay their taxes and their bills with government debt. When you go to a supermarket and use the coupons you clipped out of their circular or the newspaper, does the supermarket NEED your coupons to reuse and “pay for” the future coupons they put in the next circular? Or do they just throw the coupons away?

            Yes, debt is a burden. But do the accounting right. The additional true burden imposed by spending for public purposes, for full employment is vanishingly small, imperceptible.

            Moneta: If the young are working to take care of retirees with no money or wealth to transfer, this means they are not amassing wealth. They are essentially working for free, Mother Teresa style. And, yes, it implicitly means we are pushing the boomers’ old age funding issues off to the younger/future generation so they get no retirement themselves.

            If the retirees have SS, as everyone should, then the young are amassing wealth. The problem is that we don’t spend enough on SS. More SS spending on oldsters would lead to a wealthier younger generation, not a poorer one. More SS spending would make the younger generation have a securer retirement, not a less safe one. The bad guys want to steal from everyone. They make up crazy, innumerate stories to divida et impera. And so many people fall for them.

            Calculations of unfunded liabilities are invariably insane raving. They are like adding up all the poop that the human race will excrete in the next millennium and arguing that we are about to be engulfed in a tsunamis of it. In the real world, pay as you go, just like flush as you go works just fine.

            AAaaaggh. Don, Moneta – you are intelligent people. But just stop and think slowly about things and don’t listen to insane mainstream ravings. What you are saying doesn’t make sense, like most post 70s “economics”. MMT just says in a clean, modern way what Keynesian economics, what Institutional economics said, what everybody understood until the fall of the dark age around 1970.

      2. Gary

        I’m TOTALLY with Rodger on this. The Platinum Coin is “pure politics”.

        That’s what FDR said about the implementation of a Payroll Tax for Social Security. He said the Tax was intended to keep the Tea Baggers’ mitts off his flagship program and legacy, to prevent the ideologues from calling it “govt charity”. Brilliant.

        The Payroll Tax does not “fund” anything.

        But NOW they figured out a way to use the Tax to pit income-earning youth against retirees and future retirees. It’s an intellectual bear-trap.

        The Platinum Coin would not actually “fund” anything, nothing that can’t already be funded without it, because there is NO solvency contraint to “printing money” i.e. issuing payments to whoever Congress chooses to pay at whatever level they choose to spend.

        We live in an economy with ABUNDANT supply … even if the finished goods are mostly imported (by choice). What’s being artificially contrained is DEMAND. Then the lack of sales also kills supply eventually, by creating a lot of unused surplus capacity … that tends to “rot” over time, due to decline of skills, lack of innovation, and sometimes plain old rust.

        But FINE, except for “national security” matters, WE can be a mostly-service economy if the Govt creates more non-profit public sector service jobs. We don’t NEED to covet manufacturing jobs. If the Chinese weren’t “stealing our jobs” then it would be more robots and automation.

        If Congress and economic advisors would listen properly to THE MARKET instead of clinging to old ideology (libertarian apriori “truths”), THE MARKET is yelling at them that the high Current Accounts Deficit (imports) coupled with record high Savings (high GINI coefficient … wealth concentration), REQUIRES more ADDS of net financial assets.

        What tangible barriers prevent the Treasury from adding numbers to the “Trust Fund” that represents those “special” T-Bonds? None.

        The problem is ideological barriers … and some risk that if the facts were revealed, they’d switch from complaining about “we can’t afford this” to griping about the wrongness of “charity” that’s not monopolized by Christian fundamentalists.

        If they TRULY want “smaller govt”, then just stop obsessing on regulating minutae of qualifications for poor people. Give EVERYONE Food Stamps and REDUCE the retirement age as a blue collar option, with higher benefits.

        This is just so EVERYONE has a share at benefiting from U.S. Globalization policies, not just the Few.

    2. Jim Haygood

      Thank you, Bruce, for challenging the Magic Beanstalk brigade and their habit of indulging in antiquated 19th century rhetorical economics, using quotations from their own echo chamber.

      Unlike them, Bruce actually did the freakin’ math, by reading and analyzing the Social Security Commissioners own report. (Those who believe in magical platinum coins need not bother, since the red ink can simply go to infinity without real world consequences.)

      ‘The 75 year unfunded liability grew to $9.6Tn, from to $8.6Tn a year ago,’ according to the commissioners.

      Of more immediate concern, even to magic beanstalkers, is that ‘over the coming decade the cash shortfall is projected to be $950Bn. Every penny of this shortfall must be financed with additional Debt Held By The Public.’

      With the Treasury market barfing up its lunch after someone rudely blurted out ‘tapering’ at the table, $950 billion of prospective issuance is not helpful, not helpful at all.

      1. aj

        Jim, did you even read Roger’s comment? The math in this instance means jack squat. We can always fund programs that we want to fund. The very heart of the PCS issue is that it puts the lie to all the austerian claims about government insolvency. It wasn’t discredited, just dismissed by the powers that be as not conducive to their agenda. Roger, great comment.

        1. Jim Haygood

          Did you even notice that I was not responding to Roger’s comment?

          Thread challenged, math challenged, what’s the difference?

          1. Joe Firestone

            The difference is that you’re dodging the issue. You’re saying there’s a 75 year SS debt problem. I’m proposing to end that by a Platinum every year to cover the shortfall. You don’t address that accept through labeling and name-calling, and then you go right on talking about the faux financial/economic, real political problem I suggested a solution to. If you don’t agree with my solution; then put up another one that won’t kill the economy or get lost. kapish?

        2. Don Levit

          Let’s assume you are correct – that we can always fund programs.
          Jim was explaining the budgetary effects of doing so.
          Redeemimng Treasuries from the SS trust fund to pay for cash shortfalls adds to the deficit and to the debt held by the public.
          Do you disagree with him?
          Don Levit

          1. Joe Firestone

            Jim was talking about consequences that only occur if we use public debt financing. He’s deliberately ignoring the premise the post which is that we don’t do that. So, yes, I disagree with him., because there will be no debt due to the shortfalls. So, with my solution the issue is gone. Face it guys, you may be frightened of the solution for any number of reasons. But it certainly doesn’t leave any outstanding interest-bearing debt instruments for our children and grandchildren.

      2. Joe Firestone

        you’re just labeling and name calling. You’re also making false statements:

        “Of more immediate concern, even to magic beanstalkers, is that ‘over the coming decade the cash shortfall is projected to be $950Bn. Every penny of this shortfall must be financed with additional Debt Held By The Public.’

        No, the shortfall doesn’t have to be financed with additional debt instruments. It can be “financed” with a platinum coin.

        Also, neither you nor the SS trustees can accurate project a decade. These projections are BS. You should know this simply based on CBO’s recent substantial revision of its projections after a three month period of time. That’s, CBO can’t even project accurately 3 months out, and SS trustees can’t project accurately 10 years out.

        SS’s financial position is dependent on what we do. I’ve proposed that we supplement any deficits annually using a platinum coin. Clearly that means SS will have no further funding deficits ever, if the law allowing platinum coins to be minted remains in place. End of story.

        1. Don Levit

          Hold off for a moment on this platinum coin business.
          Just respond to Joe’s answer, about the budgetary effects of what we are presently doing.
          We all know this platinum coin could solve all our problems, but please reply for the inerim present reality.
          dDn Levit

      3. Joe Firestone

        If we’re going to use a platinum coin to cover the SS deficit every year from here on, why are these undoubtedly mistaken projections in the least bit relevant.

        Also why is the math important since we’re talking about economics here and economics can’t even project out correctly even a few months, not to mention a 75 year period. It would be really nice if you folks would stop writing science fantasy and begin to attend to economic reality.

      4. Gary

        Not a single penny of anything NEEDS to be financed by Debt, NOR is any of it financed by Debt today.

        The purpose of Debt is for storage of Savings.

        As the number of Rich and Super Rich grows, and their Saved Financial Assets grows, there MUST be a instrument to store it.

        Bank of International Settlements apparently believed the charade of the last decade that Mortgage Securities were really AAA-rated NO-RISK investments, just like Govt Securities. Since the Mortgage Securities melted down, now BIS says that monetary sovereign govts like the USA (and a few others) MUST issue MORE DEBT to absorb the Savings that sloshing around in the system and doesn’t want to stay parked in liquid reserves.

        Bill Mitchell noted the irony that while Australia was running a BUDGET SURPLUS (supported by lots of exports of raw materials to China, needless austerity still causing economic problems at home), the High Street financial sector called a VIP meeting and told the Govt …


        the Govt had to issue MORE DEBT during a BUDGET SURPLUS, and Govt officials set out to write some reports to justify this … which proves the point that it’s the Banks and Financial System that needs GOVT DEBT for savings, not that the Govt needs it for spending.

        All the “magic beanstalk” stuff is like a flashing beacon that says “I don’t understand financial systems, banking, or sovereign monetary systems, AND I prefer to keep my ignorance.”

      5. Gary

        watch youtube Alan Greenspan answer Paul Ryan about “strengthening” Social Security by privatizing it and handing the balance of the “Trust Fund” and FUTURE TAX COLLECTIONS to Wall Street, for them to play “churn” or “pump and dump” with peoples’ retirement.

        NOTE: this experiment happened, in Chile. After a couple looters looted the entire privatized Social Security fund, the GOVERNMENT (even tho it was Pinochet) had to step up with a Bailout.

        Greenspan tells Ryan that there is NEVER a problem with issuing SS payments. Period. The ONLY possible problem, says Greenspan, is whether sufficient resources exist for SS recipients to purchase.

        Translated, if there’s a REAL CRISIS like Peak Oil or some shortfall of tangible commodities such that retirees can’t buy food or fuel with their Dollars, THAT is a genuine crisis. Maybe we run out of Natural Gas, or Petroleum.

        Uncle Sam CANNOT run out of Dollars, except “conceptually”, based on flawed concepts.

        Rodger also pointed out, there’s HUNDREDS of Federal Agencies, White House, FBI, FAA, etc. but only ONE agency is allegedly “funded” by a “Trust Fund” that could ostensibly become “insolvent”, at least conceptually. That says a lot about Class War.

        What if the Pentagon were funded by a Trust Fund that had to be kept replenished by taxing Defense Contractors?

        Of course that would defeat the economic purpose of fiscal deficits —- using Govt money-printing powers to add to Aggregate Demand. Like how the Truman admin said the Cold War Soviet Threat (in 1945?!!!) was needed to prop up World War Two industries with enough profits to keep them running.

    3. Joe Firestone

      As Rodger said, platinum coins were never discredited, only refuse as an option by the president. He’s done that with a lot of things, for example, taking the banks down rather than bailing them out, getting rid of the filibuster rather than working with the Republicans, refusing to fight for a $1.8 T ARRA bill, refusing to support Medicare for All, refusing to end usury on credit cards, dismantling the surveillance state. I can go on and on. It doesn’t mean any of these ideas are discredited. They’re all the right thing to do. It’s just that this president won’t do them.

      1. Susan the other

        Austerity, or stealth austerity, cannot be resolved with a gutless wonder as president. When he spoke recently at a university in Israel, he went off script to tell the audience that if they ever wanted anything done they would have to demonstrate because “politicians” wont do anything without a crowd behind them. He almost fails to realize that once he is president, in fact reelected, he is no longer a politician – he is the man making the decisions. Obama is far too timid to ever make a decision. To observe him ducking the issues is sickening.

        1. Joe Firestone

          He’s gutless about some things, positively full of chutzpah about others like advancing the plutocracy and constructing the architecture of repression, and entirely sly and sneaky about still others. Watch that guy carefully or you’ll find yourselves under the bus!

  4. Eric377

    The Trust funds were designed to expand so that they might be depleted at an opportune period of years. There is no utility to them other than to be depleted at a time when it is advantageous to the finances of the nation. To use controversial (at best) methods to ‘protect’ them against depletion is incredibly mindless.

    1. Joe Firestone

      No, its your comment that’s mindless. This is about people who want to fix problems not being able to do so, because the austerians are always bleating about SS and Medicare are running out of money. So, I proposed a solution to take that off the table. What’s your problem with that?

    2. Gary

      If you understood the operational nature of the “Trust Fund”, you would understand that there’s NOTHING saved up and NOTHING to be depleted, nor does there need to be.

      As Warren Mosler stated, now I get it, any govt that’s an ISSUER of non-fixed free-floating financial assets, neither HAS money nor DOESN’T HAVE money. USERS can HAVE or SAVE money.

      Think about it. Where would the Govt “save money”? In the bank? Bank accounts that are all backstopped by FDIC? A giant vault of green paper notes?

      All the money the Govt seems to “have” or “not have” at any given time is nothing more than account entries on the Fed’s computers. The Govt has the power to increase these balances at will (through a process which is needlessly convoluted).

      More to the point, when Govt SPENDS money by adding it to the checking account of a person or company, via back room ops on reserves, that nominal sum is brought forth into EXISTENCE. An account balance becomes a higher balance.

      When govt debits a checking account when a tax payment clears, that sum is DELETED. The money NO LONGER EXISTS.

      That’s why the Trust Fund is a “fantasy”. It’s economically meaningless (but politically meaningful). This collective pretense is that payroll taxes are “saved” in this “fund”, like a stash in a “lock-box”.

      (When Al Gore pledged to protect Soc Sec in a “lock box”, I half believed him, I was fooled, but even back then before I knew MMT, I sensed something was wrong and he was spouting BS. WHERE is this “Lock Box”? Can we SEE it? It exists in our imagination. It’s a concept.

      Gore was borrowing the concept from the fraudulent Greenspan Commission and Reagan on “strengthening” SS by a tax increase on the poor.)

      It’s not that “the Govt has stolen our SS money and needs to put it back in the Trust Fund” as some people say.

      The Govt added T-Bonds (“debt”) to the Trust Fund, related to Payroll Tax, but successive govts have claimed that Govt could report lower budget deficit figures or a surplus — public relations spin — due to those collections.

      Govt can report Deficits wherever they want. Just do some “off balance sheet” spending. Whatever. However. Don’t need to confuse the issue by relating govt spending powers to Soc Sec tax.

  5. Chris E.

    Joe writes:

    – It will not increase spending, beyond that already scheduled for Social Security and Medicare, so it won’t add any inflation beyond that already built into the system;

    It could be argued that the “system” has built into it only the solvent, reserve-drained future payments of Social Security into perpetuity, not the payments-in-full regardless of current solvency.

    That is, if we are to believe the system is self-aware and efficient in the sense you imply, then it must be aware that the payments for Social Security are indeed not, on the current track, solvent in the long-run. And that in order to fund that shortfall, a reserve drain would be necessary, the contractionary effects of which would be, as you say, “built into the system.” Absent that reserve-drain, if we were to merely do a Platinum Coin Solution to fund the deficit of FICA revs/SS payments, then upon announcing the intent of such a program, there would be a boost in spending and thus inflation (something we could really use now for example) absorbed into the system.

    So I think there definitely would be an inflationary effect of this idea, if we were to announce such a program without a corresponding mop up in liquidity. The system must be aware of its own shortfall in solvency for SS payments and considering that it must be funded in some way (the fair assumption is with a reserve drain either by taxes or bond issuance), a change in that assumption with a radical program would probably spark some inflation.

    1. Joe Firestone

      Chris why is this true? Because of the discredited Quantitative Theory of Money. Get used to it. QTM doesn’t work ecept past full employment. Inflation’s about adding too much in net financial assets. It’s not simply about the reserves. The Fed can drain whatever it has to drain by paying interest on reserves. The Government can help by taxing fairly.

      1. Chris E.

        Joe, so just so I understand you: you’re now contending that this program _would_ in fact increase spending beyond what is “built in” to the system (since before a PCS program would be announced, the system sees SS payments only running out in a couple decades then being insolvent)? but because we’re not at full employment it still won’t be inflationary (per QTM)? or are you saying that it still would _not_ be an increase in spending per the system’s “built in”?

        I just want to understand your take before I delve any further and want to avoid straw manning your position. Because I think that announcing PCS _would_ be a positive demand shock (incorporating higher govt spending without any reserve drain or taxation) to the system and be inflationary (a healthy dose) because the system is built in to have payments reduce instead of be fully met currently. And I think even though we’re not at full employment there would still be inflation generated but not run-away, just marginal.

        1. Joe Firestone

          Chris, I’m viewing two alternatives. One we cover the SS and Medicare shortfalls by issuing debt instruments Two we cover the SS and Medicare shortfalls by issuing shortfalls. In the first case we actually spend more because we pay the benefits and also the interest on the new debt. In the second case, we pay the benefits but no interest. Between these alternatives the first is clearly involves more spending. Now there are other alternatives.

          A third, is that we get rid of the payroll tax cap entirely, that takes care of the SS shortfalls so gov spending isn’t directly affected; but the additional taxation destroys reserves in the private sector. That may be good to do because it might reduce inequality, but to offset its negative impact on GDP over time, it will be necessary to do more deficit spending to offset the destruction of reserves from the additional taxation.

          A fourth alternative is that we cut SS and Medicare benefits either now or later to remove the shortfall. This harms seniors and is the worst of the four alternatives in my view.

        2. Gary

          Before I joined any MMT blog and read into it, I asked Mosler via email exchange:

          What happens when SS payments drain the SS account balance to zero?

          Answer: So there’s a negative number on the line on the spreadsheet where the net balance is reported. So what? A negative balance does not operationally restrain Govt spending. If they choose to believe it does, then just ADD some Tsy Sec balance to the account. With or without a Platinum coin.

          What resources does it take for the Treasury Secy (or staffer) to make SS payments for workers (suspend the tax collection), by increasing the T-Bond balance in the SS account? Keystrokes.

          If those keystrokes put TOO MUCH money into the economy at once, then increase taxes somewhere. Ad hoc, not ideology.

          It’s like the (deficit) flow of energy from the Sun to Earth. It’s good. We need it. It’s not running out. We don’t want too much all at once, but a steady flow is great.

          In the case of SS, it’s SIMPLER than the Sun. The Sun emits actual energy, and the hydrogen supply will run out in a few hundred billion years of Solar Deficit Spending flowing into our Solar System and to planets. Govt Deficits do not emit energy … just numbers.

          Think of Govt Finance as a “virtual” system, like a computer video game world. Players can run out of points, but can the game itself face a crisis due to high-scoring players? Or Warren’s example, can a basketball scorekeeper run out of points if too many baskets are scored?

  6. sharonsj

    To “save” Social Security, all you have to do is raise the cap beyong $110,000, so high earners pay into the system.

    Everything else is just crappy rhetoric to deceive Americans into letting Wall Street get its hands on our money. For years, that was the Republican wet dream–but now the Dems are just as corrupt and will sell us out too. I’m surprised that the approval rating of Congress is at 10$. It ought to be zero.

    1. MyLessThanPriemBeef

      It will get there a lot sooner if we also stop funding wars and domestic surveillance with $200K/yr contractors.

    2. MyLessThanPrimeBeef

      Is it possible for a president to have an approval rating of negative 10%?

      1. Joe Firestone

        Anything is possible; but even Nixon had a higher approval rating than that. Harry Truman once got down to 23%, toward the end of his tenure. Of course he was a greater president than anyone since, according to most historians.

    1. Joe Firestone

      That’s OK. But you can’t get to done in today’s climate. Read the advantages and disadvantages again. One of the advantages of this is that one person gets to make it happen and we don’t need to get into a premature fight over taxation.

      1. MyLessThanPrimeBeef

        That one person you are referring to won’t do it.

        Another one person who might do it would need millions of voters in the next election.

        So, it’s back to ‘more than a person’ which ever direction we go.

        1. Joe Firestone

          Until January of 2017, it’s within the power of a single person to get this done. So, if it’s a good thing to do, then it’s up to us to keep pressuring him to do it! Why not do that? All he can do is continue to say no.

          1. MyLessThanPrimeBeef

            The one person is being pulled and pushed in all directions.

            I don’t see the ‘it only takes one person to act’ as being simpler than other alternatives; I don’t think it is easier than fighting over taxation.

          2. Joe Firestone

            Well, I guess our judgments are different. But, consider, the House would never pass the tax changes you’re proposing, and in the SEnate you’d have the filibuster to contend with. Also, your tax changes would never pass without the President’s support. So, you have to get all three. I think just getting the President to do something is much easier, in principle.

  7. dpack

    Couple of points:
    1) Anyone that believes the Petersen’s of the world give a hoot about deficits simply isn’t paying attention. Their goal is a reverse robin hood America.

    2) As CEPR has shown the outyear deficits so concerning to the Reverse Robin Hoods, recently stated as over $100T by the 30 year budget, are easily solved. The US spends ~18% of GDP per capita on health care. The rest of the developed world spends 8-11% of GDP per capita.

    If we adopted any of their systems, typically a form of single payer, our out year deficits disappear completely since 95% of these horrific deficits are caused by health care spending.

    Not only would we solve the deficit but we’d put US business on a much sounder footing in global competition if they weren’t over paying so much for healthcare.

    1. washunate

      Right on. The unwillingness of the platinum coin wing of MMT to acknowledge that politicians don’t actually care about budget deficits has bothered me for some time.

      It’s like they are purposefully ignoring the looting, which is utterly dependent upon massive waste in healthcare and national security and financial bailouts and tax cuts for the wealthy. Single payer is a threat precisely because it would make healthcare cheaper, not because it would increase spending.

    2. Joe Firestone

      Again, the long-term projections are science fantasy. They are not a fit basis for debate. We need to discredit them as the product of an illegitimate method because when we accept the projection framework, even to show that their projections disappear if we reduce health care costs as a percent of GDP, we are playing their game.

      Next, I’m pretty sure Canada’s at 12% of GDP right now, not at 11%. But as long as we’re talking about it, a quick back of the envelope comment is in order. Assume a $16 T GDP. We now spend 18% of GDP on health care. That’s nearly 2.9 Trillion. 12% of GDP is 1.9 T. So if we shift to Medicare for All and do as good a job at it as our friends to the north, we’ll spend nearly 1 Trillion less on health care per year (and also get better outcomes). Some of the austerians commenting on this thread talk about a $950 B SS deficit over the next 10 years. I doubt that. But even if that’s true, the savings from the change to Medicare for All are higher than in a single year; and would be close to $10 T over 10 years, and God knows how much 75 years down the road but much much more than Bruce Krasting’s paltry $23 T.

  8. washunate

    Joe, I agree that MMT offers a valuable perspective that sovereign nations can’t go nominally bankrupt in their own spewing of currency/debt/money/IOUs/whatever. This certainly helps reveal the kabuki theater lying when politicians selectively pretend they care about budget deficits. But I remain unclear what is unique about that insight.

    No one (actually) cares about government budget deficits. I challenge you to name a single year in which President Bush or President Obama proposed a balanced budget. Just one year.

    What this comes down to is the simple observation that healthcare is too expensive given median wage levels. Whether we call that “inflation” or something else is an academic debate of semantics that is completely irrelevant.

    We can either shift resources from other parts of the economy to healthcare, or we can reduce the cost of healthcare. The key observation is that regardless of the nominal size of the budget, in real terms, those two approaches are mutually exclusive.

      1. Joe Firestone

        The surveillance predator state is something we need to dismantle. But that has nothing to do with MMT. It has to do with whether we are willing to replace much of the Congress and impeach current office holders in the other two branches who are violating the Constitution.

        1. MyLessThanPrimeBeef

          This is a strictly chronological order that is dangerous to violate

          1 replace these people you mention
          2 unlimited government spending

          You reverse the order, we are dead meat.

          So, the only thing we should talk about now is #1.

          1. Joe Firestone

            I didn’t say we should have unlimited government spending. What I do propose in my book is using a $60 T coin and paying off the debt subject to the limit as it falls due. Doing that would change the political calculus in Washington because it would put the austerians out of business immediately (no more debt issue). This would empower progressives in Congress and we might see improvements in fiscal policy legislation very quickly and without wholesale replacement of people in the House and the Senate. I’d still be in favor of wholesale replacement over the constitution-violating issue, of course. It’s increasingly clear that people in this Congress know about the PRISM program, and the dragnet domestic surveillance program, and then allowed Administration representatives to lie about the existence of these programs in public Congressional testimony. That’s just unacceptable. The Congresspeople (House and Senate) must be replaced and the Executive Branch people involved must be impeached. There’s o choice about this. If we fail to punish this we lose our democracy.

          2. Gary

            MMT already FUNCTIONALLY exists. They KNOW it, when it comes to Iraq (off-budget spending? wtf?) and Bank Bailouts and all that National Security State stuff.

            NO LIMITS!

            Cheney said it: “Reagan was right, deficits DON’T matter.”

            Then they immediately go into conceptual amnesia when it comes to everyone else.

            How long did it take after the first round of TARP for the media to begin complaining about “welfare” and “entitlements”.

            How many weeks after the shocking (at the time) Savings and Loan Bailout program was announced and underestimated in the 1980s, before Reagan Republicans continued their slander of “welfare mothers driving Cadillacs”. I’ll tell you because I was watching for it, because I was dumbfounded on how a govt that was “broke” could INSTANTLY allocate $100 Billion to Bankers without batting an eye.

            THREE WEEKS or less, to go from Bailouts for the Rich (and semi-rich account holders) to kvetching about the Poor.

          3. washunate

            I’m amazed at how the MMT crowd can be so wordy on esoteric aspects of monetary policy yet can’t provide any answer for this obvious chronology you lay out.

            It’s really fascinating.

        2. washunate

          Joe, I appreciate us being able to condense meaning down to simple, clear statements. This is EXACTLY my critique of the inflation-denying wing of MMT.

          You claim that the national security state (and other unconstitutional waste) is irrelevant, and you claim that monetary tweaks can solve management problems.

          That is the critique that you will need to answer if you have any interest in convincing someone like me that you are doing anything more than providing leftist academic cover for the unprecedented concentration of wealth and power in our society.

    1. Joe Firestone

      Health care costs in real terms are too much of the economy. We do need to cut them down to levels found in other nations that get better outcomes than we do. We can do that by passing HR 676 Medicare for all. See my comment above. But, my point here is that health care costs too much as a percent of GDP. That’s a ratio we should worry about. Not the irrelevant debt-to-GDP ratio.

      1. washunate

        Um, no argument here. I’m suggesting that you are taking debt levels too seriously – that no one else cares. Outside of the Chicago school and platinum coin MMTers, no one cares about monetary policy.

        What everybody else cares about is the budget itself – the fiscal policy of who gets the money and how much they get.

    2. Calgacus

      What this comes down to is the simple observation that healthcare is too expensive given median wage levels. So make it less expensive. Go to single payer, and get rid of the health care waste and fraud industry. Or just throw newly printed money at the problem. This won’t cause inflation. I am very much against inflation. But I am even more against specious reasoning about inflation, which unfortunately seems to have trapped you and many, many others.

      As James Galbraith points out, if we instantly switched to an efficient European style single payer system, and did nothing else, we would have an instant depression, because Single Payer is too efficient. The economy needs the scarce dollars the health fraudsters are getting from the government and spending into the rest of the economy, which is grossly overtaxed.

      We can either shift resources from other parts of the economy to healthcare, or we can reduce the cost of healthcare. The key observation is that regardless of the nominal size of the budget, in real terms, those two approaches are mutually exclusive.

      The key observation, if I understand it right, is spectacularly, preposterously wrong. It makes the everpresent full employment assumption. We are not at full employment. We are nowhere near true, (chock)full employment. We haven’t been since WWII! We continually waste and destroy colossal resources that put the health care waste and fraud industry and the military industrial fraud complex to shame.

      It is really, really easy to make healthcare cheaper for the average Joe. Just do it. And then have the government helicopter drop enough money on building (green?) pyramids, say, so that the efficiency of Single payer doesn’t cause a depression. The real problem would be deflation, not inflation.

      1. washunate

        So let me get this straight. Reducing spending is deflationary. But increasing spending isn’t inflationary…

        As for the rest, I’m not sure where you’re going with trickle down economics and full employment. Your purposeful avoidance of the main problem in our society – distribution of wealth – is remarkably persistent. The looting is the problem.

        Productivity is the key to wealth. The more output we can produce with less work, the better. It’s quite an amazingly authoritarian philosophy to think that it’s better for people to be working than enjoying life.

  9. digi_owl

    Americans seem highly adept at playing the “entitlement” card at the slightest complaint.

    1. Joe Firestone

      Entitlements are just that. We are entitled to them. They are economic rights of Americans. When people say they want to take my entitlements my response is to say them’s fighting words and I’m going to take away yours and see how YOU like it!

    2. Gary

      The ORIGINAL welfare state was Corporatist welfare state created to prop up Big Business.

      Murray Rothbard on railroads and big capitalists in the 1800s

      Kevin Carson – Monopoly Capital — see Open Door in article

      Jeffrey Tucker on the Marshall Plan — Mises dot org

      Gabriel Kolko – Triumph of Conservatism — detailed letters and discussions on federal control of the entire economy, and maximum prices set by the feds, and a Big Govt program of boosting Corporate Profits by various means.

      Most treat this as “immoral” and they are right, but MMT would also see this early corporate welfare as Demand Management and Demand Enhancement.

      Marx called it “falling rate of profits”. Big Business called it “unsold surplus production”.

      Warren Mosler’s article on Demand Leakage covers the issue from a more ‘technical’ perspective, not about ‘moral’ judgment, just the fact that real economic conditions and current choices CAUSE insufficient financial Demand to reach max utilization, max sales, and full employment. Solution? Boost Demand.

      How, where, and to whom is a political choice. Tax cuts vs spending programs is a political choice. What’s NOT in question is Demand Leakage itself, and what the outcome of that means.

  10. Paul Tioxon

    Joe, I hear what you are saying. Legal authority is clearly written in English. And all of the political non starter objections are just another way of saying people, even the best and the brightest are not socialized to unknown operational maneuvers, like the platinum coin asset to balance the Feds balance sheet upon crediting General Account spending for stimulus.

    Let me run this by you for your consideration.

    Social Security T-Bills in the trust fund. The US Treasurer tells the Fed to buy them all, all for $2.7 Trillion. The Fed issues credit into a National Infrastructure Bank account for $2.7 Trillion. The National Bank funds regional infrastructure banks, who sign interest free notes of repayment. The projects are funded from the Independent National Infrastructure Bank which holds the notes and transfers them to the Fed which replenishes the Independent National Infrastructure Bank. The payments on the notes got to the Fed, which are deposited back into the Social Security Trust Fund. The Trust Fund then does what if normally does with its deposits.

  11. Joe Firestone

    The Treasury can’t sell the SS “bonds” to the Fed because they’re not marketable securities. Also, the Fed can’t buy bonds directly from the Treasury because the Fed is prohibited from extending credit to the Treasury. Also, there’s no SS “trust fund” in the sense that there’s a bank account with SS funds in it. All that exists is an accounting record of the accumulated surplus of SSA over the years. That surplus earns a predetermined rate of interest as long as it lasts, which is one reason why the paper balance in “the trust fund” has been increasing over time.

  12. Calgacus


    This is taking an ungodly long time to be moderated at Joe’s post at NEP:

    By the way, if people haven’t read it, here is a free link to Robert Eisner’s Save Social Security from Its Saviors Recommended at New Economic Perspectives by Stephanie Kelton as “the most honest and concise essay on the subject.” & “Find Robert Eisner’s article … It should be THE basis for the progressive opposition to any/all attempts to change the program.”

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