Yves here. This article focuses on the critically important of how the real danger to the economic welfare of young people is not the cost of retirement programs like Social Security and Medicare but the failure to generate enough jobs now and invest in infrastructure and education.
One thing I will child the MMT crowd for a bit, however, is that they sometimes exhibit a lack of sympathy for how hard it is for people who have grown up with the conventional narratives around how government funds itself to wrap their minds around MMT. It’s isn’t just different, it’s actually disorienting at the outset.
By Dr. Fadhel Kaboub, an Assistant Professor of Economics at Denison University (OH) and a Research Associate at the Levy Economics Institute (NY) and the Center for Full Employment and Price Stability (MO). His research focuses on job creation programs, monetary theory and policy, and the political economy of the Middle East. For more on his work, visit www.kaboub.com. Cross posted from New Economic Perspectives
The ongoing political deadlock over the U.S. government deficit and the national debt is slowly digressing into one of the most devastating economic pains that a financially sovereign government can inflict on itself and on its own people. With the exception of the readers of New Economic Perspectives and MMT-oriented blogs (here, here, here, here, here, and here among others), the vast majority of the public suffers from an acute form of deficit disorder, which can be diagnosed in a variety of ways, but most commonly you will notice that the subject is convinced that:
- the government should balance its budget and pay off its debt in the same way that responsible individuals, households, and businesses do;
- government deficits crowd-out private sector investments;
- government deficits cause inflation;
- government deficits promote inefficient and wasteful government programs; and/or
- the national debt is a burden on future generations and a form of taxation without representation.
The good news is that these deficit disorder symptoms can be easily relieved with a daily dose of MMT readings. For best results, abstain from consuming mainstream media deficit-propaganda during your MMT rehabilitation period. Warning: as you begin to heal from this deficit disorder, you may feel nauseated when exposed to mainstream news reports about the deficit. Do not panic, this is a natural feeling that most engaged citizens have once they heal from deficit disorder. When that happens, you are simply experiencing the urge to take action, educate, organize, and bring an end to this national deficit disorder.
On a more serious note, however, this national deficit disorder is blinding us from seeing the real infrastructure and education deficits that are slowly destroying quality of life for generations to come. Here, I want to argue that the real crisis ahead of us is going to be a crisis of healthcare provisioning with serious social and economic consequences for the U.S. and the global economy.
The long-term consequences of today’s deficit disorder will have a tremendous negative impact on many retirement-age vulnerable members of society after 2032. The lack of foresight that has overshadowed the public policy debate both at the federal as well as state and local government level is pushing the United States into a spending cuts frenzy aimed at balancing budgets and paying down the debt. This could potentially be the biggest mistake of our generation.
The U.S. workforce is going to experience a significant demographic change over the next 20 years. The pay-as-you-go social security system is structured in a way in which today’s workers pay for today’s retirees through a FICA tax directed into the Social Security Trust Fund and invested in AAA-rated U.S. government bonds. In 1960, there were 5 workers per retiree, and with the post-WWI “baby-boomers” effect, this ratio has been steadily declining to 3 workers per retiree today, and is expected to reach 2 workers per retiree by 2032. The only reason this decline has been manageable so far is because of increases in workers’ productivity and technological innovations. This demographic change will inevitably present a provisioning problem. Unfortunately, only the financing problem has gained so much attention by the general public, whereas the provisioning problem should be of much more significant concern to all of us today.
Deficit hawks have been arguing for increasing the retirement age and reducing retirement benefits in order to solve the financing problem, while the deficit doves argue for increasing the social security taxable income to close the financing gap. Regardless of one’s political inclination and tax-burden tolerance level, solving the financing problem will only put vulnerable people at a greater disadvantage in the future and will not make the provisioning challenge go away. Ignoring the provisioning problem creates a shortage of goods and services which will lead to inflation when the more affluent members of society outbid the poor in a fierce competition for scarce medical services, prescription drugs, retirement homes, and elderly care services.
The only way for society to offer a comfortable retirement to the elderly is by making sure that the workforce of 2032 is as skilled and productive as possible, and has access to the most up-to-date technological and logistical infrastructure, especially when it comes to medical services. The problem, however, is that such a sophisticated workforce can only be created if we invest in education, research and development, and public infrastructure today! This is exactly what we are not doing right now. Instead, we are slashing budgets for education and scientific research in the name of sound finance and fiscal responsibility. We can have all the money in the world in 2032, but it will not create a well-trained medical staff overnight, unless we recruit skilled workers away from other nations, which will shift the burden on the poorest countries that most desperately need their teachers, doctors, nurses, engineers, etc.
The American Society of Civil Engineers has identified an expected $3.6 trillion shortfall in public infrastructure investment that will result in the loss of 3.5 million jobs by 2020. That is a real deficit to be worried about.
Currently, nearly 22% of doctors practicing in the U.S. have received their medical degrees from other countries. According to the American Nurses Association, estimates show that by 2025 the U.S. healthcare system will experience a shortfall of 260,000 registered nurses. These are real deficits.
If we fail to make the right decisions today and if we give in to the current deficit hysteria, we will be guaranteeing that our current problems will be compounded many times over by 2032. It is the most vulnerable members of society that will end up suffering the most, namely the elderly, the poor, the homeless, the chronically unemployed, women, and ethnic minorities (not to mention the developing countries that will experience a more rapid brain drain). The solutions are available to us today. We must reset our economic and social priorities to alleviate the suffering of the poor in the short term and invest in science, education, innovation, and infrastructure in order to avoid a catastrophe in the long run.