Social Security is not being attacked on its merits.

Therefore the bleeding heart arguments will not prevail.

The protagonists believe the problem is that the federal government is on the road to financial ruin, and not merits of Social Security per se .

My conclusion is the only message that will work is that operationally social security is not broken as the protagonists believe.

Their central premise is simply wrong and they can be proven wrong on that central contention.

Government checks don’t bounce- all Federal spending is done by using their computer to mark up numbers in bank accounts (Bernanke quote)

The Federal government will always be able to make all its payments including Social Security payments (Greenspan quote)

Federal spending is in no case operationally dependent on revenues from taxing or borrowing and everyone in Fed operations knows it.

Spending begins to cause inflation only after all the unemployed have been hired and all the excess capacity is used up.

Government deficit spending = world dollar savings, to the penny and everyone in the CBO and OMB knows it.

If government spending isn’t enough to allow the economy to pay its taxes and meet its savings desires
the result is unemployment, excess capacity, and deflationary forces in general.
All as a point of logic.

The wholesale interest rates for the banking system, which also determines interest rates the Treasury pays, are set by the Federal Reserve Bank, not market forces.

The move to cut Social Security is an innocent fraud coming from a position of ignorance of monetary operations.

It is coming from those who mistakenly believe that the federal government has run out of money,
that federal spending is dependent on borrowing that our children will be left to repay,
and that any deficit spending always risks hyper inflation.

It is driven predominately by people who would support Social Security if they didn’t believe the federal government was on the road to financial ruin.

41 Responses

  1. Although, I have a minor quibble with the claim that spending won’t cause inflation until all of the unemployed have been hired (there is a non-zero and unknown, and probably growing, percentage of the population that is not able or willing to produce enough to live on), all of your other claims should be obvious to any intelligent person who has thought about them for a few hours.

    So my questions are these: do policy makers in Washington really not understand this stuff? Do Obama and Geithner really not get it? How about Orzag or Summers? Barney Frank? Paul Ryan? I mean how could somebody so steeped in the operations of government spending and accounting not understand how this all works?

    I’ve sort of believed for quite some time now that the smart conservatives understand this stuff but use inapplicable gold standard analogies in order to try to convince the hoi polloi of the importance of cutting spending (which they want to do in order to shrink government power). And that the smart liberals understand this stuff but use the same technique to convince the masses of the importance of raising taxes on the rich (which they want to do to reduce inequality).

    But you seem to believe that Obama and his advisors really don’t understand the way modern money works. Do they really not, or is it that they’ve decided to talk the way they do and act the way they do for political reasons?

    The question is important because if they really do understand this stuff already, there’s no point in trying to educate them.

  2. The move to cut Social Security is an innocent fraud coming from a position of ignorance of monetary operations.
    It is coming from those who mistakenly believe that the federal government has run out of money,
that federal spending is dependent on borrowing that our children will be left to repay,
and that any deficit spending always risks hyper inflation.
    It is driven predominately by people who would support Social Security if they didn’t believe the federal government was on the road to financial ruin.

    Warren, I think that you are describing only one camp in this kerfuffle, the ignorants, although they are the most numerous. I suspect there is also the disingenuous camp, which is leading this charge. They know that deficit spending allocates real resources to public purpose, and they object to that other than for “national security” (read “protecting and expanding the empire’).

    One of President Reagan’s successes in this regard was getting the Democratic Congress to go along with putting SS into the general fund, The people who engineered this had to know that under a nonconvertible regime this really didn’t matter financially.Cheney: “Reagan proved deficits don’t matter.” Then, George W. Bush could declare that the SS Trust Fund was just a bunch of IOU’s in a file cabinet.

    I believe that the disingenuous are hell bent on scaring the ignorant into undermining their own interests, and they are doing a pretty good job of it so far. Just who is in this camp is difficult to determine, let alone establish. However, looking at the dynamics of this, the drive is not to eliminate SS altogether but to privatize it. We know that Wall Street has been dying to get their hands on this trove of funds for a long time. I don’t think was have to look further than who is in the Street’s pocket.

    I totally agree that neither pleading nor shaming are going to cut it. The debate needs to be conducted on the basis of operational reality, not myths lingering from the days of convertibility and moral arguments based on “fiscal responsibility.”

    The operational reality is that the US can “afford” SS and Medicare without the regressive payroll tax if it chooses. That makes a lot people who know the real story nauseous. They would like to keep the tax and let it be collected by FIRE instead, further extending the reach of the vampire squids in the economy.

    1. Tom, the disingenuousness runs on both sides of the political spectrum. Paul Krugman was practically hysterical about the Bush tax cuts, which were not only desperately needed at the time, but almost certainly too small. And those aren’t conservatives who are planning big tax hikes next year on the so-called rich (yeah, you know, the ones that make an unthinkable $250K per year — how could anyone even spend that kind of money in a lifetime?), during a time when unemployment is over 9%.

      And it is conservatives for the most part who advocate a soc sec tax holiday. Since its inception, liberals in congress have wanted to maintain the fiction that the soc sec tax isn’t really a tax, but rather a pension fund contribution. Conservatives have generally viewed the soc sec tax as a tax, which of course it is. They would like to call the liberals’ bluff and truly make it a pension fund contribution (what you call “privatization”, but really more like the successful system Chile has), but not primarily to feed Wall Street. If you’re going to sell social security to the people as a pension fund system, it should have at least some of the attibutes of a real pension fund system.

      1. ESM, I don’t deny that there is plenty of blame to go around. Both parties are compromised by the current system of campaign finance, lobbying, and the revolving door. Until the US gets the money out of politics and locks the revolving door, this travesty of democracy will continue. Aristotle, one of the earliest promoters of democracy intellectually, warned that it democracy can be perverted. It is being perverted big time at present, and a lot of voters are finally getting outraged enough about it to send a message.

      2. Tom hickey

        Aristotle said democracy *is* perversion I believe. Proble runs deeper than you can imagine

        but again, why focus on politicians? Why do academic economies so clueless? Austrians do better than mmt and Marxist. Cannot blame campaign finance on this one

      3. Aristotle considered “democracy” to be the rule of the poor, and it regarded that as a perversion. That is not the meaning of democracy today. The words Aristotle used do not have the same meaning today. Actually, Aristotle favored pretty much what came to pass in the US Constitution.

        Speaking generally, Aristotle favored the rule of the many over the rule of one or a few. Aristotle’s analysis is extremely nuanced and he distinguished many possibilities.

        Polity, meaning ruled by the many in the interest of all was seen as the most practical of all of the constitutions by Aristotle. Generally polity is ìa mixture of democracy and oligarchy (Barker, 1952: 174) but in common usage the term is reserved for mixtures that incline more towards democracy and the mixtures that incline more towards oligarchy are called aristocracies. Nevertheless, in a ìtradition that endured through to the twentieth century, Aristotle criticized popular rule on the grounds that the masses would resent the wealth of the few, and too easily fall under the sway of the demagogue. (Heywood, 2002: 28) He therefore suggested a mixed constitution that combined elements of both democracy and aristocracy, and left the government in the hands of the middle classes, those who were neither rich nor poor. This shows little relevance today, however, because it is uncommon for middle classes to govern, this appears to be more of an idealistic view rather than a practical view in the modern world.

        Aristotle’s System in Contemporary Times

      4. Tom,
        From your link: ” Aristotle stated that “men think that what is just is equal; and that equality is the supremacy of the popular will; and that freedom means doing what one likes. In such democracies every one lives as he pleases … but it is all wrong; men should not think it slavery to live according to the rule of the constitution, for it is their salvation.”

        While I would not agree that a constitution could ultimately be a persons “salvation”, it certainly makes our stay on earth much more comfortable. Tom this gets to what I feel is the problem with the “ugly” Libertarians in regards to their potential issues with MMT/ELR. It is not a breech of ones liberties to live under a constitution and here you show how “their man” Aristotle said this himself!


      5. Matt, the ancient Greeks were living next door to “barbarians,” whom the the civilized Greeks considered barely human. “Civilized” derives from Latin civitas, meaning “city,” which corresponds to Greek polis, from which we get “politics.” Athens was a polis or city-state, and civitas in Latin was colloquially understood to be Rome. These were societies organized under laws, in which citizens had rights as free persons and responsibilities to society as citizens (Latin cives)

        The Greeks realized that the basis of true humanity is intelligence, which is the basis for reason and order. In society this is provided by law, not as arbitrary positive law, but as positive law reflective of natural law (cosmos). This is what constitutional government expresses, and it allows members of society to actualize their human potential not only as individuals but also as citizens acting in concert for mutual benefit. Indeed, the state was regarded as one’s second parent, as it were, without which one would be a barbarian. This is the thinking that led to the development of the concept of human rights, for instance, as well as public service as a matter of honor instead of a job.

        The founding fathers, being educated people, were familiar with ancient Greek thinking. We have to remember that at the time the world was emerging from the political domination of Christendom as the successor of the Roman Empire. While the Greeks were reacting to the barbarians, the founding fathers were reacting to a corrupt and oppressive monarchical government that was dominated by a landed aristocracy. The founding fathers were what we could call middle class now. They were neither poor people without property, nor were they aristocrats.

        They wanted to create a society in which individuals would be free but where public purpose was recognized, too. The preamble states the people are establishing the Constitution to form a more perfect union, as well as to promote the general welfare, and Article 1, section 8, states, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare…”

        Unless we understand the circumstances that led to the American experiment with democracy, we are likely to me confused and even misled. A lot of people are living in a fantasy world. regarding this. I have to laugh at the Ayn Rand libertarians, for example, many of whom envision themselves as John Galt, when nothing could be further from the truth. They are losers that should be thankful that we live under a constitutional government such as we have instead of the frontier economy they hanker after. They would never make it in such a world.

        The fact that most people don’t know much about the historical roots of the Constitution doesn’t speak well for how we are educating the young in civics, or the general level of discourse in the country, especially the media. As a result, people take a lot for granted and are unaware of how we got here and what is really involved.

    2. Tom Hickey: “I totally agree that neither pleading nor shaming are going to cut it. The debate needs to be conducted on the basis of operational reality, not myths lingering from the days of convertibility and moral arguments based on “fiscal responsibility.””

      The trouble is that talking operational reality loses your audience. I do not mean that you fib, but you build a bridge to ordinary people. Take the statement, “The federal government neither has nor doesn’t have money.” That is true, but confusing, especially to people who believe that the government takes and spends the money they pay in taxes, and who notice that deficit spending increases the national debt. To the penny!

      But what about this statement? “The federal government is the source of our money.” That is a half truth, as banks also create money, but you can say that, too. Now, if you think about it, the statement above follows from this one, but this one is easier to understand, and underscores the point that the government does not need to get money from elsewhere. Furthermore, it is something that I believed as a child, and I think a lot of ordinary people did, too. That helps with acceptance, whereas the first statement seems counterintuitive. Whenever somebody online says that the government needs money from somebody else, China, bond traders, the taxpayer, I respond that the government is the ultimate source of money, and have never gotten an argument back. 🙂

      1. Min, I think that the approach has to be two-pronged. It has to be normal (moral), on one hand, and factual (operational), on the other. Presently, progressive are presenting the moral arguments and then taking the deficit dove position, which undermines the ability to fund and sustain the programs they are advocating.

        We need to be able to explain the complexities of the MMT position more clearly and concisely to ordinary folks as well to the media, politicians, activists, etc. And keep repeating the message until it sinks in.

        What we have going for us is that most people would prefer to live under such a system rather than one that continually bows to the financiers and bond market.

      2. Tom, I was struck recently by something I read on the Web where the author, from the sound of it a long term liberal, gave his take on the financial bailout. It was this: We had the money all along. For so long he had seen social programs squelched and cut back because, it was said, we could not afford them. Suddenly, when Wall Street needs to be bailed out, the money is there, and quickly. It was an eye-opener for him. We had the money all along.

        Now, OC, we neither had nor didn’t have the money. But the line, that he had believed, that we could not afford social programs, was proven to be untrue. I think that that is the kind of line to take. I was disappointed that Obama did not use it for health insurance.

      3. Min, I think that the past decade has woken ordinary people up. Deficits for war and tax cuts were OK, massive deficits for bailouts were OK, but now deficits for social programs are not. One would have to be really dumb not to see through that. “Oh, we squandered the Clinton surplus on tax cuts for the rich, fought an expensive war of choice, and then bailed out Wall Street. Now, there’s no money for anything else, like, you know, SS and Medicare.” Right. That isn’t going to fly.

        I take that is an opportunity to explain to folks why deficits and debt are OK in terms of MMT. Once they get that we can afford it, in fact, can’t afford not to spend, then the question becomes, “What do you want to spend money for that contributes to public purpose?” Universal health care? Social security without having to tie it to a regressive payroll tax? Alternative energy? Infrastructure? Education?

        Then, we can have an intelligent political debate about allocation of real resources to public purpose and private use based on different political philosophies, norms, worldviews, interests, and incentives — without the confusion, obfuscation, and fear-mongering.

  3. “Social Security is not being attacked on its merits.
    Therefore the bleeding heart arguments will not prevail”.

    I have to disagree with you on this part, Warren. Remember, “when Pericles speaks, people say, ‘how well he speaks.’ but Demosthenes speaks, people say, “let us march!'”. You should check out Drew Westen’s book “The Political Brain”. In politics, a heartfelt story will trump a dispassionate explanation.

    And so it came to be that Drew Westen, a professor of clinical psychology at Emory University, flew from Atlanta to Washington early this spring. He explained to a caucus of Democratic senators, as Dorgan’s guest, his view that the most effective way to win over voters is to use simple language that engages the “frontal emotion circuits” of the brain.

  4. all good comments, thanks.

    i do give some probability to Obama and others having been duped.

    1. I suspect that the Rubinites are the chief Dem dupers. Larry Summers is by all reports one of the sharpest mind to come down the pike. Could he really not understand this, especially having served at Treasury? I don’t think so. OK, Summers is an academic. Maybe, just maybe, he doesn’t get it. But Rubin occupied top positions on the Street for decades and served in Treasury, too. Could he possibly be in the dark? This stretches credibility beyond its limits.

      OK, engineers do sometimes make design mistakes that lead to catastrophes. But that’s generally not because they misunderstand how physical reality operates. Is it credible that the people at the top of the financial system don’t know how it operates, considering they create all kinds of sophisticated instruments? I just can’t buy that.

      If this is due solely to ignorance, it is a failure of monumental proportions.

      1. I really have a hard time with belief systems that rely upon people being duped and people duping. And I say that in full knowledge of Madoff and North Korea.

        In general the Madoff’s and North Korea’s of the world are so surprising because they are very rare.

        I don’t think it’s likely Obama is either duping or being duped. I think the best explanation of his (and everyone else’s) behavior is he has certain core beliefs and values. Then he rearranges his world view to coincide with those beliefs and values. People can function for a long time with behaviors and actions that do not correspond with reality or nature. However when reality comes into conflict with core values and beliefs, and those behaviors are no longer viable, the first thing that usually yields is reality, not values and beliefs.

        I believe neither Summers nor Rubin nor Obama really ‘get it’ as you say. They simply understand the world differently than you.

      2. “I believe neither Summers nor Rubin nor Obama really ‘get it’ as you say. They simply understand the world differently than you.”

        When Obama says that the U. S. government is running out of money, that is ignorance, not a different world view.

      3. I believe neither Summers nor Rubin nor Obama really ‘get it’ as you say. They simply understand the world differently than you.

        Monetarily, theirs is a world view based on a convertible fixed rate system. I can believe that Obama is not economically sophisticated enough to realize this, but I do not believe it of Rubin, Summers, etc, who are bent on kissing the butts of Wall Street and the bond market.

        I think that they are being disingenuous, because we know that Rubin and Summers advised Clinton that he had to design economic policy to please the bond market, which results in the surpluses that led to massive private debt. This in turn benefited financiers and their Street punk cronies enormously, but it nearly brought down the economy in 2008 and still might do so if this is not fixed.

        Rubin and Summers recommended this policy on supposedly political grounds, but both went on to profit from this to the tune of millions through the revolving door. This doesn’t pass my smell test.

      4. No, when Obama says that the U.S. government is running out of money, that is lying, pure and simple. Not ignorance or a different world view.

        JCD does have a very good point though. We all create constructs and analogies to help us better understand abstract ideas. The construct that even knowledgeable people like Rubin use to understand government finance is their own personal experience in managing personal finances or the finances of a bank. Rubin of course knows that the Treasury is different from a bank, but he also knows that there are negative consequences to running deficits which are too large (tautology alert). So he uses the bank construct that he understands intuitively, in which too much debt can cause a run on the bank and, ultimately, failure.

        I still find it very hard to believe that Rubin and Summers don’t “get” it. Obama I can believe.

      5. Rubin has been in banking and finance all his adult life and he’s been Treasury sec. as well. As far as I as see, there is no possibility that he doesn’t understand money, banking, and financial operations. He did not get to the top on the Street flying by on intuition or for his good looks.

      6. Tom, I agree with you on Rubin, but do you really believe that he engineered surpluses in order to help his friends on Wall Street? I would think that budget surpluses hurt Wall Street. Wall Street wants lots of financial assets, good creditworthiness, high velocity, high inflation, lots of Treasury issuance. Large deficits redound to Wall Street’s benefit.

        I think a better explanation is that he knew that if he engineered surpluses (which he didn’t really; they just sort of happened accidentally; he just didn’t do anything to stop them), he would be thought of as one of the greatest Treasury secretaries of all time. That was more important to him than the health of the economy.

        For 15 years, I have been saying that Rubin was one of the worst Treasury secretaries ever, but it is a bit like spitting in the wind.

      7. I have met both of these men and they have no idea how any of this works I swear. Both ate actually quite smart and Rubin is also charming. Summers is arrogant and jerk

  5. “The Federal government will always be able to make all its payments including Social Security payments (Greenspan quote)”

    Hell, yes! Throw Greenspan at them.

    “The move to cut Social Security is an innocent fraud coming from a position of ignorance of monetary operations.”

    I take issue with “innocent” and “ignorance”.

    “It is coming from those who mistakenly believe that the federal government has run out of money, that federal spending is dependent on borrowing that our children will be left to repay, and that any deficit spending always risks hyper inflation.”

    To the extent that it is coming from the Obama administration, that may be true. You have spoken with Summers.

    “It is driven predominately by people who would support Social Security if they didn’t believe the federal government was on the road to financial ruin.”

    I do not think that they are the drivers. Look at the history of opposition to Social Security. Is it coming from the those who would support it if only they understood government deficits better? Rather, people like Clinton and Obama have been swayed by financial arguments. As a Southerner, Clinton was predisposed to believe, like Andrew Jackson, that federal debt is bad. What is Obama’s excuse? A belief in Harvard professors?

  6. “Government deficit spending = world dollar savings, to the penny…”

    bank has $10 in equity and I take out a $100 loan. I withdraw the $100 and default on the loan.

    Bank goes bankrupt, but I just increased world dollar savings without any gov’t deficit, no?

  7. “Spending begins to cause inflation only after all the unemployed have been hired and all the excess capacity is used up.”

    There was inflation in the past, yet there was never a full employment, was there?

      1. how is a supply shock / cost push inflation, especially in a primary input like energy, at all different from an excess demand inflation? Can it be contained? Wouldn’t $150 oil make almost everything more expensive?

        Given your definition, have we ever actually seen an inflation that resulted from excess demand (full employment and overproduction)?

    1. We experienced 20% inflation after WW2 (up until the treasury accord) as a result of excess demand due to government interest rate policy, not cost push inflation. That was the highest peace time inflation in our history, and greater than the oil shock.

      The inflation of 1980 cannot be blamed on the oil shock — all nations paid the same price for oil, but many had disinflation post 1974 whereas our inflation continued to climb. The effect of that oil shock did not extend for 8 years to 1982, even though the inflation did.

      We also experienced high inflation during war time, and this was not cost push, but the government seizing too many resources to fight the war.

      We also experienced inflation during periods of credit growth, with inflation > 5% just prior to the S&L real estate bubble bursting and inflation >5% just prior to the current real estate bubble bursting.

  8. seems to me the recent rise in cpi to over 5% was a direct result of rising gas prices, as it went up as they went up and fell after they fell.

    and in the 70’s cpi went up as crude went from $2 to $40 10 years later and fell as crude fell back to the $10- $15 range, and cpi was again very stable and reasonably low until crude started taking off again.

    after wwII there was an upward adjustment in prices when price controls were lifted and soldiers came home with all their savings, and the marshall plan helped as well.

    but given the magnitude of the wartime spending that price jump seems relatively modest to me.

    1. Perhaps it depends on your definition.

      Obviously inflation is rising costs, the question is are the costs rising because demand is expanding or supply is contracting. In the case of the oil shock, you have a clear case of supply contracting — the embargo. That is the only historical example that I’m aware of in which there is a clear case for cost push. And we’ve had a lot of inflation.

      In none of the other cases was supply contracting. But you are arguing that supply need not be contracting, in which case there doesn’t seem to be a difference between cost-push inflation and demand led inflation. Actually, I’m not sure how you would define the difference — it seems to boil down to oil. When oil prices are rising (which will happen when prices in general are rising), you determine that the source of all price increases is the rise in oil prices, rather than arguing that they are rising because of the excess in demand, along with all the other prices. Chicken and egg.

      And there doesn’t seem to be a way to distinguish whether there are real capacity pressures for oil or whether it is all price fixing all the time.

      If the latter was the case, oil would not have such enormous price volatility. The fact that it does tells me that there are real capacity limitations and that the Saudi’s cannot control the price. They can influence it, with mixed success, but at the end of the day prices for all goods seems to track wars and debt growth with a strong correlation, causing the price of oil to rocket up and down, and causing the prices for other goods which have more elastic demand to curves to shift up and down to a lesser degree.

      Of course, none of this has to do with whether we can afford social security or not. We can always afford, it’s a matter of priorities. And it would act as a flywheel for demand, which is a good thing.

      1. zimbabwe went into hyperinflation after severe negative supply shock, lots of other porlbems too of course

        i cannot think of too many thins beyond energy for cost push. maybe one day water?

      2. Yeah, I was thinking about U.S. history. Human history has a long experience of destroying our productive base for one reason or another.

        Water based inflation, huh? We’ll see. Maybe we’ll have inflation-based cost-push inflation, in which the amount of people talking about inflation inflates in response to a contraction in the supply of inflation as the crisis deepens. This could also be called “common-sense cost-push inflation”.

  9. Key—–RIEST! You guys.

    Ok, politicians need money to git elected so people with money use their money to “LOBBY” (Bribe) these monkeys. They have no morals and are led by the MONEY!

    Funny how people use certain laws that suit them but say that the government is corrupt (or misled), do any of you believe that the same government that has all of the scandals we read about can do anything fair or right?

    Now I got nothing against people with money unless they are using it to stack the deck, people with money do not belong in charge of the money supply and if you do not believe this see my second paragraph.

    The only way to fix this is a total reset, stick all of your fancy papers, open your eyes and start to care about people and the earth.

    Yes I am a dick

    1. Right. It’s a perversion of democracy. Nothing new, actually. Only more blatant recently. Both parties are corrupt, and wealth and influence have captured the apparatus of the state. The concern isn’t “socialism,” it’s corporate statism.

      Get the money out of politics and lock the revolving door!

      Then maybe we can play on a more or less level field.

  10. Mike,
    When you got him to admit this on air (probably back in 2008?), the wording started to quickly change from “solvency” to “sustainability” out of the Peterson people. Now it is all “sustainabilty”, all the time, to the point that this exact term has now spread over to Europe and appeared in the recent ECB press release and BOE’s King used it in a recent tabloid interview. This is a victory (only round one). Ive been thinking about how to attack “sustainability”….what is not sustainable? treasury issuance?

    This is another revealing quote here from Walker on 60 minutes: “The problem with Medicare, Walker says, is people keep living longer…” >very disturbing. Maybe we are really dealing with a bunch of depraved souls (closet Kervorkians) who want to euthanize our senior citizens thru policy. I advocate luring them back into the workforce (just part-time) thru fiscal (they are valuable members of our society!). Resp,

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