You Want To Cut Social Security for My Kids and Grandkids, So You Can Do What?
Mike Allen in the Politico Playbook reports that he hears from the Administration that the members of the mis-named National Commission on Fiscal Responsibility and Reform may be nearing a deal “around a package on Social Security.” The money quote is:
The virtue of action on Social Security is that it demonstrates the ability to begin to affect the long-run deficits. Social Security isn’t the biggest contributor to the problem – that’s still health-care costs. But it could help a little bit, buy time, and strengthens the odds of a political consensus behind other spending cuts or tax increases. Most importantly, it would establish more CREDIBILITY with the MARKETS. The mood of the world at the moment (slightly excessive, from the administration’s point of view) is that if you don’t do anything with spending cuts, it doesn’t get you credibility.
So, let's see now, the Administration and the Commission will propose changes in Social Security, most likely including spending cuts that will fall on my kids and grandkids, primarily because legislating these cuts “. . . would establish more CREDIBILITY with the MARKETS.” And just why is that important for me and mine?
Well, the Administration, CBO, other Government forecasters and neo-liberal economists everywhere, are worried that if we don't have such credibility, “the markets” will raise rates on the Treasury Bonds the US sells to “fund” the national debt. In fact, projections based on CBO say we'll have $11.8 Trillion in interest costs between now and 2025, if we don't maintain “credibility.” But, this chain of reasoning is based on the idea that the US Government must sell Treasury Bonds to “fund” its deficit spending; that it has no other choice, and that is why we must have “market credibility.
But, the idea that we have no other choice is a fairy tale. To see why let's begin with what Marshall Auerback says today, in a piece in New Deal 2.0 on Mike Allen's “revelation”:
. . . consider the following question posed by my friend, Professor Bill Mitchell: If a government bond auction “fails” (i.e. the government doesn’t find enough buyers for the paper it issues during that particular sale), does this mean that your Social Security cheque is going to bounce? Will national infrastructure projects be suddenly halted because the net spending is not “funded”? Do we have to stop fighting a war in Afghanistan? The answer to all of these questions is the same: Of course not! The net spending will go wherever the Government intends it to go - after all the Government needs no funds to spend because it first creates the currency which is ultimately required to be spent in the real economy. The private sector does not produce dollars (if it did, it would represent a jailable offence called counterfeiting).
Randy Wray makes the same point from another perspective:
The anti-deficit mania in Washington is getting crazier by the day. So here is what I propose: let’s support Senator Bayh’s proposal to “just say no” to raising the debt ceiling. Once the federal debt reaches $12.1 trillion, the Treasury would be prohibited from selling any more bonds. Treasury would continue to spend by crediting bank accounts of recipients, and reserve accounts of their banks. Banks would offer excess reserves in overnight markets, but would find no takers—hence would have to be content holding reserves and earning whatever rate the Fed wants to pay. But as Chairman Bernanke told Congress, this is no problem because the Fed spends simply by crediting bank accounts.
Yes, the Treasury/Fed combination spends simply by crediting bank accounts, and its spending, taxing, and borrowing operations are all operationally independent. Also, one effect of deficit spending without borrowing would be to flood banks with overnight reserves and to drive the natural interest rate down to near zero. So, in short, there's no need for the Treasury to borrow against the national debt, or to do anything else than gradually retire it as it falls due while continuing to deficit spend. If it does that, then, obviously, the US won't have to worry about its “credibility with the Markets.” In fact, the markets will have no power to increase our interest costs at all. Selling Treasury Bonds, paying interest on them, and maintaining the national debt, is, therefore, a choice our Government makes. It is not a necessity. It is a hangover from the old gold standard days, that we can do without.
Earlier today, Scarecrow, also commented on the Mike Allen “revelation,” and on the Administration's “problem” posed by Social Security which he called a “massive scam.” He also said;
. . . the "biggest contributor to the problem" is a President and White House team willing to form a secret commission, led by ignorant clowns and stacked with too many people with anti-democratic biases and little understanding, none of whom have to worry about retirement security, and allow them to recommend the degree of retirement insecurity for already insecure seniors, with no political accountability ever, and then have the White House Coward in Chief front for this anti-democratic process and anti-Democratic agenda and feed a useless, tantalizing tidbit to an unquestioning stenographer who doesn’t understand anything about the "deficit" issues, thus faithfully representing the Beltway media.
And why are we celebrating a calculated leak from a secret commission conducting the public’s business that affects tens of millions of our most vulnerable citizens behind closed doors? Open it up, or shut it down.
Yes, indeed. “Open it Up, or shut it down.” But I'd go even further. Let me review my understanding of what the Commission and the Administration are really saying to me and mine, and to other Americans as well.
We're proposing changes in Social Security, most likely including spending cuts, that will fall on your kids and grandkids, primarily, making life tougher for them, and perhaps causing them to retire later in life, because legislating these cuts “. . . would establish more CREDIBILITY with the MARKETS”. We need to establish this credibility because we want to prevent the market from raising interest rates on US Treasuries in future years, resulting in interest costs that will crowd out other Government expenditures. We could, alternatively, make no changes to Social Security, and avoid the problem of credibility with the markets and rising interest costs, by ceasing to issue debt instruments, e.g. Treasury Bonds in the future. But we'd rather not do that, because we'd have to stop paying China, Japan, other foreign nations, and, mostly, wealthy Americans an interest return on their favorite safe harbor investment instruments, our Treasuries, and it's more important for the US Government to pay these nations and people an interest return, than it is to provide adequately for you working Americans in your retirement years.
This argument, of course, not only applies to the proposed cuts in Social Security, but, in addition, and in slight variations, to all cuts to be proposed by the Commission related to the social safety net, and even to discretionary spending that we need to fulfill the future needs of the American people. Because in every case, we can always point out that any justification for cutting Government spending on grounds that it will destroy credibility with the Markets, and drive up interest rates, means putting the priority of paying interest to China, Japan, wealthy individuals, etc before Government spending to fulfill the needs of the American people.
Somehow, I don't think that a story like this will be very acceptable to the American people as a justification for cutting Social Security and other entitlements for our kids and grandkids. And so, I say, forget about opening up the Commission. Just end it. Shut It Down. Send Alan Simpson, Erskine Bowles, Alice Rivlin, and the rest, home for good, and let's get on with the business of getting the rest of the country back to work!