Boulder congressman Polis and social security
I had a chance to briefly talk with our local congressman in heavily democratic Boulder, Colorado today. Jared Polis spoke glowingly in support of the deficit commission and the ‘progressive’ nature of Obama’s appointments to it. (I disagreed.) He said increases in the retirement age were needed in order to ‘save’ social security. I suggested lowering the retirement age so as to help the massive unemployment rate. He laughed and said he didn’t see how we could afford it. Unfortunately I didn’t have a chance to argue that deficits don’t matter.
Leave it no doubt that most democrats are prepared to cut social security in order to ‘save’ it.
(Mr. Polis and I exchange comments below.)
Comments on Inequality 
As we discussed, I don’t expect any cuts to benefits under social security.
I do hope we put social security on long-term footing that keeps it health for the next generation.
I followed your “deficits don’t matter” link and tried to follow the argument, but I believe that deficits should matter to progressives (and conservatives).
When our federal debt increases, the percentage of our annual budget that goes simply to service the existing debt increases, reducing the amount available for all worthy public projects. This is particularly problematic if we “make money” which is inflationary which is what I think your deficits don’t matter piece suggests. So the more that interest payments eat up, the less progressive spending to fight poverty and improve education can occur.
Please keep an open mind about the commission. I think there will plenty in their recommendations that you like as well as not like. I think that this will be our biggest and most realistic chance to make a major change in the military expenditures that our government makes. If that’s not substantial, I would have a hard time supporting the recommendations myself.
Thanks for sharing your thoughts and please let me know what you think after the report is released in December!
Jared Polis
Mr. Polis,
Thank you for responding to my blog.
Unfortunately, increases in the retirement age do represent a substantial cut in benefits. Using back of the envelope calculations, if the average period of receiving benefits is 13 years under the current formula and the retirement age is then increased by 3 years, that would represent a true cut in benefits of about 23% (3/13).
Regarding the argument that deficits don’t matter, allow me to try to clarify. First, I recommend reading a brief article written many decades ago entitled Functional Finance and the Federal Debt by early Keynesian Abba Lerner. I’m sure he explains the concept far better than I. It’s online at:
Click to access functional%20finance.pdf
My primary point is that we as society do not need to access the bond market and increase our debt in order to spend. Put simply, we can print money. I know it seems unsound but it’s been proposed by many of the early Keynesians and also by an increasing number of economists today. It makes perfect sense. Printing money will not increase our debt.
Now it’s true that printing money at a time when we’ve reached full capacity in our economy would be inflationary. But that’s not what I’m proposing. I’m saying we should spend through money creation as long as there’s unemployment and unused resources. It’s very hard to make a case that spending at such times would be inflationary.
The focus on debt when there’s unused resources makes very little intuitive sense. How can society be in debt to itself? In reality borrowing is just a monetary reserve transaction that takes money out of the economy. A sound monetary policy for today would probably be for the Fed to pay off “debt” as there’s little reason to take money out of the economy. In fact, that’s exactly what the Fed’s been doing for the past year – i.e. “quantitative easing”. The Fed fully recognizes the monetary nature of national debt.
The Fed could start borrowing again when the economy becomes stronger if it wishes to drain excess money from the system. The key is remembering that borrowing is a monetary transaction and not a means of obtaining money in order to spend.
Regarding worries about interest payments, I think over a business cycle the debt would probably remain steady as the fed repaid borrowings when the economy was weak and borrowed when it was overly strong. But there are other ways it could be managed. A couple percent tax on wealth would eliminate the net cost of interest, for example. I think a particularly good idea would be to require all holders of substantial wealth to deposit a certain percentage as reserves with the Fed just like commercial banks do today. It would be a non-interest bearing account and could be adjusted by monetary authorities depending on its policy. Such reserves would pose no more risk to society than do the outstanding balances of commercial bank reserves held at the Fed right now.
These are of course radical ideas. But doesn’t the time demand something like them? Standard financial orthodoxy puts us into a cage where we end up accepting massive unemployment, austerity, and a vast under-utilization of our capacities as a society in order to avoid somehow going into debt to ourselves.
The question must be asked: What kind of society are we? Are we to accept massive unemployment as an inevitable cost of 21st century capitalism? Shouldn’t we all be embarrassed walking the streets of Boulder and seeing the increasing number of desperate homeless among us?
I’m extremely disappointed with the republican like orthodoxy of democratic thinking and, like all true progressives, am getting really tired of the standard politics where the average working American continues to get the shaft while a very slim slice of society does extremely well.
Thank you again for responding. I of course would be more than happy to continue a dialogue.
Best regards,
Jim O’Reilly
I will run your analysis by some economists.
Personally I don’t think we should accept massive unemployment OR massive debt.
Jared
I look forward to hearing from you and would be most interested in talking with them.
Jim
Congressman – good to see a real dialogue here. The problem is that it very much depends on which economists you talk to. I suggest calling on a University of Missouri, Kansas City or Levy Institute economist. L. Randall Wray, Scott Fulwiller, James Galbraith, Warren Mosler & Dean Baker (an expert on Soc Sec) would be good people to call.
Social Security already is on a healthy footing, the worst thing we could do for it and the economy is to make benefit cuts of any kind. The “fiscal problems” are in one word, LIES.
Mainstream macro-economics has gone backwards in the last thirty years, forgetting hard-won knowledge and replacing it with pseudomathematical pseudoscience. What Jim is proposing has very solid, but insufficiently popularized, academic science behind it.
In stark terms: Who won World War II? What got us out of the Great Depression? Economics & finance used then was much closer to what Jim proposes than the present orthodoxy. Although there was no emergency causing such single-minded policies, the economics of the era of postwar prosperity until Reagan was a lot better for the ordinary person, and better for overall growth, and worried a lot less about deficits than nowadays. It was closer to these proposals than current misguided decaying academic orthodoxy, which blithely assumed financial crises and depressions were a thing of the past.
The real problems are unemployment and growth. As Keynes said, take care of these and the budget takes care of itself. If you don’t fight unemployment now, you will get much more massive debt in the future than if you spent on fixing the economy now.
Good and valuable input Calgacus.