It most certainly can, it’s not a law that GDP is as skewed to Consumption as it is, and that the savings rate floats around 0%. In fact the savings rate used to be in the mid single digits.
There is some truth in what you say. SS contributions and benefits were not included in a unified budget until the 60’s when it was used to mask the true government deficit caused by the Vietnam war. We can’t turn back the clock and going forward the program will be cash flow negative. Under your philosophy any form of government borrowing is unethical as all that supports it is a promise. Do you think its unethical for the government to be providing any type of COVID relief payments?
But, what do we “save”? The US doesn’t have warehouses full of soup cans, filled by workers “saving” 40 years ago, to be withdrawn today so retirees can have lunch.
Your savings are paper promises of some share of some future workers’ output.
Which generation is that? Over the history of SS, almost all the tax money collected was paid out to SS beneficiaries relatively soon after it was collected. The amount “loaned” to the General Fund, which might have been used for wars, was a small fraction of the total.
We would have all the same problems with SS today if the “trust fund” had never exceeded a year’s benefits.
I wouldn’t go that far. For one I think it’s reasonable for the government to borrow from future generations to build infrastructure, since we’re investing in the future of the country which future generations will be the beneficiaries of, although of course we’re still fiduciaries to said future generations so should be careful in when and where we invest.
Also things like COVID relief payments are similar shocks that can warrant government help to prevent us from simply making the country worse than we found it. But for things where we promise ourselves benefits I think we should ensure we’re also putting aside the assets (or annuity stream of payments) to match those obligations, and potentially reducing those obligations if we’re unable or unwilling to put aside the money, thus not giving social security to wealthy people is a good start. And reducing the military budget/increasing taxes would be another good move.
Not to say we need to run a balanced budget (although I think a balanced budget over something like 7 years would be a useful thing to try and incorporate), especially in a growing economy it can make economic sense to run a deficit, but that’s a far more nuanced situation than what we’re in and relies on the premise that the deficit spending is towards things that generate economic multiples, not simply cash transfers (like I’d call this recent tax cut unethical too…).
I’m lost here. You’re somewhat against what? The fact that SS has been paygo almost since its inception?
Right it has paid out to beneficiaries as it has gone, but the amount paid in has never been sufficient. My mom will make the same argument “I’ve been paying in all my life!”. Right, you paid in enough to receive $0.50 of what you’re getting, or however the math works out. We should eliminate the benefit for the people who don’t need it and give the $1.00 to the people who do so we match the assets put aside to pay for it.
We’re actuaries, maybe you could show your math.
It’s interesting that some people complain about SS because they think the benefits they are likely to receive are too small relative to the taxes they pay. You seem to be on the other side.
I agree that if we paid less to the “better off” we could pay more to the “less well off”, or cut taxes. That’s why I support flat benefits.
But, means testing based on after retirement means has serious problems. Some people who could save will choose not to because their after means-tested-SS return is too low. Others will build a massive industry of asset/income hiding.
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The depression, when the system was started could also be characterized as a shock that warranted government intervention. For those that don’t like the current system W Bush put up a few trial baloons about changing and quickly abandoned that plan.
I know it bothers a lot of actuaries that benefits are not actuarially equivalent to contributions. All I can say is suck it up. There is no way the system can be changed without without expropriating the benefits that have already been earned.
I say the same about the Defense budget. I don’t want to eliminate it, though, just drop 1% or 2% per year for about 50 years. That would at least solve the SS and Medicare shortfalls in the total budget.
No, I’m not doing the math.
Oops, I’ll go back and edit my post.
I meant: I’m willing to oppose SS philosophically, if the injustice of who pays/receives makes people like Ranger feel bad.
As in, I’m willing to take his feelings into consideration. Taking care of old people in an optimal way is important to me, but not all that important.
After reading several books about Modern Monetary Theory I have a really hard time having this same old debate about the debt. The debt doesn’t matter, inflation matters. Why is this true? Because the Federal Reserve could turn every single US Treasury Bonds into US $'s tomorrow and the only thing that changed is there is no interest being earned on those deposits. The debt is gone, no inflation happens, and nothing changes so these conversations about borrowing from our children are nonsense and unproductive.
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One point that is often lost in the conversation about SS is that if we remove it, we all need to think about how we might need to be providing some sort of financial help to our parents when they are older. We are an individualistic society, not a familial society like many other countries that often take care of their elderly parents. That culture would need to shift.
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When we turn every dollar of debt into money, why doesn’t that lead to massive inflation?
It seems that be equivalent to never issuing any debt and simply funding the deficit with newly printed bills. I thought other countries had hyper inflation when they did that.
Inflation is your guidepost for when you are overspending not debt. That’s the way government spending should be viewed.
As for turning treasuries to cash and why that wouldn’t lead to inflation is that if the holders wanted to spend the money they could. The market for US treasuries is extremely liquid so it’s not obvious inflation would follow. Ownership of a treasury bond is basically a savings vehicle. You turn it from a low interest bearing account to a no interest bearing account. In reality that is all the Fed would be doing.
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The game where the points don’t matter.
It’s a theory that relies on making bold assumptions based on a very short period of time. I’m not quite ready to assume we could borrow without worry and have all these gentle signals as inflation creeps up. There are far too many examples in the world of that failing catastrophically.
The depression warranted massive government investment in infrastructure. We sort of did that, but that was separate from SS/Medicare. I’m not saying we can’t have this nice safety net, I think we should just pay for it. And I’m not a stickler that we have to line item pay for SS, but it’s easy to point at SS and Medicare when they’re huge parts of the budget that give out money not based on any kind of need, simply based on some supposed right to benefits because of earlier promises.
Ofc the military budget is another massive place we should be cutting. Over and over in history empires spend themselves to death on the military. Honestly we could probably leave SS unchanged if we cut the military budget, which I’d be fine with, these are all just things we’ve promised ourselves without deciding to pay for them (where the military budget is where we get to feel all mighty and powerful for reasons)
I’ve got too many questions…
What happens when inflation goes up. Does the gov’t raise taxes and cut spending so it can run a surplus.
When we cut/eliminated tariffs on Chinese imports, we replaced a lot of high paid US workers with low paid Chinese workers. That helped keep prices down. Does that justify more gov’t borrowing.
Some day, some external force (say war that destroys a lot of oil pumps) will cause inflation to go up. What do we do then. Note that we have experience on this with the Arab Oil Embargo in the 1970s. What would MMT do differently in that situation.
Foreign investors are willing to hold $US denominated securities because they believe they will someday sell them and buy stuff with dollars. What if they get nervous about US inflation and decide to move to “safer” currencies.
If we tell borrowers they now have non-interest bearing dollars instead of interest bearing bonds, I’d expect some of them to say ‘Thanks, but I think I’ll trade my dollars for some interest bearing bonds issued by someone else’. What happens to US prices when lots of people are trying to unload US dollars at the same time.
I have the notion that international capital markets have a strong herd component. Lots of smart people are willing to take a little risk, thinking that their antenna are good enough that they will see any problems on the horizon and be the first to get out. That sets the system up for a self reinforcing, vicious downward spiral. When things go down, they can collapse far quicker than any gov’t can adjust.
Yeah but we are talking about taking spending away that is already happening year in and year out without causing inflation. Why would we remove that? I would also argue we are already doing it we just talk about it like we’re doing something else. Why do we talk about it the way we do? Because it’s easier to say I don’t like this because of the debt it creates than to say I don’t like this because I don’t want poor people to have healthcare.