Today’s note is a follow-on to the one I published yesterday. In yesterday’s post, I wrote about the near-universal obsession with program “solvency” and the idea that we need to deal with looming shortfalls in order to protect Social Security (and Medicare Part A) for future generations. In one sense, that is true.
"As you might expect, [Senator Sanders] proposes to “pay for” these changes by raising taxes on high-earning individuals ..."
It concerns me that Sanders persists in using the "pay for" framing to discuss this, since that merely reinforces the (fallacious) notion that Social Security is "insolvent." The payroll tax will *always* be more regressive than the income tax. Progressive forces in the U.S. should not be reinforcing a spurious connection between the health of Social Security and the existence of the payroll tax-funded trust funds.
Kelton, you continue to think of an economy in terms of money. It's not about money, although as Friedman noted money is important sometimes. An economy is about production, not of money, but of valued goods and services.
Government is lousy at production of valued goods and services. By having the Fed keep filling up the government's bank account all we are treated to is an ever increasing waste of resources. Whether impoverishment arrives by taxation, funds or rather resources confiscated from the productive class and then wasted by government, or resources wasted in an inflationary frenzy via borrowed funds created by the Fed and spent by government, the noxious effect is the same.
Briefly, MV = PT in taxation sees M and V remain the same as P or Prices rise and T or Production falls.
If funded by the Fed , M rises and P or Prices rise as V and T remain the same.
You are taking a lot of flak these days for the inflation created by 2 years of production diminished Covid lockdowns. It's exactly like WW2 and its aftermath.
To simply say the Fed can print up more dollars to meet Social Security demands adds to the money supply without adding to valued production.
MMT has some interesting insights, but its reliance upon the idea that government can produce is its great failing.
Private banks create money for speculation all the time, which does not add to valued production. Social security recipients who need money to buy groceries are the unlikely cause of food inflation which has increased because of the rise of energy costs and the increased margins of corporations taking advantage of their price-setting powers. .
Lots of firms and individuals speculate. Banks, because of the nature of their business, take very restrained positions in such matters. They take the funds supplied by their depositors and bondholders and invest wisely.
So rising energy prices have nothing to do with the aftermath of government ordered lockdowns, just as falling prices had nothing to government ordered lockdowns?
Why do Social Security recipients need money to buy groceries?
"Companies see largest profit growth in nearly 50 years, Federal Reserve reports. (NewsNation) — The Federal Reserve reports U.S. corporate profits have surged 25%, which is the biggest annual increase in close to 50 years.Apr 6, 2022"
It's not about the past, the Post Covid, lockdown free past in which corps raised prices sharply as costs rose. It's about the future, and stocks are tumbling as the recession from all those price hikes moves in.
He's speaking about a period in which a number of companies enjoyed rich profits due to massive price increases post covid, a very fleeting, unusual situation at the tail end of a period of 2 years of pent up demand driven by a Covid lockdowns and a flood of Federal Government handouts. Those periods are rare and quickly disappear as we can all see in its aftermath.
Anyone who knows a smattering of economics understands what is happening. It occurred in the period post WW2, but not on such a scale as then.
A major issue running up to the 2008 financial crisis was banks lending vast sums to unworthy borrowers. The two biggest lenders or rather buyers of mortgages were Fannie Mae and Freddie Mac, mortgage lenders originally set up through Congress and privately owned, directly controlled by the Federal Government since 2008. They led the banks in greatly expanding mortgage lending to lesser borrowers via new banking rules created in a stupid attempt to combat racism, which played its part.
The banks were good at selling mortgage backed securities to pension funds and other lenders. But eventually even they got caught when markets soured and the housing market collapsed.
By driving up the price of homes by lavishing funds on owners and less worthy homebuyers, a crisis eventually came that left a number of financial institutions vulnerable to failure. So the Fed stepped in with a massive bailout.
We are on the precipice of another financial collapse. but this time it shall be nations rather than financial firms.
I never thought I would agree with Mr. Sanders, but I do here. Getting rid of the tax cap could be a great thing, but it shouldn't be billed as another tax for the rich. It's a way for the wealthy to help their fellow Americans. Wealthy people always talk about taking giving pledges and philanthropy. I think contributing to Social Security could be the same thing. Here is a blog I wrote about Social Security: https://www.jonathangreeson.com/2021/03/23/will-social-security-run-out/
I’ve been a FDR fan forever, as a flawed and yet an amazing leader. I very much appreciate your points. Thank you!
"As you might expect, [Senator Sanders] proposes to “pay for” these changes by raising taxes on high-earning individuals ..."
It concerns me that Sanders persists in using the "pay for" framing to discuss this, since that merely reinforces the (fallacious) notion that Social Security is "insolvent." The payroll tax will *always* be more regressive than the income tax. Progressive forces in the U.S. should not be reinforcing a spurious connection between the health of Social Security and the existence of the payroll tax-funded trust funds.
Kelton, you continue to think of an economy in terms of money. It's not about money, although as Friedman noted money is important sometimes. An economy is about production, not of money, but of valued goods and services.
Government is lousy at production of valued goods and services. By having the Fed keep filling up the government's bank account all we are treated to is an ever increasing waste of resources. Whether impoverishment arrives by taxation, funds or rather resources confiscated from the productive class and then wasted by government, or resources wasted in an inflationary frenzy via borrowed funds created by the Fed and spent by government, the noxious effect is the same.
Briefly, MV = PT in taxation sees M and V remain the same as P or Prices rise and T or Production falls.
If funded by the Fed , M rises and P or Prices rise as V and T remain the same.
You are taking a lot of flak these days for the inflation created by 2 years of production diminished Covid lockdowns. It's exactly like WW2 and its aftermath.
To simply say the Fed can print up more dollars to meet Social Security demands adds to the money supply without adding to valued production.
MMT has some interesting insights, but its reliance upon the idea that government can produce is its great failing.
Without the money creating Fed, MMT is toast.
Private banks create money for speculation all the time, which does not add to valued production. Social security recipients who need money to buy groceries are the unlikely cause of food inflation which has increased because of the rise of energy costs and the increased margins of corporations taking advantage of their price-setting powers. .
Lots of firms and individuals speculate. Banks, because of the nature of their business, take very restrained positions in such matters. They take the funds supplied by their depositors and bondholders and invest wisely.
So rising energy prices have nothing to do with the aftermath of government ordered lockdowns, just as falling prices had nothing to government ordered lockdowns?
Why do Social Security recipients need money to buy groceries?
The profits of firms are going down, not up!
"Companies see largest profit growth in nearly 50 years, Federal Reserve reports. (NewsNation) — The Federal Reserve reports U.S. corporate profits have surged 25%, which is the biggest annual increase in close to 50 years.Apr 6, 2022"
It's not about the past, the Post Covid, lockdown free past in which corps raised prices sharply as costs rose. It's about the future, and stocks are tumbling as the recession from all those price hikes moves in.
So it's only about the past when it supports your flawed arguments. Got it.
He's speaking about a period in which a number of companies enjoyed rich profits due to massive price increases post covid, a very fleeting, unusual situation at the tail end of a period of 2 years of pent up demand driven by a Covid lockdowns and a flood of Federal Government handouts. Those periods are rare and quickly disappear as we can all see in its aftermath.
Anyone who knows a smattering of economics understands what is happening. It occurred in the period post WW2, but not on such a scale as then.
You GOT nothing. Try harder!
I'm sorry, who caused the 2008 financial crisis? Seniors on social security, or reckless speculation in sub-prime mortgages by banks?
A major issue running up to the 2008 financial crisis was banks lending vast sums to unworthy borrowers. The two biggest lenders or rather buyers of mortgages were Fannie Mae and Freddie Mac, mortgage lenders originally set up through Congress and privately owned, directly controlled by the Federal Government since 2008. They led the banks in greatly expanding mortgage lending to lesser borrowers via new banking rules created in a stupid attempt to combat racism, which played its part.
The banks were good at selling mortgage backed securities to pension funds and other lenders. But eventually even they got caught when markets soured and the housing market collapsed.
Read all about it: https://www.theatlantic.com/business/archive/2011/12/hey-barney-frank-the-government-did-cause-the-housing-crisis/249903/
By driving up the price of homes by lavishing funds on owners and less worthy homebuyers, a crisis eventually came that left a number of financial institutions vulnerable to failure. So the Fed stepped in with a massive bailout.
We are on the precipice of another financial collapse. but this time it shall be nations rather than financial firms.
I never thought I would agree with Mr. Sanders, but I do here. Getting rid of the tax cap could be a great thing, but it shouldn't be billed as another tax for the rich. It's a way for the wealthy to help their fellow Americans. Wealthy people always talk about taking giving pledges and philanthropy. I think contributing to Social Security could be the same thing. Here is a blog I wrote about Social Security: https://www.jonathangreeson.com/2021/03/23/will-social-security-run-out/