The pundits are in overdrive on the subject of the so-called entitlements. The theme of conversation is fairly simple;
- Greece and Portugal are broke
- Greece and Portugal are large welfare states
- The U.S. welfare state is large and growing
- The U.S. will soon be broke
- We need to dismantle the U.S. welfare state
The pundits certainly are in overdrive, and proving every day that speed does in fact kill. The ultimate target of this theme, a theme being driven through financial reporters who got F’s in their ECON 101 courses, is the privatization of Social Security and Medicare. Never mind the brief use of Medicare as a tool for the right in its fight against health care reform. That was then, this is now. Privatizing the two pillars of the U.S. retirement system would drive $2 trillion or more annually, into the hands of Wall Street investment concerns. We have all seen how much profit those boys on the Street can generate even while they are losing their investor’s money. Combined with Grover Norquist’s push to strip away taxes and Americans making more than $250,000 per year, and you get a $2.5 trillion Wall Street windfall; an annual bailout if you will…and a redistribution of money away from the working class.
“But private investments and good, conservative savings work! Right?” No, not exactly. If you are lucky enough to reach your mid-50’s at a time when the market is cresting, you can begin converting your stock wealth into reasonably secure bonds and, probably, retire with dignity. If you have been able to save enough. If bonds remain secure. Given a retirement at a time of market instability, like for example, any time when the market becomes “skittish” over the antics of a barely relevant (in an economic sense) nation halfway around the world, then you might not be as fortunate. The baby boomers are now retiring with little more than their social security income to bank on.
“But, Social Security is going broke. The fund is costing more than it is taking in!” Wrong again. Social Security is doing just fine, thank you, and will be able to pay full benefits until at least 2037 with no adjustment. After that, the program could pay at 75% for many years into the future, again with no adjustment. Of course, the difference between inflow and outflow over a 75 year window is just about 1% of GDP, meaning an adjustment on Social Security is very feasible. Speaking English, Social Security is fine, and the people that tell you different are under-informed or lying.
“But, what about Greece and Portugal…WHAT ABOUT THE DEBT CRISIS!!!” What debt crisis? Friends, our debt right now is 60% of GDP. I will bet that your personal debt is over 200% of your personal GDP. The Japanese debt is over 110% of their GDP, and their interest is just 1.5%. After WWII, our debt was over 100%, and we had good economic growth and prosperity (come to think of it, our taxes were a lot higher than they are now also…but that is another post). Greece and Portugal have structural problems that are impossible to address because they do not control their own currency. Investors are still running to U.S. debt because it is a good investment, and the ability to monetize debt (print money), or the use of quantitative easing (buying and holding debt), are available to ease any crisis should one occur. Please note that Sarah Palin twittering about unsustainable debt is not actually an economic marker; it is just hot air.
“But, if we monetize or buy and hold, won’t that cause inflation? INFLATION IS EVIL!” OK, lots of inflation is bad, but no inflation is worse. You like pay raises, don’t you? That is inflation at work. Inflation happens when the money supply is at high levels relative to the amount of idol capacity in an economy. The stimulus bill was not large enough to return the economy to full employment; it is like a jug of water friends, if you don’t put enough in to fill it, you can’t possibly overfill it. The money injected via deficit spending into our economy will start causing inflation in the years to come, after people go back to work and start spending again.
We have all of us, seen this act before. Take a good luck at the programs, like Social Security and Medicare, that the deficit hawks will try and kill. Then take a look at your tax bill next year and in the future. In fact, look backwards; have all of these tax cuts helped your family? Has your family’s discretionary income (after taxes and rent/utilities/food) gone up over the last few years of tax crusading? Follow the money to find the motivation friends. The media types and Tea Party love to talk about debt and deficit, because they know we Americans care about our country and because they know we are having our own private debt nightmares. But the attention they are paying this subject isn’t for the benefit of working class Americans. Their distortions are visible with the light of simple arithmetic; their motives become visible when you follow the money.
The Rational Middle is listening…