Great Leap Forward


The election tomorrow is a minor diversion. The real show begins on Wednesday (or whenever the “winner” is finally declared). That’s when Pete Peterson will move into the White House and begin to dismantle Social Security and Medicare.

The enemies of the social safety net have been softening up the electorate since the early 1980s, with a steady drumbeat of lies about Social Security and Medicare “running out of money”. Most folks have been duped. What they see is that both Democrats and Republicans agree that the programs are “unsustainable”. All the mainstream media has bought Peterson’s lies. And almost all economists are on board, too.

Wall Street hates these programs. Social Security gives workers an alternative to sending their retirement savings to Wall Street. Wall Street hates competition. They want the whole retirement shebang. They want to suck as many fees as they can out of your retirement savings, and then blow the whole wad on crazy speculative schemes that make them rich and you poor. That’s why they’ve always fought tooth and nail against Social Security retirement. They do not want you secure. They want you to live in crippling fear. They hate the whole notion of “security”.

And they hate Medicare, too. It offers an alternative to health insurance. Health insurance, too, wants to suck as many fees out of your paycheck as Wall Street’s insurance industry can get. And then they’ll deny the healthcare you need. That’s the way insurance works.

(As an aside, that is why I oppose Obamacare—just more fees for Wall Street, no healthcare unless Wall Street decides to throw some scraps to you.)

And that is why Washington claims these programs are going bankrupt. Peterson’s billions have bought the Beltway.

But here are the facts. Note that this is a blog so I am painting with a bit of a broad brush. The nitty gritty details are in a series of papers I’ve written (or co-written), many of which are available at

1. Social Security and Medicare are Federal government programs. The Federal government cannot run out of money. Period. All we have to do is to ensure that Congress allocates the funding, year after year after year. All the electorate has to do is to promise to tar and feather any elected representative who votes to cut funding. It is just that easy. Hold the feet of the politicians to the fire and these programs are sustainable. Forever.

2. On Social Security, the long range projections that show benefits outstripping program revenues rely heavily on increasingly pessimistic assumptions adopted by the Social Security Trustees over the years. This has been demonstrated by my colleague Max Skidmore. He showed, for example, that over the Clinton years when the economy actually performed better, the Trustees chose to adopt ever worse assumptions about growth. The fact is that projections over periods as long as 75 years are just plain silly. Jamie Galbraith, Warren Mosler and I prepared Congressional testimony arguing against this practice (available at Levy)—very small changes to assumption make huge differences in the distant future. But, more importantly, it just doesn’t matter—government doesn’t spend tax revenue, and it cannot go broke. Even if we have a payroll tax holiday forever, we can always “afford” Social Security.

3. The Medicare Armageddon scenario likewise relies on pessimistic assumptions. The scare mongers assume Medicare spending grows much faster than GDP. Carry that far into the future and Medicare’s promises will be bigger than GDP—all of our output will go to take care of the consumption of medical care by our seniors. So what? Stupid exercise. And here’s the bigger point: if healthcare costs really did continue to grow faster than GDP, all of our firms and households would go broke long before healthcare consumes all of our income. And, unlike federal government, families and firms can go broke.

Economists at the Fed have weighed in on the hysteria, carefully examining the CBO’s projections. Like me, they find the assumptions and the conclusions used in the CBO’s analysis to be implausible.

Here’s a good analysis of the Fed report, over at Naked Capitalism:

And here’s the original paper: Follette, Glenn, and Louise Sheiner, eds. (2008). An Examination of Health Spending Growth in the United States: Past Trends and Future Prospects, Fiscal Sustainability: Analytical Developments and Emerging Policy Issues vol. Apr. Perugia: Banca d’Italia.

Don’t believe the hype. Yes we are an aging society. We will need to devote a bit more spending to our growing retired population. And aged people need a bit more healthcare. But moderate economic growth will be sufficient to ensure that the burden on those workers of tomorrow will not be too great. And on all reasonable projections, those workers will have living standards higher than ours, even with the higher burden of taking care of our elderly.

Look, each generation of workers has to take care of the elderly. The way we provision for that is by putting in place the private and public physical and social infrastructure that we’ll need. If we don’t do that, then the future burden will be higher. I’ve joked that we basically only have two options: care for the elderly, or eat them–Soylent Green style. This is not a financial problem at all. Ignore all the talk about trillions of dollars of unfunded commitments. That cannot be the problem. The real problem is trillions of dollars of unfunded public infrastructure investment! Don’t gut tomorrow’s Social Security. Instead ramp up infrastructure spending.

Indeed, what is far more important is to ensure that we can all have rising living standards without destroying our environment—making life for future generations unpleasant, perhaps intolerable, and maybe even impossible. The slight rise in the share of output going to the elderly (that is, us!) is a drop in the proverbial bucket. We’ve got much more important problems to face.

So why the hype? Wall Street wants your paycheck. Wall Street just loves those automatic deductions—for retirement and health insurance—that keep the dollars flowing to fund their speculative schemes.

Just say no. Leave Social Security and Medicare alone. We need an alternative to Wall Street.


On a somewhat related matter, someone has produced a video on Warren Mosler’s book (recently revised), ‘The 7 Deadly Innocent Frauds’

Here’s the clever video:


If those links don’t work properly, try these

Try these links instead:



jonf34November 5th, 2012 at 8:47 pm

It really does seem so very simple. But most of the electorate seem to think we are nuts. Impossible!! We are fast running out of money.

Wall Street does want a paycheck from us. It could be a mistake to have a SS fund. It just gives them big ideas. Here again, some just think WS could do it so much better than the Government. The last ten years? Oh that was just a little mess up along the way but the market will earn you near ten percent over the long term, doncha know? Besides SS is just a ponzi scheme.

AndrewMGarlandNovember 6th, 2012 at 3:02 am

Social Security and Medicare were sold as self-contribution systems. People would contribute along the way to their own retirement and health care. Of course, it never operated that way. These programs have been managed as pure welfare systems. So, Mr. Wray embraces the touching, humanitarian principle that politicians should apply force to the younger populace to extract whatever is needed to keep the promises of politicians, promises made for votes.

This is the miracle of stealing more and more from each generation to forcibly pay to their parents, or to someone else's parents. This is a policy of enslaving the young by promising them the right, in turn, to enslave their young. This a Ponzi scheme with forced contribution. The scheme will come to an end leaving millions without their own resources and unable to steal their retirement from the wized-up young.

Mr. Wray blithley states that "the Federal government cannot run out of money. Period." Yes, in the technical sense that the government can pressure the Federal Reserve to supply as much money as politicians dare create and spend. But, watch the riots in Greece, Spain, and France as money-printing runs into the reality of no actual goods to collect and distribute.

Ponzy Schemes Like Social Security

In a confusion of policy, Mr. Wray applauds the government, then accuses "Wall Street" of being evil for bribing the government to do the wrong things. Those ideas conflict: a wise and benevolent government, already bribed by big business to be unwise and unbenevolent. Yet, the financial sector is already the most highly regulated part of our economy.

Further, the prosperity of the past rests in part on financial organization, arranging for investment and ownership to be applied to productive purposes. Mr. Wray wants this prosperity in the future, to pay to retirees, but without the actions of "Wall Street".

Wray: "The real problem is trillions of dollars of unfunded public infrastructure investment!" So, the government will now spend $trillions on "infrastructure". Its guiding hand will lead us to continuing prosperty. But, new bridges and roads will not make us all rich. So, what infrastructure is Mr. Wray talking about? Perhaps Solyndra. Perhaps there is a document "A Plan For Infrastructure Investment Leading to Future Prosperity". I think not.

bobolinkxNovember 6th, 2012 at 1:05 pm

Someone, please account for inflation (when deducted from earnings v. when received) and SS funds diverted to other accounts.

L. Randall Wray L. Randall WrayNovember 8th, 2012 at 4:03 pm

Andrew: This comment appears to be making some important points, but is a bit incoherent. A longer piece would make a great contribution to Troll Friday. Could you expand your arguments a bit, and send it. I’d be happy to post it and we could get a discussion going.

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