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Greenspan promoting “Entitlement” cuts as the necessary solution to the economy. 25% worth!

From an interview on NPR’s Here and Now comes:

“The official actuaries of the Social Security system say in order to get our Social Security and retirement funds in balance, they’d have to cut benefits by 25 percent indefinitely into the future,” he says. “Do I think it’s going to happen? Well I don’t know, but this is one of the reasons why inflation is the major problem out there. So long as you don’t do it, you’re going to cause the debt overall — the total government debt — to rise indefinitely, and that is an unstable situation.”

He adds: “In the book … discussing what the long-term outlook is all about, we say that the issue of the aging of the population and its consequences on entitlements is having a significant negative deterioration over the long run. The reason for that is what the data unequivocally show is that entitlements — which are mandated by law — are gradually and inexorably driving our gross domestic savings, and the economy, dollar for dollar. And so long as that happens, we have to borrow from abroad, which is our current account deficit.”

He also said:

“When you deal with fear, it is very difficult to classify,” he tells Here & Now‘s Jeremy Hobson. “But you can look at the consequences of it, and the consequence is basically a suppressed level of innovation and therefore of capital investment and a disinclination to take risks.”

I agree with this, but not just as it relates to “ a suppressed level of innovation…” but instead as it relates to the 2005 World Bank report on what produces wealth in a developed economy like ours. It comes down to trust.  Trust in your judicial system and trust in your education system.   I discuss this in the following 3 posts: 2007, 2009, 2011

Human capital is where it’s at!

This election at it’s core is about trust.  Destroy that, and we have no democracy, we have no economy.  It’s that simple.   That McConnell et al has decided he will not abide by the rules agreed to in conducting the business of the Senate means we have no currently functioning democracy.  That is how fragile democracy in the US is.  Our democracy comes down to two people, the leaders of each party in the Senate agreeing to the rules.  When one decides not to, there is nothing that can be done other than vote.

You can hear the full interview here:

 

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Comments (10)

  1. Sandi

    Trust – I could’t agree more. Thanks for shining this light.

    Paul Krugman has been pounding the drum for years about the GOP’s repeated con game of creating deficits when they are in power, then running through the room with their hair on fire on how deficits are going to be our downfall and so we MUST, MUST, MUST cut entitlements. And yet we never seem to catch on.

    It seems to me we should make all income, not just wages, subject to FICA. Of course we could never touch what gets shipped off-shore anyway, so we’d just have to let that slide, I suppose……..still, as long only the ‘wage slaves’ are taxed, things will only get worse.

  2. Karl Kolchak

    You still have trust? I gave that up after the Iraq War, the bailouts the Obama Betrayal and Citizens United. Now I just assume the worst, no matter who is in power, and rarely am I disappointed.

  3. likbez

    Greenspan made his career on Social Security acting as a shill of financial oligarchy. “Greenspan commission” raised Social Security taxes, which allowed to finance subsequent wars in 1983.

    https://dissidentvoice.org/2010/04/how-ronald-reagan-and-alan-greenspan-pulled-off-the-greatest-fraud-ever-perpetrated-against-the-american-people/

    This was one the first substantial neoliberal reforms enacted.

    == quote ==
    If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

    1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

    2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

    3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.
    == end ==

  4. Arne

    Likbez,

    After your ==end== comes:
    “4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything.”,

    which is horseshit.

    Social Security surpluses were invested in Special Treasuries, which is how it has been seen 1939. The interest income is why the Trust Fund is still increasing even though costs exceed payroll taxes. From 1975 to 1981 the Trust Fund was decreasing. Special Treasuries were not net being “redeemed” then as they will be sometime in the next decade.

    The Greenspan Commission made a combination of benefit cuts and tax increases to keep SS in balance for about 50 years. We will need to make changes to SS again in order to keep it as a successful program that allows workers to take care of workers. (Simply raising payroll taxes incrementally over time will work.)

    There is no permanent fix because conditions change. Claiming that previous adjustments were a hoax just obscures the reality that we need to be able to make more adjustments in the future.

  5. Arne

    I would say that a result of the Greenspan Commissions recommendations was to allow many people to think they had fixed it forever when the commission knew they had not.

    It would have been much better to set a goal for when we would know enough to make additional adjustments. In retrospect, that date should have been somewhere between 2005 and 2015.

    • run75441

      Arne:

      Something along the lines of 10 year adjustments up or down as we had discussed in the past. Not let it get too big and neither let it slip below two years in reserve.

  6. ilsm

    Arne

    Those special treasuries are note that sent cash somewhere….

    the cash largely went to billowing pentagon suppliers’ profits and sand in the middle East up.

    What if the total US debt were not approximately the inflation adjusted war spending since 1947?

    The cash from ‘selling’ SS spec treasuries to the trust fund should have built schools, roads, airports and hospitals, not F-35’s!

  7. rjs

    i thought Greenspan had argued for the original Bush tax cuts because he felt that Treasurys in circulation wold fall too low to sustain the economy…

  8. Arne

    Ilsm,

    I can’t disagree that the borrower could have chosen better ways to spend, but Special Treasuries do for SS what they are intended to do.

    Rjs,

    If the surpluses had continued the trend from the final Clinton years, the SS Trust Fund could have become larger than the on-budget debt. I think that would have been a problem. Unfortunately, such ridiculous extrapolation is often taken seriously. (or used fraudulently)

  9. Off The Street

    When I read Greenspan’s ideas, I note the absence of discussion about offshore tax havens (Jersey, Caymans, Panama et al), trusts and other evasion techniques. US leadership through the OECD or similar approach in closing access to those would restore some semblance of equity no matter how slight. The average person does not have a chance in a rigged game, as Shaxson and others have documented.

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