Greenspan: "We can guarantee cash benefits as far out and at whatever size you like"
FEBRUARY 16, 2005 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, UNITED STATES SENATE
GREENSPAN: I think we should maintain the principles of Social Security, but I think the existing structure is not working, and that until we can construct a system which creates the savings that are required to build the real assets so that the retirees have real goods and services, we do not have a system that is working. We have one that basically moves cash around, and we can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power. This is why the issue ultimately has to be resolved in terms of do we have the material goods and services that people will need to consume, not whether or not we pass some hurdle with respect to how financing occurs, because the financing is a secondary issue, and it is the means to create the real wealth, not an end in itself.
4 comments:
Greenspan is just playing with words, as are MMTers who express the same idea. That is, “financing” is not a “secondary issue” as Greenspan suggests. Reason is that in order to “make available the material goods and services that people need”, it is necessary to supress the consumption of “goods and services” by the better off, assuming the economy is already at capacity. And suppressing that consumption is done via “financing”: i.e. taxing the better off.
Of course if the economy is NOT AT capacity, then there is a free lunch to be had: stimulus (which costs nothing in real terms) can be implemented and as a result more people find work.
As for the allegedly difficult problem Greenspan refers to, i.e. “do we have the material goods and services that people will need to consume”, that is a complete non problem. If the less well off are given cash, they can then spend that on food, housing, clothing, etc. When customers demand food from farmers and convenience stores, and are offered cash for those products, farmers and convenience stores will produce relevant products. Do I get a Nobel Prize for that insight….:-)
The big flaw in Greenspan's thinking is that saving causes investment instead of vice versa. It affected his analysis of the GFC, too.
He was not alone in attributing the GFC to a "savings glut" (purchase of US bonds) to fund the deficit. Most economists believed that the "savings" were then used to finance the asset bubble in the US and elsewhere.
But he does understand that the US government does fund itself through its central bank, the Fed, to which Congress has delegated exclusive currency issuance. Other US banks don't issue currency but extend credit denominated in the unit of account that the government establishes (USD). This is a key insight of MMT that most economists either miss or are in denial of. But apparently Greenspan got it.
Ralph sees MMT the way I do - that nothing is for nothing, and society will have to work to produce the products and services that the government buys. When there is no inflation, it's a free lunch, but I can't see how inflation won't set in pretty quickly. But I'm not an economist, so I haven't put the role of bond markets into my thinking of MMT, or anything else which might bring inflation down. I'm told to read Wray's book on MMT, which I have bought.
Warren Mosler says the national debt is not a problem, or a burden on future generations, because the government can simply print the extra dollars - so no need for taxes. But what happens when people try to spend those dollars into the economy, will inflation occur and then more taxes are needed?
By taxing the better off, we are taking away some of what they could have bought and then giving that purchasing power to the public servants. This is how they get paid. Then work = money and money equals work. Everything is in balance, and everything has been worked for.
In this way, taxes do drive public services (once the economy is at full capacity), but with lots more people in work, the individual tax burden can be more greatly shared. We now have the underemployed doing work, contributing to society, which means we are all better off as a result.
In primitive societies no one was unemployed, and so we shouldn't stand for it in our modern societies because it is not natural.
Yes, with more people in work having an improved standard of living, it will increase global warming, but the government can fund the GND, and use taxes to get society to use fossil fuels more wisely, which will drive new technology improving our standard of living.
Richard Wolff says the MMTers have nothing to say about how capitalism can be transformed into something better. But it can produce a social democracy - a compromise, which will do until mankind is ready for something better, or figured out how to do it.
“financing” is not a “secondary issue” as Greenspan suggests. Reason is that in order to “make available the material goods and services that people need”, it is necessary to suppress the consumption of “goods and services” by the better off, assuming the economy is already at capacity. And suppressing that consumption is done via “financing”: i.e. taxing the better off. [Ralph Musgrave]
Ralph says that the primary issue is the distribution of consumption, and this is accomplished via "financing". That is rather confusing. Clearer to me is that the issue is real resources and productivity, and that the key to this are good laws. Laws regarding the economy include financial laws, but also many other kinds of laws. In other words, the government should set the rules of the game so that people can find productive work which is compensated somewhat equitably and reasonably.
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