Fullwiler: Provisioning Social Security & Medicare

Scott Fullwiler via a now defunct Twitter account:
• 1/n There are 3 separate issues regarding ability to provide SS/Medicare in future years–financial ability to pay, legal authority to pay, & productive capacity to provide increasing standard of living to future workers & non-workers.
• 2/n Unfortunately, these 3 separate issues are not kept separate in public discourse by journalists, policy makers, SS/Medicare trustees, and even economists.
• 3n/n First, though, let’s understand that the SS/Medicare trust funds are about the LEGAL authority to provide benefits. They are not about FINANCIAL ability to provide benefits…
• 4/n… In the future, when/if the payroll tax does not cover legal authority to pay all benefits & SS/Medicare “cash in” the bonds owned by trust funds, govt will get legal authority to pay benefits via general revenues or selling securities (deficit).
• 5/n But this is exactly what govt would do WITHOUT trust funds–get legal authority to pay benefits beyond payroll tax revenues either from general revenues or selling securities (deficit)
• 6/n Because govt does same thing w/ or w/o trust funds, trust funds do not provide FINANCIAL ability to pay, only LEGAL ability. But just as sufficient balances in trust funds provides no FINANCIAL ability to pay shortfall is not a legit argument against FINANCIAL ability to pay
• 7/n FINANCIAL ability to provide future benefits is NEVER in question for a monetary sovereign. FINANCIAL ability to pay is a POLICY CHOICE, not a constraint. Greenspan explains this here very clearly in first 18 seconds

• 8/n Legal authority to pay is also a POLICY CHOICE, not a constraint. For example, Govt could pass law giving trust fund !00% interest/year (remember, trust funds aren’t about FINANCE, so not a problem FINANCIALLY), which would provide LEGAL authority to pay SS/Medicare FOREVER
• 9/n Another example of providing LEGAL authority to pay future benefits is to pass a law saying govt will pay full benefits. @StephanieKelton explains here that we already do this in some cases.
• 10/n So, FINANCIAL ability to pay and LEGAL authority to pay future benefits are POLICY CHOICES. They are UNCONSTRAINED by anything other than policy makers simply writing a law saying the benefits will be paid. Anyone who says otherwise is muddling the 3 separate issues
• 11/n However, ability to provide future standards of living to retirees and rest of population w/o cutting benefits IS a constraint. If you just run deficits to pay benefits in future, if productive capacity is insufficient you will get inflation, not more real goods/services.
• 12/n Greenspan again explains this clearly here starting at 45 seconds in
• 13/n Lastly, some are talking about Fed simply transferring its govt bonds to trust funds as a way to ensure future entitlements. This is simply a transfer of assets from one agency of govt to another, and shows clearly that LEGAL authority to pay is always a POLICY CHOICE…
• 14/n BUT, Fed transfer of its securities does not work under current law because to debit Fed assets you have to debit Fed capital (equity). Fed is legally required to send its retained earnings to Tsy, so they are part of govt budget position…
• 15/n So, if Fed transfers its securities and debits its capital, under current law, this would increase current and future govt deficits by same amount until Fed’s capital was built back up.
• 16/n Of course, yet again, you could simply change the law and do some creative accounting on Fed’s balance sheet for the debit of assets and capital. So, again, LEGAL authority to pay is a POLICY CHOICE.
• 17/n In sum, always remember the govt ability to [get] LEGAL authority and FINANCIAL ability to pay benefit are NOT CONSTRAINTS, they are CHOICES, just like govt chooses to pay for wars, cut corporate taxes, etc., all the time. It can ALWAYS choose to authorize and pay SS/Medicare.
• 18/n The only actual hard constraint on future entitlements is PRODUCTIVE CAPACITY to pay these benefits and maintain standards of living for other at same time.
• 19/n Thus it is NOT useful for informed policy debates to have CBO & SS/Medicare trustees to (sic) forecast “solvency” of trust funds in the manner they do now.
• 20/20 However, it would be useful for them to say “our analysis shows govt has CHOSEN not to legally fund these programs in full after 20XX; if it CHOOSES to do so w/o taxes/spending cuts,given assumptions in our econ model we forecast inflation to be X%.”

More on Social Security here.