Doug Henwood wrote: >... You talk about the wonders of deficit spending. Sure, up to a point, but >that's not really the issue. You're basically conceding that the idea of a SS >surplus is a fiction, and making good on promised benefits will require new >borrowing. There's no reserve to be drawn down. Benefits will have to be >funded by future incomes - the whole thing is pay as you go. <
Yes and no. This is right because just because financial assets are piled up in the SSA's coffers does not mean that enough GDP is produced -- and tax revenues reaped -- in the future in order to compensate for any SSA budget shortfalls that might happen in the future. (This parallels one of Keynes' conclusions.) Just because the bonds in the SSA's cache promise to pay interest does not mean that the government that sponsors the SSA will raise taxes or cut programs in the main budget enough to pay that interest. Instead, our Wise and Noble Leaders could -- and likely would -- cut OASI benefits and/or raise OASI "contributions" (taxes) to get rid of the need to pay that interest. But there's the other side of the issue, i.e., how the borrowed money received by selling the bonds is spent in the first place. (I heard Stiglitz refer to this key issue on the radio the other day.) This is the key issue concerning _any_ government borrowing and in fact, concerning any private-sector borrowing. 1) if borrowed money goes to finance waste (such as tax-cut gifts to the President's cronies), then it results in no extra production that can be used to pay the interest on the government's debt to the SSA (but see point 5). 2) if the borrowed money goes to finance gambling (such as spending on some totally unproven but extremely expensive new weapons system such as "Star Wars"), it has the same effect (but see point 5). 3) if the borrowing goes to pay for current consumption or to counteract the effects of a natural disaster, it may be a necessary expenditure, but it doesn't lead to the production of extra output that can be used to pay the interest on the government's debt to the SSA (but see point 5). (If the natural disaster isn't addressed, of course, that _hurts_ potential output, all else constant.) 4) if the government borrowing goes to finance public or private-sector real fixed investment (needed infrastructure, new factories, etc.) that raises potential real GDP (compared to what it would be without the spending), that can and often does provide the extra product that allows the payment of the interest on the government debt. This is reinforced by point 5: 5) if the government borrowing stimulates the economy to attain potential (in the Keynesian way), that also provides extra product allowing the payment of the interest on the government debt (by abolishing the massive waste of resources, especially labor-power, associated with 8.9% or so unemployment). In sum, the key question is the extent to which the financial investment (lending to the government by buying government bonds) corresponds to real investment and to what extent the borrower (the government) benefits from that real investment. "Real Investment" can include spending or tax cuts that allow the economy to attain potential. This in turn poses another point: * if the potential output rises, that doesn't mean that the government will automatically receive a "fiscal dividend" large enough to pay the interest to the SSA. As Jim O'Connor pointed out, most -- or almost all -- of the growth benefits of government investment redound to the private sector. Then, the question is to what extent the private sector pays enough of its dividend to the government in taxes. > There is a tiny political problem: the ruling class doesn't give a damn about > the needs of the people. So if and/or when there comes a need to tax or > borrow to make good on promised benefits, what do you imagine this ruling > class and its likely descendant is going to do? My guess is cut benefits, > unless there's a serious upsurge in the class struggle.< right. The move to cut benefits might encourage a serious upsurge in the class struggle, however. Of course, such things can't be predicted. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
