The following is from a
recent interview with Chairman Greenspan:
RYAN: "Do you believe that personal retirement accounts can help
us achieve solvency for the system and make those future retiree
benefits more secure?"
GREENSPAN: "Well, I wouldn't say that the pay-as-you-go benefits
are insecure, in the sense that there's nothing to prevent the federal
government from creating as much money as it wants and paying it to
somebody. The question is, how do you set up a system which assures that
the real assets are created which those benefits are employed to
purchase."
Soft Currency Economics
by Warren Mosler
Introduction:
In the
midst of great abundance our leaders promote privation. We are
told that national health care is unaffordable, while hospital
beds are empty. We are told that we cannot afford to hire more
teachers, while many teachers are unemployed. And we are told
that we cannot afford to give away school lunches, while surplus
food goes to waste.
When people and physical capital are employed productively,
government spending that shifts those resources to alternative
use forces a trade-off. For example, if thousands of young men
and women were conscripted into the armed forces the country
would receive the benefit of a stronger military force. However,
if the new soldiers had been home builders, the nation may
suffer a shortage of new homes. This trade-off may reduce the
general welfare of the nation if Americans place a greater value
on new homes than additional military protection. If, however,
the new military manpower comes not from home builders but from
individuals who were unemployed, there is no trade-off. The real
cost of conscripting home builders for military service is high;
the real cost of employing the unemployed is negligible.
The essence of the political process is coming to terms with the
inherent trade-offs we face in a world of limited resources and
unlimited wants. The idea that people can improve their lives by
depriving themselves of surplus goods and services contradicts
both common sense and any respectable economic theory. When
there are widespread unemployed resources as there are today in
the United States, the trade-off costs are often minimal, yet
mistakenly deemed unaffordable.
When a member of Congress reviews a list of legislative
proposals, he currently determines affordability based on how
much revenue the federal government wishes to raise, either
through taxes or spending cuts. Money is considered an economic
resource. Budget deficits and the federal debt have been the
focal point of fiscal policy, not real economic costs and
benefits. The prevailing view of federal spending as reckless,
disastrous and irresponsible, simply because it increases the
deficit, prevails.
Interest groups from both ends of the political spectrum have
rallied around various plans designed to reduce the deficit.
Popular opinion takes for granted that a balanced budget yields
net economic benefits only to be exceeded by paying off the
debt. The Clinton administration claims a lower 1994 deficit as
one of its highest achievements. All new programs must be paid
for with either tax revenue or spending cuts. Revenue neutral
has become synonymous with fiscal responsibility.
The deficit doves and deficit hawks who debate the consequences
of fiscal policy both accept traditional perceptions of federal
borrowing. Both sides of the argument accept the premise that
the federal government borrows money to fund expenditures. They
differ only in their analysis of the deficit's effects. For
example, doves may argue that since the budget does not discern
between capital investment and consumption expenditures, the
deficit is overstated. Or, that since we are primarily borrowing
from ourselves, the burden is overstated. But even if policy
makers are convinced that the current deficit is a relatively
minor problem, the possibility that a certain fiscal policy
initiative might inadvertently result in a high deficit, or that
we may owe the money to foreigners, imposes a high risk. It is
believed that federal deficits undermine the financial integrity
of the nation.
Policy makers have been grossly misled by an obsolete and
non-applicable fiscal and monetary understanding. Consequently,
we face continued economic under-performance.
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