A LETTER TO THE EDITOR - FINANCIAL TIMES

 

Sir,

Your story "Clinton to use surplus in boost for social services"(January 20) invites readers to accept that the US government can "spend" today's surplus, as well as putative surpluses, during the next 15 years in the same way a child can spend its savings on a toy.

The balance between government receipts and outlays is properly determined by the requirements of macroeconomic management as these evolve. A surplus may be appropriate in the US today in order to mop up the uniquely large private financial deficit generated by a credit boom and an "irrationally exuberant" stock market. When the private deficit falls back the budget surplus will wilt; there will again be a deficit - and rightly so if recession is to be avoided.

The particular ways in which taxes are raised and outlays allocated are matters for political choice. Regarding social security, there are two real problems facing the US, and these can be simply stated. First, are retired persons, who will soon form a larger proportion of the population, to be relatively worse off than in the past? If not, there will be a real cost in terms of goods and services foregone by the rest of the community as and when the need arises, not before and not afterwards.

So the second question is, how this cost is to be met? Who, when the occasion arises, will pay, and how? Even if the Social Security Trust Fund holds a huge stock of Treasury debt in 2020, the Treasury will be Required to tax or borrow at that point to finance social security spending – exactly as it would have done in the absence of a trust fund.

The resolution of these simple, if politically difficult, choices is Being confused by arcane discussions about how the government keeps its accounts - how much one internal fund owes another and so on.

Wynne Godley and L. Randall Wray
The Jerome Levy Economics Institute
Blithewood, Annandale-on-Hudson, NY 12504-5000
USA