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Mike Pence would pick up where Paul Ryan left off

Former Vice President Mike Pence talks about privatizing Social Security. The remarks came Thursday before a hearing at the National Association of Wholesale-Distributors summit in Washington, DC. Here’s the comment that’s raising a lot of eyebrows:

I think the day might come when we could replace the New Deal with a better deal. You’re literally giving younger Americans the ability to take a portion of their Social Security withholding and put it into a private savings account.”

After seeing a video clip of the event, I tweeted:

I’ve been writing about this sort of thing for decades and have devoted an entire chapter to Social Security in my book, The deficit myth.

In this chapter, I wrote about the next exchange between Congressman Paul Ryan (R-WI) and Federal Reserve Chairman Alan Greenspan. Mike Pence has just picked up where Paul Ryan (and before him President George W. Bush) left off. Click to watch the video, and then we’ll slow it down.

It’s clear where the congressman wanted the Fed chairman to go. In a courtroom, I think this is called “leading the witness.”

To clarify his question, Ryan uses the phrase “personal retirement accounts” no less than four times.

Wouldn’t it be a good idea, Ryan asks, to start moving to a system of “personal retirement accounts” to help the Social Security system “achieve solvency” and make benefits “more secure” for future retirees? This is exactly what Pence is talking about.

Ryan expected a simple answer, yes, from Alan Greenspan. Instead, he understood the truth.

“There’s nothing stopping the federal government from creating as much money as it wants and paying it to somebody.” ~Alan Greenspan

Read it again. Rewind the tape. There is no solvency problem. There isn’t – and there can be – no financial difficulty in the fulfillment of payment obligations with future retirees, their dependents and the disabled.


As Greenspan explained in a speech in 1997:

That all these claims about government are readily accepted reflects the fact that a government cannot become insolvent in respect of obligations in its own currency. A system of fiat money, such as we have today, can produce such claims without limit. Of course, if a central bank produces too much, inflation and interest rates will inexorably rise, and economic activity will inevitably be constrained by inflation-induced misallocation of resources. If it produces too few, the expansion of the economy will also be limited by a shortage of the lubricant needed for transactions. Authorities must continually struggle to find the right balance.

It wasn’t always like that. For most of the period before the early 1930s, the obligations of the governments of the major countries were paid in gold. This meant that all outstanding government debt was subject to redemption in a medium, the amount of which could not be altered at the will of the government. Therefore, debt issuance and budget deficits were constrained by the potential market response to an inflated economy. It was even possible under this monetary regime for a government to become insolvent.

As the lens of Modern Monetary Theory (MMT) constantly reminds us, the US dollar is no longer pegged to gold. The US does not operate under a fixed exchange rate system. We have a fiat currency and a floating exchange rate. It’s impossible for the government to “run out of money” or face bills it can’t afford to afford to pay.

Once you understand the nature of the monetary system we have today, it’s easy to see why the arguments people like Paul Ryan and Mike Pence rely on to justify privatizing Social Security are totally without merit.

Every democrat should be able to explain this in very simple terms: There is no need to address the Social Security solvency crisis, because there is no solvency crisis.

How Warren Mosler put it:

You do not need to subscribe to MMT to enter into this agreement. After all, Alan Greenspan made it. And as I have written many times before, professor at Northwestern University Robert Eisner he got it too.

What all of us MMT economists Alan Greenspan and Bob Eisner understand is that the real The challenge is, well, that.

Go back and listen to Greenspan’s response again. After he tells Congressman Ryan that there is nothing to prevent a currency-issuing government from fulfilling its financial obligation to all beneficiaries (present and future), he goes on to make the really important point. The question, he tells Ryan, is “how do you set up a system that ensures that the real are assets created that are used to purchase these benefits?”

Think of it this way.

We are an aging society. Every day, approximately 10,000 Americans turn sixty-five. As older people leave the workforce and retire, they leave behind a shrinking population of younger workers who must produce the lion’s share of real good and services this all we rely on to meet our needs.

Our national debate should revolve around our changing demographics and economic productivity, not any question about the “solvency” of Social Security.

Imagine what would happen if we end up—10, 20, or 30 years from now—with a shrinking workforce and meager productivity growth. Fulfilling our obligation to future retirees is not primarily about sending them money every month. It’s about helping them maintain a decent real standard of living, and this can only be achieved by having access to the things they need: health care, housing, food, leisure, entertainment, etc.

If Democrats and Republicans had a proper political debate, they would stop arguing about the so-called “solvency” of Social Security and start arguing about who has the best immigration plan and what policies will do more to boost productivity-enhancing investments in the coming years. .

For those interested in what it would mean to replace Social Security with a system of personal savings accounts, here it is which I published in 2005, when George W. Bush was pushing the idea.

Have a great weekend and thanks for subscribing the lens.


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