Fiscal Cliff

It’s structural.  And demographic.  There is really nothing the president or the congress can do about it.

We should come to grips with that.  If we want to do something about it we’re going to have to do it ourselves.

And that’s just as it should be.  We need to recover our sense of self government, and for all the carping about “personal responsibility” there is something of a collective responsibility we ought to cultivate an awareness of, too.  It’s not as easy to define or identify as “personal” responsibility, but then again we don’t seem to do the personal thing too well, either.

The linked article by Robert Samuelson, one of the consummate Washington insiders, is significant for reasons I’m sure he doesn’t grasp.  He points obliquely to the demographic problem at the end.  And the fact is, that after the law – this is a rule of law crisis, not an “economic” one, remember? – demography is the next most important aspect of our plight to consider.

There is an incipient generational conflict in all this.  The baby boomers, now firmly in place as the older generation – have run up a fantastic pile of entitlement chits – that is, claims upon the efforts of their children, a group that is relatively meager in size because that’s what the boomers wanted when it suited them.

And their children are balking.  And they should.

Now, this is also tied in with the monetary system we have, because at bottom all that system really consists of are chits where some people make claims upon the efforts of others.  We’re all scrambling to be claimants rather than claimees, of course, and none so much as the baby boom generation itself.

It was easy to see this coming a generation ago.  I did.  In my one campaign for public office – congress – and in response to a question from an incredulous news reporter, I publicly asserted that social security was a doomed ponzi scheme and that we had better have a lot more children and then phase it out.

The idea that we should have more children caused the reporter’s jaw to drop open and an audible gasp.  It was cognitive dissonance on the set.

Nevertheless, and not to toot my own horn or anything, the fact is my comment was entirely accurate, truthful, obvious and amply borne out by subsequent events.

Even my related but far more current proposals for a debt jubilee and a restoration of sound money (or at least sounder money) are no panacea and are not intended to be.  A return to sanity is no guarantee of prosperity; it’s a pre-condition.

But in the end – and even if my suggestions for debt forgiveness and monetary sanity were followed – we’ll still have these spoiled, demanding, thoroughly unpleasant baby boomer geezers, re-creating their unseemly and overindulged infancy, throwing tantrums and directing their gaping maws at their own children, insisting those unsightly orifices be filled to the brim even as both their children and the next generation go wanting.

Indeed, that is bad enough all by itself.  But imagine that on top of that nothing is done about the debt overhang in the first place.  That generational conflict might easily become generational war.  Indeed, it’s hard to see it panning out any other way.

We reap what we sow.  Modernity has not been able to abolish that rather simple and obvious rule.



Filed under financial crisis

8 responses to “Fiscal Cliff

  1. No, it’s not structural. It’s not demographic. It’s a BIG LIE. Robert Samuelson has no idea what he is talking about, and is nothing but an echo chamber for the stupidest mainstream nonsense. Unfortunately, these innumerate absurdities are incessantly dinned into everyones’ ears, so otherwise sane & intelligent people are led to support atrocities, based on “economics” that gets everything backwards, that reverses up & down, credit & debit, etc.

    I publicly asserted that social security was a doomed ponzi scheme and that we had better have a lot more children and then phase it out.
    No. You are & were entirely incorrect. Social Security is not a ponzi scheme. It is one of the few things keeping the US economy afloat. The only fix it needs is to increase the benefits & cut the taxation. Hopefully so that the “trust fund” can be entirely drained quickly.

    The trust fund is a scam. Social Security worked much better without one, without its gross overtaxation & theft from the baby boom generation instituted by the Greenspan commission in 1982. The baby boom generation was hardly “greedy”, but rather severely punished .It was victimized by the worst economic policies ever used in the USA, which gave it the worst economic outcomes, the worst economic growth for ordinary people, the 99%, in the last 300+ years. The only (comic) relief is that the macroeconomic policies in Europe were even worse. There is no demographic crisis. No intergenerational problem, but the one that those who want to divide & rule have fabricated. Actual academic demographers think such crises are a joke, but nobody listens to them.

    What you propose elsewhere, a new gold standard, is not “sound money”, but unsound money. Why on earth should governments arbitrarily tie their intrinsically valuable fiat money to an intrinsically worthless commodity like gold? Came here from your comment to Bill Black at Naked Capitalism. Sure, deficits, austerity etc are a moral issue. But the moral issue is the insane government underspending & overtaxation which has crippled economies worldwide for decades. The problem is that the promises which are our money are not redeemed, but that they are redeemed too much, that the predatory state does nothing but Robin Hood in reverse. The main thing is to understand the actual economics, which is so simple it repels the mind.


    • Well.

      You might be right that I’m overdoing it a little on the baby boom generation. Not all of them went to Wall Street and engaged in wholesale wealth extraction and dissipation, just the “favored” few. Like Jerry Rubin, for example.

      But arguing that social security can be “fixed” by increasing benefits and cutting taxes is completely divorced from reality, and fundamentally misunderstands the nature of economic relations, or at least real economic relations. You’re right that money itself is a proxy for an economic relationship, even under a gold standard. You’re utterly wrong that the relationship can be governed by a simple ipse dixit, where promises can be legitimately fulfilled by an empty decree from on high.

      I don’t know what “academic demographers” you’re listening to. I’m not sure that academic anything carries as much weight as it used to. Like just about everything else, the academy has become hopelessly politicized and intellectually corrupted.

      There is no way out of our economic difficulty without some pain, at least in the sense that people’s expectations about what is due them are bound to be dashed. It doesn’t have to be as bad as it sounds – a jubilee certainly dashes a lot of expectations, but then leaves everything where it is in the present and offers the prospect of a future unburdened by the dead hand of the past. It’s the best trade-off that can be made at this point, and we should do it.

      The gold standard idea has nothing to do with fixing the current problems; it is directed at avoiding the problems in the future. And no one familiar with the concepts involved argues that fiat money is “intrinsically valuable”, nor can they. It’s an oxymoron. You couldn’t be more confused.


  2. JMRJ: Everything I said Is just Keynesian / MMT / Institutional economics. (Others say “MMT”, but I like to emphasize how old & well known the theory once was) You seem to have some interest in it, but a little knowledge is a dangerous thing, and you are getting some things quite wrong, like the idea that there is a problem with SS – other than the insane scam of creating a giant Trust Fund in 1982, by preposterous, predatory overtaxation of the baby boom generation. Everybody used to understand Keynesian/ MMT / Institutional economics. FDR understood it quite well. There’s a famous quote from him where he considers entirely abolishing SS taxation, because he perfectly well understood the taxes have nothing to do with SS payments.

    Basically all the academic MMTers support lowering / abolishing FICA &/or raising benefits. They aren’t the ones who are “completely divorced from reality, and fundamentally misunderstands the nature of economic relations, or at least real economic relations.” It’s the nonsense-mainstream propagandists e.g. R. Samuelson that does, that you unfortunately still put credence in. Once one returns to the level of economic understanding prevalent before 1970 say, one realizes the utter preposterousness of thinking that there is a problem with Social Security. Only if one completely ignores the real economy can one think that there is any problem with baby-boom retirement.

    There is no way out of our economic difficulty without some pain, at least in the sense that people’s expectations about what is due them are bound to be dashed. No, there is a very easy way out of it. Stop believing this, this absurd, illogical, specious can’t-do attitude that creates poverty amidst plenty – by forgetting basic, formerly well-known economics & accounting. There emphatically is a painless way out, a free lunch. By understanding economics.

    You’re utterly wrong that the relationship can be governed by a simple ipse dixit, where promises can be legitimately fulfilled by an empty decree from on high. That isn’t what real economics says; that’s the false “legal tender” version of chartalism.

    You’re right that money itself is a proxy for an economic relationship, even under a gold standard. No, money IS an economic relationship, not a proxy for one.

    If you think fiat money is without intrinsic value, then would you mind assigning all of yours to me? I know that some MMTers, some academics, (wrongly) say fiat money is intrinsically without value. That is either using the word “intrinsic” or “money” incorrectly. Alfred Mitchell-Innes, as usual, is crystal clear on this.

    A gold standard doesn’t & won’t fix any problems, now or in the future. All it would mean is government welfare for the rich people who own & mine gold, financial instability & interference in international trade & domestic full employment. Thinking that a gold standard has something to do with defining a unit of account is just born of confusion, as is this
    the Chartalists … think the government can and should ultimately dispense with redeemability No – MMT/Chartalists know & understand that redeemability can never be dispensed with – but gold is just shiny, and has nothing to do with redeemability.


    • No, money IS an economic relationship, not a proxy for one.

      This is the essence of your problem. You are confusing an abstraction with a real thing. Until you address this in your own mind, which I can tell is quite active and capable, we won’t really be communicating, just talking past each other.

      As for your other points, briefly. You are right that the increase in payroll taxes in 1982 was preposterous, grotesque. You are also right that the levying of taxes and the payment of benefits have, at best, an attenuated relationship. But because you are right about this for the wrong reasons, you come to the conclusion that this is not a problem. You couldn’t be more wrong.

      As for the anthropological and historical evidence regarding precious metals, redeemability, and money, let’s just say that even if Alfred Mitchell-Innes heavily ideologically driven spin on this evidence were correct – something I would never concede – it is completely immaterial. It is shadow boxing with a straw man. I would call it a completely disingenuous line of argument – that, or just plain silly – but only coming from him, not from you. As noted above, you have somehow lost the sense of what is real and what is abstract, at least when it comes to this area of inquiry. To see the folly of whatever ‘theory’ of money you are propounding, you have to address that fundamental error first. Perhaps in another context, so you can reason back by analogy.


      • No, it is you who seem to be confusing something abstract, money, debt, with something “real” (like gold). Money, debt etc is just “amount of niceness owed by A to B”. Money is a form of debt, A owing B, abstractly, nothing in specific. SImple as that. Explains everything. Everybody used to understand this more or less. Read FDR’s second fireside chat. When nations understand this – like the USA from 1930s-1980 or so, or China now, they usually prosper. When they don’t – look out. Actually, to social beings like humans, these “abstract” things like money, like friendship, like moral obligations (which includes money) are far realer than “real” things.

        Yes, a gold standard could be a good idea. A gold standard is the government running a gold store, arbitrarily setting a price for something intrinsically pretty worthless, gold, in terms of its very valuable favors, money. When is this a good idea? When the country has a lot of gold, (or silver, when it just became a convenient way of signifying the state’s money in ancient times) and when there are a lot of suckers outside the country who want this gold. Then you get the other countries’ money & buy real useful stuff from them for it.


        • It’s a point of law, not a point of economics or sociology.

          Circulating money is a note, almost always at this point a bank note. A note is a promise to pay. The note itself cannot, then, be payment. It must be promising to pay something else other than itself. Otherwise the promise (of, as you put it, “abstractly, nothing in specific”) is unintelligible and a source of great mischief.

          You’re right that gold is pretty much a useless thing, but that’s irrelevant. The gold standard is not about a fetish for a shiny yellow metal; it’s about coherent rules of social interaction in economic matters that bind everyone, including the government or sovereign.


  3. Min

    If there is a demographic problem with eventually having too few workers and too many dependents, it is not a problem with Social Security per se. It is a society wide problem. Trying to fix Social Security will not fix that problem.

    This is not my area of expertise, but from what I have seen that non-partisan experts say, Social Security is sound into the foreseeable future. (I think that they claim to see too far, but what scares people is the distant future.)

    What is a real concern is spiraling medical costs. Again, that is not a problem with Medicare or Medicaid per se, but is a society wide problem. Circa 1980 the US spent about the same percentage of GDP on medical costs as other advanced economies. Then we started pulling away, until the Clinton years, where we held steady, and then costs started spiraling again. We need to fix that. Fixing Medicare and Medicaid will not do that, since they are not the problem.

    Focusing on gov’t programs instead of society wide solutions is worse than a waste of time. We are taking our eye off the ball.


    • Regarding medical costs, my preferred solution if people want the government to provide “health care” is that the government just provide health care directly through free hospitals, free clinics and so on. Then anyone who can’t afford to pay privately can still be cared for, but the bureaucratic labyrinth won’t hover over everyone and everything.

      I wish I could agree that social security is sound, but it’s considerably less sound than the monetary system, which is itself very unsound. The basic problem is an almost limitless number of promises, claims upon the efforts of some by or on behalf of others, that cannot possibly be fulfilled. It is a bitter reality, but it is reality.

      And you’re right of course that focusing on government programs is wrong-headed. The problems are much more fundamental and astounding.


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