L. Randall Wray
The Coalition of Economic Policy Institutions
is a non-partisan FORUM dedicated to
promoting research and public discussion of
issues related to macroeconomic and
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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
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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