Michael Hudson: Obama’s “bargain” on social security reform will push more retirees into poverty in exchange for a minor increase in high end income tax – a class that receives most revenue from capital gains
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay.
President Obama released his budget, and the most controversial piece of it is he wants to make some cuts to Social Security. Now here’s a little bit of what he said: “Most economists agree that the chained CPI provides a more accurate measure of the average change in the cost of living.” This chained CPI is at the heart of the controversy, ’cause critics are saying this is in fact a cut to Social Security benefits in the future.
Why is President Obama doing all this? Well, the logic for it is given more or less by The New York Times in their report on the budget. Here’s what they wrote. Social Security benefits would increase from $860 billion next year, less than the projected $743 billion in payroll tax revenues for the program, to $1.4 trillion in 2023 fiscal year, about equal to the entire amount of discretionary spending, Medicare and Medicaid, which would total $504 billion and $267 billion, respectively, next year. Each would be nearly double those amounts in 2023. And interest on the federal debt, projected to be $222 billion next year, would be four times that in 2023.
Now joining us to talk about all of this is Michael Hudson. He’s a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents.
Thanks very much for joining us, Michael.
MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you, Paul.
JAY: So first of all let’s start with the New York Times quote, where they give a fairly—what’s the word?—apocalyptic sense of where we’re headed in terms of debt and Social Security and Medicare, Medicaid not being able to be paid for. What do you make of that?
HUDSON: Well, it’s sort of like The Hound of the Baskervilles, where Sherlock Holmes said the important thing is that the dogs didn’t bark. When the government printed $13 trillion to give to the banks after the 2008 breakdown, nobody complained at all about the fact that the government can simply print the money, pour it into the economy, and do something. Nobody’s complaining about the increased war spending that we’re doing, the waste that the Pentagon [incompr.] war.
Why is it that all these complaints are only focused on one particular small part of the budget, Social Security and medical care and health care? And the reason is this is pure, naked class war. There’s no other word for it. You can’t believe that people are being honest when they don’t talk about the whole budget or the overall economy, when they’re singlemindedly tunnel-visioned, focused only on how do we pay retirees less so that we can give the bankers more when President Obama continues the bank deregulation he’s doing. You have the idea that they’re cutting back pensioners, cutting back Social Security, in order to be able for the next big bank bailout.
JAY: So what do you make of this, the prediction that the deficit, the spending on the deficit, the interest on the debt could be four times what it is now? I mean, isn’t that some kind of danger?
HUDSON: It’s never been considered a danger by economists in the past for this simple reason: when these people talk about the debt, first of all, they’re talking about $16 trillion in debt. But of this, a huge amount, like, $4 trillion, is owed by the government to the Federal Reserve and another $2 trillion owed to the Social Security fund.
Now, the fact is that the government is paying interest to itself. So all of this interest that it pays to itself is simply a bookkeeping accounting fiction. This is not really paying interest. This is not paying interest to the economy or to bondholders. When people talk about these numbers, you know that they’re not being honest.
JAY: Well, is the argument that they would give, that when the Fed gives money to the banks, as you were talking about in the bailout—as you say, they punch these numbers in one ledger and then it shows up in the banks’ ledger. But they do eventually get paid back, don’t they? And in a sense it doesn’t create more debt. That’s the argument they give, whereas these payments on Social Security—.
HUDSON: Ha! Every government’s debt grows steadily upwards over time. The Federal Reserve has never reduced its debt to the United States government. The debt is—this does not involve banks. The Federal Reserve and the Treasury can simply create money on their own computer keyboards, just like banks can do, electronically. It doesn’t cost a penny for them to do it.
The debt is never paid back. Two hundred years ago, already in 1776, Adam Smith wrote that no government ever has repaid its debt. So the government doesn’t—the debt doesn’t have to be repaid. It’s not like a private-sector account book where you have to—if you run into debt, you have to keep paying the banks more and your credit card and your bank loan. This is zero interest money. And so the zero interest will go up from zero to zero. That’s really what’s happening. And you’ve had Bill Black on your show explaining this. You’ve had the University of Missouri-Kansas City people explaining this.
When people refuse to acknowledge what every university teaches in its courses, you know that they’re just pulling a con job on you.
JAY: There’s two sides to this. There’s the side of the money the Fed just simply creates, and then there’s the part where they go and—the Federal government borrows money from outside sources. They borrow money from—they sell T-bills. And at the moment, that borrowed money is practically costing the federal government nothing, but that could change is the point.
HUDSON: It could, in which case there would probably be a shift away from borrowing from the public to simply monetizing it, which is what the U.S. government has always done, the British government, the Chinese government. Any government that has a central bank has the option of doing that. So this is a—to pretend that the debts to the banks and bondholders are the whole thing just avoids looking at the overall budget situation.
And it also assumes that, okay, we’re going to be paying the rich—we know that the bondholders, the 1 percent, own maybe 75 percent of all the bonds. So if the government pays them a lot more interest and doesn’t tax them, then this is a pure giveaway to the 1 percent.
So what they’re really saying, The New York Times and the others, is we’re running a probability of giving a huge amount of money to the wealthiest 1 percent in the future. In order to pay them, in case we have to pay them more, we really have to screw the Social Security recipients, screw the Medicare recipients, screw Medicaid. We have to squeeze the 99 percent more to pay higher interest to the 1 percent that are the bondholders.
JAY: Now, President Obama in this budget proposal wants to raise taxes on the wealthy, he says. Anyone over making more than $1 million he wants to pay, I think, a minimum of 30 percent tax. Is that something?
HUDSON: No, for the following reason. Yes. It is a fraud. It is doubletalk. Rich people don’t make income. Income is for the little people, as Leona Helmsley said. Rich people make capital gains.
So Obama’s going to say, folks, when you fill out your tax returns, don’t say you’re earning income. Say you’re earning capital gains. We’ll cut the taxes for you on that. So what he’s doing is simply flimflam. Don’t believe it when he talks about income and rich people. And the Congressional Budget Office has shown that the wealthy people get their money in capital gains, not income. He’s not making a peep about that. So that is absolute straight dishonesty.
JAY: So the other argument I guess you hear from Obama supporters is that he’s dealing with a Republican-controlled House, and if he doesn’t do this—New York Times, I think even their headline of the coverage of this was President Obama’s budget meant to engage the Republicans, that this is more about the politics than it is about the economics.
HUDSON: Well, when you say engage the Republicans, what it means is that Mr. Obama says, I’m a follower of Rubinomics, of Robert Rubin at Citibank. I’m going to do something that the Democrats don’t like, I’m going to do something the voters don’t like, but I’m going to blame it on the Republicans.
JAY: Just quickly dig into this CPI thing, this chained cost of living. Why are people criticizing this, and what does it mean?
HUDSON: Well, because it’s not a cost of living index. It’s the cost of lower living standards index. It’s the—some people call it the cat food index.
Here’s what it does. Suppose that you have to switch away from eating steak or eating meat or eating fish to eating canned tuna fish or canned beans. That’s considered a price reduction.
If the chained index is done properly, you can cut Social Security by 50 percent. And here’s how. If people stop taking cabs and begin to take buses, that’s considered a lower cost of living. Well, what if they buy a bicycle? All Obama has to say is, look, folks, if you really want to save money, get a bike. That’s what Margaret Thatcher said. That was one of her campaign slogans, get a bike. So all of a sudden, the transportation in the cost of living goes down to zero. People pay between 25 percent and 40 percent of their income on rent. Let them live out on the street. Let them live in a homeless shelter [crosstalk]
JAY: Because the point of this chained—.
HUDSON: —about 15 percent of their income on medicine. Let them do what George Bush said. Go to the emergency ward.
If people live—if the living standards are ground down and down and down because people are poor, then all of a sudden the government can say, look, because you’re getting poorer and poorer, your living standards are declining, so we don’t have to pay you so much to live. This is no longer a price index. This is an index of declining living standards.
JAY: And that’s because the concept behind this chained CPI is that people are finding cheaper ways to do things, and that’s supposedly not being reflected in the current system.
HUDSON: Ha! That’s right. People are having to walk to work instead of taking buses. They’re having to eat tuna fish and canned beans instead of buying fresh food on the table. Of course they’re finding cheaper ways. We call that declining living standards.
And the start of the budget is: how can we screw the Social Security recipients, how can we pay them less to pay our clientele, our campaign contributors, the 1 percent more? You have to start with where they do, with the class war is back in business. And how do they sugar coat it? By calling it a price index instead of a cat food index or a declining living standards index. This is absolute slimy politics.
JAY: Alright. Thanks for joining us, Michael.
JAY: And thank you for joining us on The Real News Network.
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