Re: "The Truth About The Trust Fund"

1

Any other option would be an unconscionable fraud.

Do we avoid unconscionable fraud?


Posted by: heebie-geebie | Link to this comment | 05-13-10 6:16 AM
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2

Not having a conscience?


Posted by: Moby Hick | Link to this comment | 05-13-10 6:29 AM
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3

I imagined 1 had a 'How' at the front of it.


Posted by: Moby Hick | Link to this comment | 05-13-10 6:39 AM
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4

No, it was supposed to have an 'ever' before 'avoid'.


Posted by: heebie-geebie | Link to this comment | 05-13-10 6:40 AM
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5

And then I missed that 3 was past tense, and so imagined Moby was just quibbling over my phrasing in 1. Which I'd already been quibbling over.


Posted by: heebie-geebie | Link to this comment | 05-13-10 6:41 AM
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6

Anyway, I think we should defraud wealthier old people first (i.e. means testing) then wealthier, younger people. If that doesn't solve it, we should have a lottery and defraud people with randomly selected birthdays in the middle in terms of wealth.


Posted by: Moby Hick | Link to this comment | 05-13-10 6:42 AM
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7

Since when have the rich been worried about perpetrating unconscionable frauds on the poos? And do the rich control the Fed and both houses of Congress? Well, gosh! They do!


Posted by: OFE | Link to this comment | 05-13-10 6:43 AM
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8

7: The poos always get shit on.


Posted by: togolosh | Link to this comment | 05-13-10 6:44 AM
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9

5: Yes, 3 was because 2 didn't make any sense to me once I'd read more carefully.


Posted by: Moby Hick | Link to this comment | 05-13-10 6:45 AM
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10

(The subset of the rich who get their jollies defrauding the poos is relatively small. Those who spend their careers defrauding the poor, however, are many.)


Posted by: OFE | Link to this comment | 05-13-10 6:45 AM
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11

"Hey, how about just for today we let it mellow even if it's brown, huh? Hang in the bowl for a while, get a little fresh air?" [FLUSH] "HAH! SUCKER! Now where's my monocle?"


Posted by: Sifu Tweety | Link to this comment | 05-13-10 6:49 AM
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12

Social security *and* population control. I guess I picked the wrong week to give up demographics.


Posted by: JP Stormcrow | Link to this comment | 05-13-10 7:19 AM
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13

I've heard this history before, but can anyone tell me if it's actually an accurate reflection of the bargain struck at the time, or is this just an ex post facto rationalization? Did people in 1983 really talk about having the rich underpay for 30 years, and then overpay for the next 30? That strikes me as hard to believe for a number of reasons, not least because it doesn't make a damn bit of sense as a "bargain", since generally the rich people and the poor people in the two time periods will be different sets of people.


Posted by: Brock Landers | Link to this comment | 05-13-10 7:24 AM
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13: Yes. My basic thought is that politicians were afraid of the Baby Boomers and decided to fuck-over people my age because we couldn't vote yet.


Posted by: Moby Hick | Link to this comment | 05-13-10 7:25 AM
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13: I suspect the theory behind the "bargain" (in the era when "trickle-down economics" was taken "seriously" by "honest" Republicans) was that lower marginal tax rates on the rich were needed to get the country out of recession, and that 30 years hence, when everything was fine, they would of course be happy to do their share.


Posted by: Sifu Tweety | Link to this comment | 05-13-10 7:28 AM
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16

they would of course be happy to do their share

And it should surprise nobody that they aren't.


Posted by: apostropher | Link to this comment | 05-13-10 7:30 AM
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17

No indeedly.


Posted by: Sifu Tweety | Link to this comment | 05-13-10 7:31 AM
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18

What do you mean by "bargain"? Like literally the rich and the poor sat around a big oak table, and came to an agreement? Obviously not. But the government raised payroll taxes, and used the proceeds to buy Treasury bonds, with the expectation that those bonds would be redeemed when the baby boomers retire. This allowed them to cut income taxes. If they hadn't raised payroll taxes, they couldn't have cut income taxes. Now that the bill is coming due, the rich want to default on the bonds rather than see their taxes go up.

It was as much a bargain as anything government does can be described as a bargain.


Posted by: Walt Someguy | Link to this comment | 05-13-10 7:37 AM
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19

So the explicit "bargain" really was that one generation of rich people would get off lightly, while that generation of poor and middle class people had their backs broken, and then the next generation of poor and middle class people would get off lightly while the next generation of rich people faced higher taxes? How does that make any sense?

13: if the "bargain" was just that we'd lower taxes on the rich temporarily (*wink wink*), with the "understanding" that they'd have to rise again thirty years in the future in order to balance the budget, that makes sense. But that's a different bargain. (For one thing, it doesn't involve any "overpaying" of taxes by the poor and middle class.)


Posted by: Brock Landers | Link to this comment | 05-13-10 7:38 AM
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20

18: Poor people have Formica tables. I've seen it.


Posted by: Moby Hick | Link to this comment | 05-13-10 7:39 AM
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21

18: I'm asking what the narrative animating the policy was at the time.


Posted by: Brock Landers | Link to this comment | 05-13-10 7:39 AM
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22

Don't think of it in terms of poor and rich; think of it in terms of payroll vs income taxes.


Posted by: apostropher | Link to this comment | 05-13-10 7:41 AM
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23

Was there an expectation that payroll taxes would be coming down in the future, around the same time that income taxes went up? Because that seems to be implied in Drum's narrative.


Posted by: Brock Landers | Link to this comment | 05-13-10 7:41 AM
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24

22: Even so, most of the people who were paying income taxes 30 years ago do not have much wage now, but they do get SS payments now. Which is why I think means testing makes sense if you consider who got the tax breaks. (Obviously, there are non-distributional consequences to means testing that pull the other way.)


Posted by: Moby Hick | Link to this comment | 05-13-10 7:44 AM
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25

23: if you *believed* Reaganomics, there weren't going to be any poor left by now because the magic trickle-down fairy was going to make everybody rich.


Posted by: apostropher | Link to this comment | 05-13-10 7:44 AM
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26

The magic trickle-down fairy keeps making a puddle in front of the urinal.


Posted by: Moby Hick | Link to this comment | 05-13-10 7:45 AM
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27

25 seems like a response to several of my previous comments, but not to 23.


Posted by: Brock Landers | Link to this comment | 05-13-10 7:47 AM
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28

Then, the magic mop fairy comes and spreads the urine over the whole restroom.


Posted by: Moby Hick | Link to this comment | 05-13-10 7:48 AM
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29

And now I'm upset at Reagan and getting OCD-ish for "pee on the shoe" related reasons.


Posted by: Moby Hick | Link to this comment | 05-13-10 7:50 AM
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30

23: Well, what's implied isn't necessarily that payroll taxes would go down, but at least that they wouldn't have to go up to cover the retiring Boomers -- that the SSTF had banked enough surplus that it would be able pay benefits to retirees now without cutting benefits or raising payroll taxes. So, yes, the bargain contemplated a 'cut' in payroll taxes, at least as calculated against the baseline of what would otherwise be necessary.


Posted by: LizardBreath | Link to this comment | 05-13-10 8:06 AM
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31

Brock I think what's getting you hung up is the idea that this policy made any sense at all in 1983, as opposed to being a transparent ploy to lower income taxes.


Posted by: Sifu Tweety | Link to this comment | 05-13-10 8:07 AM
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32

They main thing I remember about Social Security in the 80s is Dan Rostenkowski getting the beat-down from a bunch of senior citizens. Or was that Medicare?


Posted by: Moby Hick | Link to this comment | 05-13-10 8:09 AM
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33

For the stated policy purpose, I guess the increase in payroll taxes is supposed to be temporary, though "temporary" includes until after most of the Baby Boomers are dead, so a long "temporary".

The bargain was that we would raise payroll taxes today to save for the boomers. The proceeds from this savings were invested in Treasury bonds, in the understanding that it's wasn't a big trick, but that the Treasury would actually pay it back. This financed government spending that would have otherwise been paid for by income taxes. This enabled the Republicans to cut income taxes, something they wouldn't have been able to do otherwise.


Posted by: Walt Someguy | Link to this comment | 05-13-10 8:09 AM
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34

16: You can imagine, I'm sure, that the bargain doesn't strike high-eaners today as especially morally compelling. It's not as if they were on the receiving end of the benefits for the last 30 years. Those all went to the previous generation.

Arguing that tax increases are "fair" the basis of this "bargain" strikes me as a losing proposition. I'm not sympathetic to the argument in the least, and I'm in favor of tax increases, so I'm sure it must ring hollow to most people opposed to tax increases.


Posted by: Brock Landers | Link to this comment | 05-13-10 8:13 AM
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35

The Bruce Webb et al archives at Angry Bear. The one stop for SS questions.

No, the Drum simple narrative is not right, we do not need to touch the SSTF, and were never intended to. A tiny adjustment can pay out expected benefits without either redeeming the bonds or taxing the rich (for that purpose) The general budget does need to be funded via increased taxes.

I would or will need to burrow deep into AB to explain, and to tell the truth, I don't quite understand it myself.

It's a macroeconomic thing. Talk all this with a grain of salt. Imagine the early 70-80s as a crisis of overconsumption (hyperinflation) and the increased FICA taxes as diverting aggregate demand into national savings or investment. Remember, and it is not a coincidence, what happened to the equity markets 1980-2000.

Or assume I'm blowing smoke.


Posted by: bob mcmanus | Link to this comment | 05-13-10 8:14 AM
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36

I think the realpolitik of the time was more in line with the immediate consequences described in 33 and less about any true really long term thinking. Solve the immediate crisis (a worse one than is currently faced by the way) and push the ball down the field for a few decades rather than an ultimate fix. Bargain or not, the current "crisis" in Social Security is "easily" solvable (not politically though). Much less intractable than medicare/Medicaid/Health Care costs.


Posted by: JP Stormcrow | Link to this comment | 05-13-10 8:15 AM
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37

The bargain was that we would raise payroll taxes today to save for the boomers.

And that makes perfect sense, since the workers whose payroll taxes were raised were largely the boomers.

The proceeds from this savings were invested in Treasury bonds, in the understanding that it's wasn't a big trick, but that the Treasury would actually pay it back. This financed government spending that would have otherwise been paid for by income taxes. This enabled the Republicans to cut income taxes, something they wouldn't have been able to do otherwise.

This seems to be the step where things went wrong. But that has nothing to do with a grand intergenerational-bargain.


Posted by: Brock Landers | Link to this comment | 05-13-10 8:15 AM
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38

16: You can imagine, I'm sure, that the bargain doesn't strike high-earners today as especially morally compelling. It's not as if they were on the receiving end of the benefits for the last 30 years. Those all went to the previous generation.

Right. Who are highly unlikely to be related to the previous generation of high earners.

Brock, this generation of high earners took their childhood ski vacations, paid their college tuition, and will now inherit their parents' estates in a manner funded by this bargain.


Posted by: LizardBreath | Link to this comment | 05-13-10 8:19 AM
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39

Brock, this generation of high earners took their childhood ski vacations, paid their college tuition, and will now inherit their parents' estates in a manner funded by this bargain.

I'm a relatively high-earner, and absolutely none of this describes me.


Posted by: Brock Landers | Link to this comment | 05-13-10 8:27 AM
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40

It describes an awful lot of people, though.


Posted by: LizardBreath | Link to this comment | 05-13-10 8:30 AM
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41

37.2 was probably the mistake, but it was and remains a very common error among neo-classical and new keynesian economists, who assume savings = investment. The FICA taxes essentially went to finance, and created asset inflation. Newberry thinks that was the purpose, and he does not necessarily assume it was a mistake or malicious plot.. It also financed the developing world development, which is a whole nother story.

If the FICA taxes had gone into green development and construction we might be better off, but that also would have meant jobs, increased wages, increased consumption.

I am not awake enough for this shit. More coffee.


Posted by: bob mcmanus | Link to this comment | 05-13-10 8:31 AM
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42

It describes an awful lot of people, though.

Okay, but if that's the injustice you're looking to remedy, shouldn't you be talking about an estate tax, or something similar?

(Again, I'm not trying to argue against higher income taxes, which I favor; I just find this particular line of argument so uncompelling as to be offputting.)


Posted by: Brock Landers | Link to this comment | 05-13-10 8:33 AM
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43

I'm a relatively high-earner, and absolutely none of this describes me.

Well, Brock and I cancel each other out then. Except my parents don't know how to ski.


Posted by: heebie-geebie | Link to this comment | 05-13-10 8:34 AM
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44

42: Me also.


Posted by: Moby Hick | Link to this comment | 05-13-10 8:34 AM
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45

So, you Unfoggers understand normal policy things much better than I do. Do you think that the government will dismantle social security? Of what is the dismantlement likely to consist? Where will the cut-off be? (I assume they can't just say to 50-year-olds, "No social security payments for you, suckers!" or just cut off payments to the already-retired.) Will it be a Chilean-style arrangement where everyone is pretty much required to put money into the stock market and there's no defined payout? Will it just be a dramatic reduction in benefits?

This really depresses me, although it just reinforces my anarchist beliefs. I would like a society with defined benefit retirement because there's ample evidence (Chile, for example, where the military and certain government departments kept the old system and everyone else switched and only the military/government types have secure retirements) that it works. But in the face of all this evidence, common people are still bamboozled and the elites are just out for themselves, and even if the common people went and held protest signs, etc, there is no real mechanism for us to change policy.

You're welcome to unalarm me, though.


Posted by: Frowner | Link to this comment | 05-13-10 8:49 AM
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46

You're welcome to unalarm me, though.

No, they won't dismantle Social Security. Likely the continual pressure of existing entitlements on the budget will make new initiatives very difficult. For example, HCR will be much less generous than might have been the case otherwise. Also, necessary infrastructure/energy production changes will be delayed to the point that unmaintained sewers and uncontrolled global warming give rise to CHUDS that eat us all.


Posted by: Moby Hick | Link to this comment | 05-13-10 8:53 AM
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47

46: I find CHUDS much less alarming than funding my own retirement. Either functioning anarchy or a defined benefits policy, that's what I say.


Posted by: Frowner | Link to this comment | 05-13-10 8:55 AM
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48

47: Then pour used motor oil directly into the storm sewer.


Posted by: Moby Hick | Link to this comment | 05-13-10 8:57 AM
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49

Hell of a bargain for me. I was 20 in 1983, and was on the poor side of the bargain when the poor were paying more. The increases in the social security tax had a lifestyle effect on me my first few years out of college. Now that I'm rich, I get to "repay" the "loan" even though I was a "lender" when the loan was extended. that said, it is better to be rich than poor adn I will do my share and vote for higher taxes on myseklf at all opportunities.

fromn my recollection of the political news of 1983 (I was following the story pretty cloesly), the main line was that these huge tax increases and small increases in the retirement age woudl save social security for then next 30 years. The implication back then was that there might have to be more wage tax increases or increases in the retirement age after 30 years, not necessarily an income tax increase, but since no one could guess the demographic trends over time, a 30 year solution was sufficient. In retrospect, a good call.

Also, there's no risk that social security will stop paying out altogether. Seniors will still vote, and workers will still pay taxes. Some risk that payments will be slightly smaller over time or that the retirement age will rise some more.


Posted by: unimaginative | Link to this comment | 05-13-10 9:06 AM
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50

I'm really concerned about the rising retirement age, since it doesn't seem to be a guarantee that you'll actually have a job when you're 65--or anything better than check-out clerk. For rich people with real professions, yes, fine, I see semi-retired professors coming in at 70 and having a great time. But for working class people, not only is it harder to keep a job (who doesn't want to replace their older secretary with a nubile model?) but the physical work is more taxing. It was physically difficult for my father to keep doing his fairly demanding job after his late fifties, and he was able to retire at 63 (for various reasons having to do with the mixed class status of my family).


Posted by: Frowner | Link to this comment | 05-13-10 9:19 AM
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51

Will it be a Chilean-style arrangement where everyone is pretty much required to put money into the stock market and there's no defined payout?

This.

DeLong on the Future of Social Security May 4

Some of the Social Security trust fund will be invested in the stock market in hope of getting a higher rate of return--but the Treasury will guarantee to make the Social Security trust fund whole if and when its stock market investments ever turn out to be net losses.
BdL caught a ton of hell from his commenters.

Whatever the "guarantee" is worth.
---
Ya know, we are owned by finance. People like Simon Johnson say this is simple corruption and capture, but a Marxian would ask for a deeper analysis of why we are serfs to GS, how did it happen, what material conditions made it possible and or even inevitable. People who like to use those kinds of arguments against Lenin/Stalin (can't have a socialism in an underdeveloped economy) need to look at present circumstances with the same objectivity.

Dana Rodrik became popular this week because of the Euro bank bailout.

Rodrik says you can have two of three:globalization, democracy, and nation-states. You cannot have all three. Which one do you think is likely to be sacrificed?


Posted by: bob mcmanus | Link to this comment | 05-13-10 9:21 AM
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52

51.last: I think that is probably close to correct, except that I don't think that the "globalization + democracy" option is viable at a time scale that any of us will live to see.


Posted by: Moby Hick | Link to this comment | 05-13-10 9:24 AM
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53

Anyway, I'd bet that globalization will be sacrificed and that it won't be pretty.


Posted by: Moby Hick | Link to this comment | 05-13-10 9:28 AM
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54

BdL caught a ton of hell from his commenters.

Good.


Posted by: politicalfootball | Link to this comment | 05-13-10 9:34 AM
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55

Who was it who pointed out that goods are far more likely to be incompatible than evils? (I think the original example was that, even in something as trivial as driving laws, it was impossible to be both free and safe at once.)


Posted by: clew | Link to this comment | 05-13-10 10:32 AM
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56

it was impossible to be both free and safe at once.

If you love someone, set them free. So, seat belts and love are incompatible.


Posted by: Moby Hick | Link to this comment | 05-13-10 11:18 AM
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57

There's some cognitive dissonance for a new parent.


Posted by: clew | Link to this comment | 05-13-10 12:27 PM
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58

"It's a macroeconomic thing. Talk all this with a grain of salt. Imagine the early 70-80s as a crisis of overconsumption (hyperinflation) and the increased FICA taxes as diverting aggregate demand into national savings or investment. Remember, and it is not a coincidence, what happened to the equity markets 1980-2000."

This would make more sense if national savings or investment went up post-1980, instead of down.


Posted by: yoyo | Link to this comment | 05-13-10 2:20 PM
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59

58:I didn't say they were right I was just describing part of the plan. As a matter of fact, the New Classicals and New Keynesians are as out of their minds as the Lafferites. You are right:we cut taxes on the rich, controlled core inflation, had thirty years of deficit spending, and national savings went down.

We need more people like you on Obama's catfood commission.


Posted by: bob mcmanus | Link to this comment | 05-13-10 2:46 PM
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60

but keynsians say cutting taxes/increasing deficits will reduce national savings. and thats what happened.


Posted by: yoyo | Link to this comment | 05-13-10 3:06 PM
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61

60:Not my kind of keynesians

I say nat savings were reduced because of a reduction in wage share and fixed capital investment (roads, factories)

A misunderstanding of the gap between savings and investment, between actual gov't spending (TVA, Hoover Dam, WPA) and sending money to and through the finance sector (tax cuts & credits, deficit spending, subsidies) is one of the problems of New Keynesians.

"My" MMT crowd says "print and spend" rather than "borrow and spend". Deficits send the interest money to the coupon clippers

Whether or not this is good Keynes, well, Keynes wrote a ton, a lot of of it contradictory.

Google Michael Hudson, Bill Mitchell, and Steve Keen


Posted by: bob mcmanus | Link to this comment | 05-13-10 4:43 PM
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62

then all you're really saying is you want inflation.


Posted by: yoyo | Link to this comment | 05-13-10 5:05 PM
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63

So close to anticipating the word of the day.


Posted by: Moby Hick | Link to this comment | 05-13-10 8:11 PM
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