If they do this - pay down big gobs of debt for decades on end - and it doesn't cause something like a depression, then Keynes's reputation should be marked down toward that of his hero, Major Douglas.
Doug
>From: sawicky at epinet.org (Max Sawicky)
>To: "Owner-Pkt" <owner-pkt at csf.colorado.edu>
>Cc: "Dean Baker" <dean.baker at worldnet.att.net>,
> "Doug Henwood" <dhenwood at panix.com>
>Subject: We Are Not All Keynesians Now
>Date: Wed, 20 Jan 1999 16:28:19 -0500
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>( Full text is at http://library.whitehouse.gov )
>
>>From today's press briefing at the White House:
>
> MR. SPERLING: The President tonight lays out a bold
>framework for our fiscal responsibility over the next 15 years.
> . . .
> The cumulative effect of everything we're doing here is
>an enormous amount of savings. That's 89 percent of this, in
>Medicare, Social Security, and the universal saving account. The
>other 11 percent would be for military readiness and for domestic
>priorities. But through that 89 percent, an enormous amount of
>that ends up going to debt reduction, because the money going
>into Medicare, and the money going into Social Security that is
>not being invested in the market, is going to pay down debt, and
>in a way that pays down the debt, but where the interest savings
>are then allocated to Social Security and Medicare.
>
> The effect of this is dramatic on the publicly-held
>debt. When President Clinton took office in 1993, the
>publicly-held debt was 50.1 percent of GDP and rising. It is now
>44 percent of GDP. Under this plan, by 2014, it would be below
>10 percent of GDP -- the publicly-held debt would be less than 10
>percent of our nation's output. That would be the lowest level
>of publicly-held debt since 1916.
>
>. . .
>
> I think we'll take any questions you have.
>
> Q How much of the 62 percent that you allocated to
>Social Security will also -- anyway? And how quickly would you
>integrate prescription drugs?
>
> MR. SPERLING: Let me explain that because I know that
>anything having to do with government accounting, but
>particularly Social Security trust fund, is never simple. But
>the thing to understand is this is money that is additionally
>being put into the Social Security trust fund. So right now
>there is about $2.7 trillion or so that Social Security has
>coming into the Social Security trust fund over the next 15
>years. That money is already credited to Social Security. It's
>already credited. So what happens is Social Security get more
>than they need at the current moment. They essentially loan it
>to the government. The government agrees to pay back Social
>Security when it's needed to pay benefits.
>
> But now the government has this $2.7 trillion -- what
>can it do with it? Some people say, just give it back in a tax
>cut for consumption or an across-the-board tax cut. What we're
>essentially doing is saying, let's take this $2.7 trillion and
>let's use most of it to actually pay down the debt. And when
>we're paying down the debt, our interest costs are getting lower
>every year. But by devoting it to Social Security and Medicare,
>we're saying that that interest savings should be targeted back
>towards Medicare and Social Security.
>
> So we are -- this is very much a plan that focuses a
>lot on reducing the debt, but then targeting the savings to
>fixing Social Security and Medicare. So this actually means --
>so this means actually putting an additional $2.7 trillion or
>more into the Social Security trust fund.
>
> Q Above the expected surplus over the next 15 years?
>
> MR. SPERLING: Yes. Yes. And the benefit is that we
>are now in a fiscal situation, where we can pay back -- where we
>can afford to pay that and still have surpluses in the out years.
>
> Q -- to generate payroll taxes already? What tax is
>generating that money?
>
> MR. SPERLING: That is the 12.4 percent from payroll
>taxes produces an extra $2.7 trillion. But what I'm saying is
>that when we devote -- and I think ours just happens to be, like,
>$2.75 trillion -- that isn't just putting that $2.7 trillion -- I
>apologize, I didn't create the Social Security trust fund, I'm
>just explaining it -- that $2.7 trillion has already been
>credited to the assets of Social Security.
>
> Government then has this money. Government can spend
>it, that's what generally happened over the '80s, because
>government was in deficits. Or in surplus, government could give
>some of it back. We're essentially saying, why don't we take
>that money and retire debt and then direct the savings to
>Medicare and Social Security.
>
> So that's how publicly-held debt keeps going down. But
>instead of -- if we just retired -- you could just retire debt
>generally and you could just put the general fiscal situation in
>a better place. But part of our challenge of fixing the Medicare
>and Social Security system is we want Social Security first, we
>want to direct those savings so that we can say Social Security
>is solvent and then future generations do not have that hanging
>over them and they can deal as they will with the current needs
>of their society.
>
> Q Are you saying, though, that you're going to go
>out in the credit markets and you're going to buy Treasury's
>back, you're going to buy down the debt that the Treasury has
>already -- or are you just going to --
>
> MR. SPERLING: Yes.
>
> Q -- you're going to do that?
>
> MR. SPERLING: I mean, the mechanics of -- you choose
>not to roll over debt. I don't know the exact mechanic between
>choosing not to roll over debt or buying back. But the point is
>you're reducing the level of publicly held debt. And from a math
>or economic point of view, that's what you want to know. You
>want to know how much is the government crowding out the private
>sector. And so you are reducing -- we're not only reducing the
>deficit, now we're reducing the level of publicly held debt,
>lowering the interest savings, and then we're directing those
>back to Medicare and Social Security.
>
> And that's how it extends the trust fund to 2055. It
>extends it -- it would extend it a certain -- close to 2050, but
>because a portion of that is going into the market and we're
>getting the higher returns, that pushes up further to 2055.
>
> Q What's the dollar amount of the projected interest
>savings?
>
> MR. SPERLING: Well, the projected savings that are
>being directed toward Social Security -- in order to score it you
>have to allocate your amount. It's $2.7 trillion, of which about
>$650 to $700 billion would be an equity investment; and around
>$200 billion would be in buying special purpose bonds, that would
>then retire the debt. And what we're saying, we're asking for a
>new budget rule that when money from the unified surplus goes to
>buy a bond for Social Security or Medicare, that it is treated as
>an outlay, so therefore it can do nothing else but retire the
>debt. It can't be spent again by the government.
>
>. . .
>
>