A former economic adviser to Sen. Bernie Sanders’ 2016 campaign has made a bizarre argument that the long-term debt crisis is a “hoax” that Republicans are “making up.”
Now, I’m perfectly willing to call out Republicans on their hypocrisy on the debt. But of all the arguments I’ve read denying the underlying problem, the one made by Stephanie Kelton at Bloomberg may be among the oddest.
Her case rests on two basic arguments.
The first one she makes is that there isn’t a debt crisis, because the long-term projections of the Congressional Budget Office assume that future gaps in the Social Security and Medicare hospital trust funds will be closed with general tax revenue, even though, under law, after the trust funds get exhausted, the programs cannot spend more than they take in.
That’s true as far as it goes, but what it elides is that according to the most recent Social Security trustees report, in 2034, when the trust fund becomes depleted, the system will only be generating enough income to cover 77 percent of promised benefits. So yes, if the federal government does nothing in the face of a sudden and drastic cut to retirement income 16 years from now, a Social Security crisis can be avoided. But that ignores the dramatic economic, social, and political ramifications.
Kelton then makes a secondary argument, quoting former Federal Reserve Chairman Alan Greenspan as saying, “there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.” She said, “That means Congress can always decide to make up any shortfall once the trust funds are exhausted. They just need to modify their own law to make it possible.”
In reality, the result of such a move would be hyperinflation that would limit everybody’s spending power. Furthermore, it would communicate to global markets that if they lend us money we’ll print more and pay them back with devalued dollars, resulting in high interest rates.
The whole point of warning about the debt crisis and arguing for action now is precisely to avoid these sorts of awful trade-offs. If the solution to the debt issue is to suddenly and dramatically slash benefits, raise crippling taxes, and/or print money and risk hyperinflation and sky high interest rates, then that’s what I would call a crisis.
