Craighead Democrats

Because it’s an election year, we are being presented with false narratives, political messages that are little more that glittering generalities, and statements made to strike an ideological nerve or instill fear if the opponent is elected.
Democrats are not immune from these criticisms. Senator Warren proudly claimed that she is a capitalist, while failing to acknowledge that our economic system is now referred to as a “mixed” economy. Bernie Sanders acknowledges being a Democratic Socialist, and while he has many policy positions that appeal to liberals and young voters, he has never explained how his socialist leaning dovetail with a “mixed” economy.
Republicans, and more specifically, Donald Trump, have repeatedly claimed that the radical left will destroy the economy by leading us down the destructive road know as socialism, citing countries like the former Soviet Union, Cuba or Venezuela as proof. But it’s an election year, so these things are to be expected. The truth, as we’ll explain, is much more mundane, but the consequences of how we vote will have a serious impact on various segments of society.
When we talk about a “mixed” economy, which is exactly what our economy is, we’re talking about an economy with a significant public sector. In 2019, federal spending was more than 20 percent of GDP, with state and local spending be just shy of 17 percent of GDP, which means the 37 percent of our GDP is determined by forces outside what we typically think of as a market economy where supply and demand determines price and output.
But the pubic-private distinction is not as clear cut as you might think. The private sector produces 63 of output at a price in the marketplace, but the ability to afford products, in many cases, is assisted by government aid, for example, food stamps. Likewise, 37 percent of output is provided by the government, but this does not mean that all the goods and services are free, for example, admission to a National Park is many cases come with an entrance fee.
In the US, there is a bias in favor of privately produced goods and services at the expense of those provided by government. But the inadequate provision of publically provided or funded goods or services is inefficient, limiting our capacity to produce and unnecessarily harming many families. This election will give us the ability to correct some of the problems that an “over reliance” on goods and services produced by the private sector creates.
Starting in 2010, the majority of workers in the US labor force have been female. But, this past Thursday it was reported that more than 800 thousand women have dropped out of the labor force, compared to just 200 thousand men. The reason for the disparity in dropout rates was due to a lack of available childcare. For female headed families dropping out of the labor force is the biggest single contributing factor to family poverty.
In 2018, the poverty rate in the US was 11 percent, but for female-headed families of color, the poverty rate was more than 31 percent. In Denmark, where the government funds 75 percent of the cost of child care, it’s unusual for a child growing up not to have been enrolled in some form of childcare, and as a result, the poverty rate in Denmark is a fraction of what it is in the US.
In the US, according to the Kaiser Family Foundation, 49 percent of Americans have an employer provided insurance, which leaves them vulnerable when unemployment causes them to lose their health insurance. Twenty-three percent of home foreclosures are due to unmanageable medical bills, with some studies showing that 62 percent of bankruptcies are caused by medical issues. A public option, currently not available under the Affordable Care Act, would give families the option of staying with private insurance carriers or moving to the public sector.
What these two examples highlight are not that the US needs to eliminate private insurance or move to government run daycare centers, rather they make clear that we are not doing enough to provide support for families who have children or families who have medical costs that are unaffordable. A larger public presence in the economy is not a repudiation of the private marketplace, but an acknowledgment that many families are not thriving under our current economic arrangement.
The election will give the nation a vote, a voice, on how we want to move forward. As we mentioned in the past, a nation with its own currency, and significant idle resources, has no economic constraints on what it can provide its citizens. November’s vote could improve the economic outlook for many families for years to come.

Let’s being honest. Entitlements have a bad reputation in some circles in American society. Critics claim that we’re becoming an entitlement society where too many people feel that they are due or “entitled” to government assistance. Others complain that these programs are unaffordable, devouring the federal budget, or unsustainable due to trust fund depletion. Fortunately, none of these criticisms are valid.
By definition entitlements are provisions of a law that require payments to any individual that meets the eligibility criteria of the law. Entitlements are a binding obligation on the part of the government and eligible recipients have legal recourse if that obligation is not fulfilled. Social Security, Medicare, veteran benefits, and the Children’s Health Insurance Program are examples of entitlements. Even the farm bill, for all practical purposes, is an entitlement. In 2017, entitlement programs accounted for nearly one half of the federal government’s $4 trillion budget.
While the vast majority of Americans support the aforementioned entitlements, younger people, and even those not close to retirement, fear that entitlements, specifically Social Security and Medicare will not be around when they retire. This fear is understandable. Conservatives are constantly raising the specter of bankrupt trust funds spelling the demise of both Social Security and Medicare. The Social Security trust fund is projected to run out of money by 2034, with the Health Insurance fund (Medicare Part A) running out of money even earlier, by 2026. By law these trust funds are not allowed to payout more money than the trust fund holds in nonnegotiable government Account Series Bonds.
It’s here where we can identify the real problem. The Supplementary Medical Insurance fund (SMI), better known as Medicare Parts B and D is not in trouble, and the reason is that SMI has the legal authority to pay full benefits even if the trust fund is fully exhausted. In other words, the lack of a trust fund balance will in no way hinder the federal government’s ability to fund Medicare Parts B and D. The federal government has, as a sovereign nation who creates their own currency, an unlimited financial ability to make all mandated payments, what complicates matters, for some entitlements, is the lack of legal authority to make payments in excess of what’s in the trust funds, and it’s only this limitation which generates illusion that entitlement program payments cannot be made into the future.
In the early 1990’s Robert Eisner, an economist at Northwestern University, pointed out that our trust funds are simply accounting devices. The Social Security Administration makes no actual payments. Social Security payments are made by the Treasury acting through the Federal Reserve. The trust fund balances simply show whether expenditures made are greater than, or less than, the Social Security taxes we collect. Notice that while veterans’ benefits are an entitlement, there is no trust fund from which these payments are supposedly made, further highlighting the fact that a trust fund is not a necessary requirement for an entitlement to exist or have payments made.
This point about the government’s ability to finance entitlements was formally addressed in the House of Representatives, when in March of 2005, Alan Greenspan, then Chairman of the Federal Reserve, testified to the Committee on the Budget saying, “There is nothing to prevent the government from creating as much money as it wants.” Nevertheless politicians (and too many economists) insist that trust funds must be kept solvent. The proposed solutions always involve some combination of tax hikes, benefit cuts, or in the case of Social Security, an increase in the retirement age. All of which no matter how you parse it, works to the detriment of all concerned.
An increase in withholdings taxes, coupled with an income cap, makes the tax regressive burdening low-income families more than upper income families. Changing the indexing method to a Chained-CPI, as some have proposed, will reduce benefits and cheat retirees out of the income increasing productivity gains experienced by other families. And raising the retirement age is inequitable. Minorities, especially minority males, have lower life expectancies. Raising the retirement age will reduce their lifetime benefit payments relative to white families.
The irony for Social Security, is that the earmarked tax President Roosevelt sought was intended to build public support and to put the program politically beyond the reach of Congress. FDR thought that if the program did not rely on general tax revenue that Congress would have no reason to reduce benefits in the future since it would have no net impact on the budget.
In the end, what Robert Eisner clearly demonstrated was that the only guarantee for federal programs, or entitlements, is Congressional intent. Trust fund balances are immaterial, as the SMI trust fund demonstrates.
###