Republicans' Latest Hoax Is About Entitlements

Under the law, “because there is no borrowing authority, there is really a hard stop,” said Goss. That means that the blue line is really a red herring. According to Goss, the black line paints the more accurate fiscal trajectory.

Henry Aaron, senior fellow at the Brookings Institution, agrees:

If one excludes deficits in Social Security and Medicare Hospital Insurance that cannot occur under current law and established policy, the ratio of national debt to gross domestic product will fall, not rise, as CBO budget projections indicate. In other words, the claim that drastic cuts in government spending are necessary to avoid calamitous budget deficits is bogus.

The second fact Democrats should expose is even simpler and more powerful. To make it, all they have to do is repeat after Alan Greenspan.

The exchange, which took place in March 2005 at a House Budget Committee session, is a little wonky, so let me break it down. To try to get Greenspan, who was the Federal Reserve chairman at the time, to support privatizing Social Security, Republican Rep. Paul Ryan begins by describing the program as insecure. Danger — caravan — ahead!

Instead of agreeing with Ryan’s premise, Greenspan (under oath) rejects it outright. Here’s the critical part of the exchange:

Paul Ryan: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

Alan Greenspan: “Well, I wouldn’t say that pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Greenspan made two critical observations. First, he explained that keeping promises to future beneficiaries is entirely a matter of political will. Unlike a household, Congress can never run out of money.

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. So the blue line could become a reality, but it can’t lead to a debt crisis.

Second, Greenspan tried to get us to focus on a potentially legitimate risk — inflation. He knew that as baby boomers leave the workforce and move into retirement, they’re leaving behind fewer and fewer workers to produce the goods and services that all of us will want to consume in the years and decades ahead. The number of workers per retiree is expected to drop to 2:1 by 2035, from 3:1 in 2015.

Greenspan knows Congress can always meet its financial obligation to future retirees, but he’s concerned about what those benefit checks will be able to purchase. If tomorrow’s workers aren’t productive enough, then we could end up with an inflation problem as seniors compete with workers for a dwindling supply of real goods and services.

Democrats should be challenging Republicans to support the kinds of policies that will boost future productivity and ensure an adequate supply of labor — investments in education, infrastructure, R&D and immigration reform. To do that, they have to stop getting pulled into a blame game with Republicans over the cause of the so-called fiscal crisis. That caravan is a hoax.

In my next column, I’ll discuss an issue that really does amount to an entitlement program, the interest on the federal debt, even though no one looks at it that way. Pundits are panicking over these costs, too. Are their fears justified — or overblown?

— For more columns from Bloomberg Opinion, visit http://www.bloomberg.com/opinion.

Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She was the Democrats’ chief economist on the staff of the U.S. Senate Budget Committee and an economic advisor to the 2016 presidential campaign of Sen. Bernie Sanders.