Wednesday, February 25, 2004
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It's Greenspan week!!
Federal Reserve Chairman Alan Greenspan is a newsmaker -- whenever he opens his mouth, it makes the news (even if no one quite understands what he's saying). That said -- and I'll be willing to concede that this may be my imagination -- he seems to be opening his mouth quite a bit this week:
The more Greenspan clears his throat like this, the more the current occupant of 1600 Pennsylvania Avenue is going to get nervous.
UPDATE: Hey, it wasn't just my imagination, according to the Chicago Tribune:
posted by Dan on 02.25.04 at 03:16 PM
"current occupant of 1600 Pennsylvania Avenue is going to get nervous"
It would be an absolute crime to raise peoples payroll tax a penny before we start both means testing social security and the retirement age begins to climb over time. This is the most regressive tax in the western world. It takes money from the young and struggling and gives it to the wealthiest age bracket without regard to need.posted by: Mark Buehner on 02.25.04 at 03:16 PM [permalink]
Why is the current occupant of the White House going to be troubled by Greenspan's words? Maybe on protectionism, BUT Kerry and Edwards are campaigning far more protectionist than Bush is, and if anything Greenspan provides cover for Bush going in to November to campaign on Social Security. Fiscal Conservatives are frusterated with Bush, push hard on Soc. Sec. reform, and then make them choose too...which is more important to libertarians true reform of Soc. Sec. or opposition to the FMA. This could be the perfect opportunity. The thing about Same-Sex Marriage is that even to most libertarians it is a more minor issue than spending and soc. sec. reform. If so, Bush can give the most important things to the two elements of his base.posted by: Joel B. on 02.25.04 at 03:16 PM [permalink]
Wow, you can listen to Greenspan and Andrew Sullivan today or get the same information three years earlier from Krugman!posted by: GT on 02.25.04 at 03:16 PM [permalink]
Yeehaw! My social security taxes and those benefits flows right into permanent tax cuts for the rich! Woohoo!
Thank you Alan, thank you Ayn, thank you Scalia, thank you Sandra, thank you George!posted by: anne.elk on 02.25.04 at 03:16 PM [permalink]
It may well be the case that Greenspan's overall approach backs up the White House position on these issues, but I think Dan's point is that the last thing GWB wants is for someone to ask him in a debate in October: "Do you agree with Alan Greenspan's proposal to cut back on future social security payments in order to reduce the federal budget deficit?" This may well be a question for which the White House has a very good answer, but any hint that social security will be cut is guaranteed to rile up one the groups of voters who can be relied on with the most certanity to show up on election day.
I think you mistake what a tax cut is. Money isnt flowing to the rich, it has ceased to be taken from their pocket. That is unless you consider money to fundamentally belong to the government and whatever they allow us to keep is simply at their whim.posted by: Mark Buehner on 02.25.04 at 03:16 PM [permalink]
“Maybe on protectionism, BUT Kerry and Edwards are campaigning far more protectionist than Bush is..”
Yup, and don’t forget Ralph Nader. He will keep reminding John Kerry (who in hell is this Edwards guy?) that protectionism is now a dogma of those who control the Democrat Party. There is no way that the Massachusetts senator can push the issue into the background.
“... get the same information three years earlier from Krugman!”
Gee whiz, you most certainly have a valid point. Isn’t it bizarre that free traders Paul Krugman and Brad DeLong are considered Bush Lite by the Democrat Left? It’s enough to cause both gentleman considerable existential angst.
Uh sure, David Thomson. Krugman and DeLong are smart guys who have been seriously ticked at Bush for a while now, but the main point, as you so astutely observe, is that some unnamed lunatics consider them to be Bush Lite. Excellent job avoiding reality.posted by: Barbar on 02.25.04 at 03:16 PM [permalink]
“...is that some unnamed lunatics consider them (Krugman and DeLong) to be Bush Lite. Excellent job avoiding reality.”
Oh my goodness, I didn’t realize that every single Democrat presidential candidate, except for possibly Senator Joe Lieberman, are “unnamed lunatics.” Why are you insulting these men? What did they ever do to you?posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
You win a gold star if you can point to any of the Democratic Presidential Candidates referring to either Krugman or DeLong as "Bush Lite".
If you are just trying to make the point that Krugman and DeLong are closer to the Bush camp regarding issues than they are to Kerry and Edwards, I would be interested in seeing that. Of course I think both of the economists would want to hit you in the head with a shovel just for implying it.posted by: Rich on 02.25.04 at 03:16 PM [permalink]
I don't know...Maybe Soc. Sec. is the right fight to pick at this time. Older voter may be more reliable, but the youth vote has shown it is trending libertarian they know they get no benefits from Soc. Sec., they probably would like to see this issue addressed. In N.C. in 2002, Bowles and Dole debated and Bowles brought up Soc. Sec., Dole responded by holding up a blank piece of paper and saying that that was Bowles' is plan for Soc. Sec. Dole went on to win. Really, it may be that the time to bring up this issue has come.posted by: Joel B. on 02.25.04 at 03:16 PM [permalink]
Bush definitely doesn't want Greenspan saying anything about the deficit, let alone Social Security cuts, because that interferes with some of the absurd and dishonest sound bites that he's running on.
For example, in his recent campaign appearance in Tampa FL, Bush reassured his audience about the country's fiscal situation with these words:
"Listen, we got the money in government. You don’t have to worry about that."
So, when Greenspan points out that we in fact don't got the money in government, and suggests that we might have to cut Social Security as a result, it makes Bush look pretty dumb.
Krugman and DeLong Bush lite?
What on earth are you smoking?posted by: GT on 02.25.04 at 03:16 PM [permalink]
“If you are just trying to make the point that Krugman and DeLong are closer to the Bush camp regarding issues than they are to Kerry and Edwards, I would be interested in seeing that.”
This may surprise you but both Krugman and DeLong are free traders. How much of a heretic is Professor DeLong? Well, see for yourself. Only recently he defended N. Gregory Mankiw, chairman of the (Bush) White House Council of Economic Advisers:
When do I get my gold star?posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
The next time you see Greenspan it will be Rove stuffing him in the trunk of his limo and hustling him to an undisclosed location. The very last thing Bush wants is a debate about cutting SS benefits while at the same time defending his tax cut. He can not win that debate, his Congressional allies are right now hiding under their desks over this issue, and the Dems have been handed the perfect cudgel.
As someone at the lower end of the Boomer cohort, I can tell you that everyone of us has read with great interest our annual mailing from the SS Administration setting out our benefit projection when we reach retirement age. There is a reason Bush dropped his privatization proposal--it is a sure political loser that even the Republicans in Congress would not support. This idea is that proposal squared.
This is too delicious. I can't wait to see how the nimble on his feet Bush deals with this gift to the Dems from his good friend Greenspan.posted by: dmh on 02.25.04 at 03:16 PM [permalink]
No Gold Star for you, yet. I am well aware that Krugman and DeLong support free trade. However, support for free trade is hardly becoming "Bush Lite" (for reasons that include, but are not limited to, the fact that Bush has been an on again/off again supporter of free trade himself). You implied that Kerry and Edwards called the economists Bush Lite, and I was asking for some proof of that.
You repeatedly demostrate a misconception of the views of most Democrats. Sure there are some who might consider any support of free trade becoming the same as Bush. However most of us feel differently. Just as Democrats are not going to absolve Congress in favor of the UN, are not going to invite terrorists to blow up whatever city they please, and are not going to tax 100% of your income they are not going to stop trade either.posted by: Rich on 02.25.04 at 03:16 PM [permalink]
“You implied that Kerry and Edwards called the economists Bush Lite, and I was asking for some proof of that.”
Both Kerry and Edwards have implicitly charged the two liberal economists as Bush Lite. They are advocating trade protectionism and therefore logically Krugman and DeLong are heretics on this particular issue. The Christian Church burned heretics at the stake even if they rejected only one dogma---and the Democrats in 2004 will be tempted to do likewise with our two Bush Lite professors.
One could care less if you embrace free trade. All that matters, is that this will not be the position of John Kerry in 2004. And guess what---he is running for president and not you!
Wait a minute, you seem to be very confused. Did you know that Brad DeLong has an available public e-mail address? Who don’t you e-mail him? Here it is:
I will even help you a little bit further. This is what you might wish to ask him:
You support free trade. However, John Kerry doesn’t! Are you now a Democrat heretic? Oh my God, even Bush Lite? Will you be excommunicated from the Democrat party?
Your confused and existentially bewildered Democrat comrade,
I will not be sending that email. But at least you seem to have a sense of humor about this....excommunicated from the Democratic Party...if only they had that kind of party discipline.posted by: Rich on 02.25.04 at 03:16 PM [permalink]
People don't realize how serious Fannie Mae and Freddie Mac situation is. If those two go bellyup that will have a major impact on Wall Street and the economy. Here's a New York Times article on the subject.
Fannie Mae and Freddie Mac, which buy and package billions of dollars worth of mortgages every year, now hold roughly $2 trillion in debt, and Mr. Greenspan asserted that they were not in a position to protect themselves adequately from the risk of that debt in anticipation of a future financial crisis.
If the "$2 trillion in debt" doesn't get John Snow's attention then I don't know what will.posted by: Sullivan on 02.25.04 at 03:16 PM [permalink]
Jeff Smith (a professor of economics,
Bush is worried about what Greespan has been saying?
From the NY Times:
"The crucial issue out here is the rate of growth of productivity and the rate of growth of the economy, and what history does tell us is that keeping tax rates down will tend to maximize that," "The crucial issue out here is the rate of growth of productivity and the rate of growth of the economy, and what history does tell us is that keeping tax rates down will tend to maximize that," Mr. Greenspan told members of the House Budget Committee."
"Mr. Greenspan essentially rebuffed Democrats, who have argued that Mr. Bush's tax cuts were fiscally reckless and need to be rolled back partially at least."
Sounds like Greespan is giving Bush some ammunition for the campaign.posted by: Kozinski on 02.25.04 at 03:16 PM [permalink]
cutting ss is related to taxes how?
ss is (supposed to be) self funding.. its a "trust fund"...
but as a young person who is wasting money on a ponzi scheme that he will never see any benefit from, i say arrest any one who advocates ss for conspiracy to commit fraud (as you would be if you ran a private ponzi scheme!)posted by: hey on 02.25.04 at 03:16 PM [permalink]
Mr. Bush is one great poker player and strategist. His budget office laid it out last year. See chapter 3 (page 31) in http://www.whitehouse.gov/omb/budget/fy2004/pdf/spec.pdf
I wager he groks a financial statement faster than most. And he never cared much for wall street (over main street businesses). The numbers here speak for themselves. Our political system makes hard choices only when it has absolutely no other alternative. Thankfully, the GWOT has managed to insure the (minimum) required investment on DoD and DHS, so, when the cutting is done, that is all that need and will remain (i.e. those things that only the national government can do).. (i.e. "care to trade your life for your government dole (since it's not really an insurance or pension policy, irrespective of the political posturing), sir?" - an easy choice).
And this says nothing about how long term debt is not passed on to our children, it's passed on only to our RICH children (or so the trend lines read, granted, this could and should change)
Mr. Greenspan IS Mr. Bush for this particular hnd of cards. The socialists have yet to figure this out. It's great that they can't see beyond the current hand dealt.
/Ariposted by: Ari Tai on 02.25.04 at 03:16 PM [permalink]
I suspect that like only Nixon could go to China, only a Democrat will be able to reform Social Security.
Unfortunately, none of them seem to want to. Clinton, for example, had eight years to address the problem. What happened?posted by: tbrosz on 02.25.04 at 03:16 PM [permalink]
Too bad the only democratis posture here is "Yay lets watch GWB squirm." The democrats don't treat this as a legitimate issue. For that matter I haven't seen a democrat take any issue seriously since GWB was elected. All they do is try to position themselves to beat him.
SS is hopelessly broken. At best it is a steal from the poor give to the rich scenario. At worst it will cause the collapse of our government. And all the Dem's can do is pander to the greediest... err greatest generation. I am no Republican, but I wont be voting for any of those souless losers that are running now.posted by: Collin on 02.25.04 at 03:16 PM [permalink]
Frankly the ignorance and apologeticism so far in the commentary is stunning. Dave Thomson again shows his failure to grasp basic reading and writing skills, as well as simple logic. As for the rest ... yes, the real estate situation is pretty bad. Probably worse than the S&L Crisis in the eighties.
With the money supply contracting, Greenspan has realized that the economy is in for a crunch. He's a smart guy, has probably guessed this for months like the rest of the old hands but has kept his powder dry.
Now he's gotten desperate. This is Alan Greenspan crying for help. Really. It's quite extraordinary. This is why he's harping on deficits. He like the oldman understands that there is an explosive devaluation and asset bubble crunch that could be triggered in the short run. Right now the deficit spending is sucking the oxygen out of the economy. Greenspan must have figured out that actual inflation is greater than nominal inflation. If a devaluation crunch happens now, it'll spark those higher interest rates that he's been warning about.
That's why he specifically mentioned social security cuts. If it was possible to balance sufficiently by FY2011, I don't think Greenspan would have suggested such a drastic course of action. You know the oldman had been hoping that I was wrong this time, though I am usually right. Unfortunately, the hints dropped in Greenspan's testimony indicate that my analysis of the situation being dire as it is in fact correct. We are balanced on the edge of a cliff here. One strong gust and we could hit the tipping point.posted by: Oldman on 02.25.04 at 03:16 PM [permalink]
It was Greenspan, not Clinton, responsible for the length of the last economic boom. The single smartest thing that Clinton did was to not try to interfere with Greenspan. It was also Greenspan who gave warning that if certain trends didn't change that we would end up in recession. They didn't, we did.
When Alan Greenspan makes a statement about what direction America should take in order to promote or maintain fiscal health, I take it to heart and pray that the people in control of our economic policy are paying attention.
"I agree with you 100 percent. Clintonomics without Greenspan would have been disastrous."
1. Greenspan + Clinton/Robert Rubin = ______ Quarters of Economic Growth/Decline
2. Greenspan + Clinton/Robert Rubin = ______ Quarters of Job Growth/Decline
3. Greenspan + Clinton/Robert Rubin = ______ Budget Surplus/Deficit
5. Greenspan + Bush/Paul O’Neal/John Snow = _____ Quarters of Job Growth/Decline
6. Greenspan + Bush/Paul O’Neal/John Snow = _______ Budget Surplus/Deficit
7. A + B = 10
Solve for B and C
Thank you, TexasToast, for a moronic multiple choice that shows you have no grasp of economics.
And, tbrosz, those were my sentiments exactly and, the reason I was foolish enough to vote for Clinton the first time around. The Democrats don't care about addressing the SS insolvency issue so long as they can use it as a political weapon (see above posts for additional confirmation, if you needed it).
I never will be able to fathom such stark cynicism.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
Dan i guess you hate for Bush is showing though.
Social Security was always a scam from the very beginning. Anyone who attempts to set up something like this in the private arena will go to jail for running a Ponzi scheme, anf for very good reasons. And as to means testing, this is what its "progressive" proponents fear the most. What made it politically viable for so long was that everyone was eligible to get the goodies. Once you start restricting it to those who are actually poor, the sentiment for retaining the system will fade away to a minority view, in which case it might just be abolished.
The fact is that there is a substantial portion of the political class who desire nothing less than to emulate the "cradle to grave" welfare states in Europe. Whether such an option is desireable is open to debate, but the fact that most of the proponents of such goals wish to conceal their ultimate objectives disturbs me to no end.
Any politician who thinks the American public needs to be deceived "for their own good" really deserves a mandatory career change. The Ponzi scheme known as Social Security is going to collapse soon. The essential question is who will get to pay for this stupidity.posted by: tcobb on 02.25.04 at 03:16 PM [permalink]
"Thank you, TexasToast, for a moronic multiple choice that shows you have no grasp of economics"
Sorry to offend, but my point was that Greenspan is the constant and one of the larger variables is the economic team.
you might find this interesting -but from your tone,I rather doubt it.posted by: TexasToast on 02.25.04 at 03:16 PM [permalink]
Golly. And here I was going along like a fool thinking that Social Security was, like, a good thing and all.
Greenspan says that repealing the tax cuts would not save Social Security. Maybe he's right, but it'd have to help, wouldn't you think?
Yes, tax cuts stimulate the economy, but Bush's tax cuts are not particularly well targeted in that regard. Right? For instance, repealing the estate tax. That's not the most effective way to put money into the economy.
Grrrr. SS has kept an awful lot of old people from having to eat cat food, or nothing. I don't know why its si unpopular with you folks. Maybe it's an Ayn Rand thing. I haven't read Rand, but I infer from what people say that it goes something like: The purpose of life, in the big picture, is to seperate us into Winners and Losers and get the losers Off The Team.
That's an opinion, so I can't prove that it's wrong. But it's awfully mean-spirited. In the end, it leads to this: seeing an old man, in penury, hungry, bereft of dignity, filled with fear and suffering -- and taking a certain amount of self-righteous pleasure in that spectacle.
I can't get behind that.posted by: voice of the democracies on 02.25.04 at 03:16 PM [permalink]
VOTD - Eating cat food is one thing. Taking money from struggling young people to send to wealthy older ones is another.
It's like the prescription drug benefit. The Democrats wanted a plan that would have all of us paying for Bill Gates' and Warren Buffett's medications. Of course, both of those guys are eligible for Social Security. Where's the social justice in that?
And, no Texas Toast, I'm not interested in your propaganda. The Bush tax cuts put money in the pockets of people who create lasting jobs in America. And, by the by, it's working, as you will come to regret painfully in November.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
--Greenspan says that repealing the tax cuts would not save Social Security. Maybe he's right, but it'd have to help, wouldn't you think?
No, because the money would be spent immediately somewhere else, without anyone doing *anything* to correct the problem.
You could say "But it pays for N boomers' retirement!" okay--now what?
As long as Congress can keep talking about how little things x,y, and z are enough to save SS while they are in office, they will never institute structural reform.posted by: foo on 02.25.04 at 03:16 PM [permalink]
Funny - wasn't it both Mr. Gates and Mr. Buffet that came out against the tax cut? I guess they could foresee comments about people living on cat food. True compasionate conservatives.
If I'm not mistaken, the man who will almost certainly reside on 1600 Pennsylvania Avenue from January 20, 2005 - a man who by the way served in Vietnam - wants more protectionism, more entitlements and more government intrusion in general. Maybe it's Greenspan who is getting really nervous.posted by: Peter on 02.25.04 at 03:16 PM [permalink]
"If I'm not mistaken, the man who will almost certainly reside on 1600 Pennsylvania Avenue from January 20, 2005 - a man who by the way served in Vietnam - wants more protectionism, more entitlements and more government intrusion in general."
I didn't know that Bush served in 'Nam.posted by: Fed up with the GOP on 02.25.04 at 03:16 PM [permalink]
One important fact of life. Money, debt, SS etcetera are ideas in peoples heads. The real truth is that Mexico, Guatemala, and all the other exporters of people are not collectively going to spend 20 years of their life wiping the drool off the baby-boomers. Its time to have a stern talk with the people in the mirror.posted by: pragmatist on 02.25.04 at 03:16 PM [permalink]
The more Greenspan clears his throat like this, the more the current occupant of 1600 Pennsylvania Avenue is going to get nervous
I get a real kick out of how many of you have turned this into a GOP v/s Republican game. You guys act like a bunch of loud mouth morons with foam fingers routing for your team -booing the ump no matter how valid his call. Grow up and learn to work on the same team - as long as the politicians can divide us on this - they won't work for us. We need to demand not real action as this will affect us all.posted by: Becky on 02.25.04 at 03:16 PM [permalink]
I'm not very good at economics, so perhaps you people out there can answer this question.
I suspect that like only Nixon could go to China, only a Democrat will be able to reform Social Security.
The last time anyone made any serious talk about fixing the Social Security problem was in the mid 1980’s when Republicans had control of the Senate. There was a proposal floated to change how we set the base payment for benefits from wage-indexing to price-indexing. Democrats promptly began running ads about how it would “cut benefits by 30%,” Republicans lost control of the Senate, and no one has seriously talked about it since.
posted by: Thorley Winston on 02.25.04 at 03:16 PM [permalink]
voice of the democracies wrote:
Golly. And here I was going along like a fool thinking that Social Security was, like, a good thing and all.
Yes that was rather foolish if you think about it. Social Security either (a) takes money from people when they are young, denying them the opportunity to save and invest it for their own retirement, and then gives them back their own money if they survive to retirement age (b) transfers wealthy from poorer young people to richer retirees, or (c) both. How anybody could think that is a good thing baffles the mind.
Greenspan says that repealing the tax cuts would not save Social Security. Maybe he's right, but it'd have to help, wouldn't you think?
Nope because the problems is demographics. Greenspan evidentially believes that lower taxes would be a boon to long-term economic growth which is part of the solution to fixing the Social Security problem.
Yes, tax cuts stimulate the economy, but Bush's tax cuts are not particularly well targeted in that regard. Right? For instance, repealing the estate tax. That's not the most effective way to put money into the economy.
It depends, in so far as repealing the death tax removes economic distortions that hurt capital formation (as is usually the case whenever we have social engineering with the tax code or when people have to take actions they otherwise wouldn’t in order to avoid being taxed), it probably is a good thing to get rid of it.
Grrrr. SS has kept an awful lot of old people from having to eat cat food, or nothing.
Why would someone eat cat food when canned tuna is less expensive and probably more nutritious? Or is this just a strawman argument people throw around to silence debate about changes to government entitlement programs?
I'm 54 and I'd give up every cent I paid into SS for the opportunity to invest privately 13% of my salary until retirement. No, I am not a rich guy. This is a moral issue - why should someone else fund my retirement? This is also a fiscal issue - I believe the economic improvement from shedding this drag on the economy will allow these investments to grow enough to take care of me when I can no longer work. SS is a very bad deal for everyone. If it were voluntary, do you seriously think anyone would invest in it? QEDposted by: MarkD on 02.25.04 at 03:16 PM [permalink]
Let's see, Greenspan:
1. Established the SS trust fund whose only asset is the decrease in Federal deficit (combined budget surplus) it can engender before it comes due.
2. Testified to Congress that the trust fund surplus (combined budget surplus) was going to destroy our public finances in support of tax cuts which specifically excluded the payroll taxes that created that surplus.
3. Now suggests that the deficits caused in good part (roughly 40 percent?) by those tax cuts are destroying our public finances and recommends that cuts be made to SS and other government spending to save our finances.
Doesn't this program amount to the largest net transfer of wealth up the income scale in American history?
I support indexing the retirement age under Social Security. (I also believe that Americans under 30 should not be required to contribute, and that some form of private accounts could be more efficient.) And I believe that Greanspan really did want triggers on the tax cuts as O'Neill suggests. Nonetheless, Greenspan has certainly aided and abetted a first class fleecing of the many American's retirement savings. He better clear his throat.
Contrary to the hochum of several posters here, Social Security is not a ponsi scheme. A ponsi scheme is not economically sustainable under any circumstance. Social Security can be economically sustainable.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
But Stan, I think what Thorley, Mark and others here are saying is government 'entitlement' programs have no demonstrated history of
- Infact, I'm willing to wager that Dave Thomson would argue that givien it's reliance on taxing the public, 'economic sustainability' is a bit of a misnomer -
Given this reality, I think the short-hand of 'ponsi-scheme' is valid for discussion purposes here.
But hey, I think people should do two simple, unbiased things before they continue to defend the program:
1) When you've finished reading my post, type:
into your navbar. Just take a good long surf through that monster. Let the time, energy and money that goes into that site, let alone the rest of the iceburg, sink in.
2) Now ask yourself; "Couldn't this essentially be the same program if it was a tracking device, at some future date,that said?":
"SSN xxx-xx-xxxx, Thanks for logging in today. Currently, we have you on file as investing in X retirement plan."
"Your program is currently in compliance with HR XXXX 'The SS Reformation Act of 2007'"
"Your current balance shows that you will have $X to draw monthly at Age XX"
"Would you like to Know More?"
...As to the Cat-food Canard, Mr Winston's post is sufficient - I would only add that just as wioth the nonsence of the tobacco lawsuits, I often ask myself: "OK, What's the 'no
posted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
It's my understanding that SS was not meant to be a "retirement" account. Rather, it was a safety net for those retirees that needed it.posted by: GWM on 02.25.04 at 03:16 PM [permalink]
less than date' on the public's general understanding that smoking/SS is unhealthy/insovent, and I need to start taking personal responsibility IOT safeguard my future"
posted by: Tom Con't on 02.25.04 at 03:16 PM [permalink]
Stan - the future liability of Social Security is estimated at $26 trillion. The Bush tax cuts are A) a drop in the bucket compared to that and B) in the long term, it is better to get the economy up and running than it is to enforce austere fiscal policy (see Herbert Hoover, administration of, for details) C) none of the Democratic candidates have a plan for reducing the deficit and, indeed, by all accounts, would significantly increase it while decreasing our national security and D) Bush has done exactly the right things in regard to the economy - do not get suckered in by the lies.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
RIght. Exactly where I'm heading with my post - let's see who can come up with the source doc first and post some juicy sections...posted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
GMW - and ALLCON
OK, So far have tracked the idea ("Agrarian Justice") to Tom Paine - Probably not news to most here. ANd of course, most of Europe was doing it first - but that we all knew.
Of note to proponents of reform here:
Paine's cental 'meme' was taking a lump payment out of people at the back end (Shades of Our 'Death Tax') and, if you'll forgive the hip-hop talk, "Pay it Forward" to a given 21 year old. Why? SO that they had a sum that they could invest against they're own eventual retirement.
This is essentially what Reid, Dave, Thorley, Mark, TCobb and others here have been talking about.
Curiouser and Curiouser, eh, GMW?posted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
"And, no Texas Toast, I'm not interested in your propaganda. The Bush tax cuts put money in the pockets of people who create lasting jobs in America."
Why not? I am eager to read your propaganda. I might just learn something. I might not, but I won’t know if I never even look.
I think we can look at SS in two different ways. The first is simply as a transfer payment and the second is something analogous to a life insurance policy or private annuity. As a transfer payment, it is an extremely regressive tax on those least able to afford it. What the folks who want to privatize SS don’t realize (or don’t advertise, take your pick) is that the SS “trust fund” is nothing more than a promise to pay. Without this generation’s contributions, there is no money to pay current benefits because the government has spent it all. The deficit figures don’t count this huge obligation, but its there. Yes, I agree that SS needs to be means tested, but if we put all that we pay into the government into one big number by combining the payroll tax, the income tax and gift and estate taxes, Bush’s tax cuts are incredibly unfair.
If we look at SS as a “mandatory” life insurance/annuity program, than it seems that the proper analogy is to look at the government as a huge insurance company. There are two main types of popular “permanent” life insurance – whole life and universal life. Whole life guarantees a rate of return on investment to fund the life insurance benefit – and the guaranteed rate of return is low. The insurance company has accepted the risk that the rate of return will be enough to fund the death benefit. What guarantee do you actually have? Only that the company will manage its portfolio to fund the rate of return it promised to you and all its other expenses, or failing that, the state’s fund that pays the obligations of failed insurance companies. Universal life grants you partial control of the fund that generates the rate of return necessary to fund the death benefit, but it does not guarantee performance and shifts the risk of underperformance to the policyholder. As you “manage” the portfolio, you bear the risk. In both cases, however, it is not really your money – it belongs to the insurance company. If it were really your money, why would you have to pay the insurance company interest to “borrow” it?
Like universal life, privatization of SS will shift the risk of bad performance from the insurance company/government to the policyholder/social security participant. What happens when millions of social security “participants” invest their “fund” in Enron stock? Lots of cat food or a huge government bailout a la the Savings and Loans.
So if Social Security is analogous to a huge mandatory whole life benefit (because of its guarantees), it stands to reason that what Greenspan is saying is that the unprecedented deficits could cause investors in the insurance company ( ie, investors in US government obligations) to wonder about our ability to pay them back. As they begin to wonder, they will invest their money elsewhere and interest rates will go up. In other words, Bush is making people wonder about the “full faith and credit” of the United States government.
That is really scary.
The thing about privatizing Social Security... it seems to me that either:
A) You decide if you want to participate and/or how your money is invested, or
If it's B, it's not that much different from how the system works now. Unless you want to argue that, for technical reasons, its more efficient. If that's true, then fine, I guess. However, if the Social Security administration is investing in the stock market or whatever, the potential for corruption... well, with that much money involved, corruption would be almost inevitable. If a foolproof mechanism could be demonstrated to prevent this, then fine.
If it's A... you're going to have a lot of people making foolish decisions. Or being surprised when (as happens) even non-foolish decisions blow up in their face.
I realize that the anti-SS crowd figures Hey I wouldn't invest in Enron or dot-coms or any of that foolishness. I will always pick the winning horse, I will always be young and pretty, I will glide through the travails of life on a golden horse.
OK, fine, granted. For you.
The question then becomes -- what do you do with the losers? You can't just shoot them. Right? They're going to hang around, clogging up the planet. Sure, maybe they should they just crawl off and starve somewhere, but they won't. They're tenacious, they cling like barnacles to the earth.
We are never going to go back the pre-Roosevelt era when people quietly starved to death in their homes (yes they did). It's not politically possible anymore, for a number of reasons.
People are reasonably willing to watch marginal people (the homeless) starve and freeze to death. They're not willing to watch people like themselves, people who worked their whole lives, do so. People are not going to be like Hey look it's Miss Sullivan, my beloved old English teacher -- frozen to death on the sidewalk! Guess her investments didn't pan out! Oh well more for me!
You think I'm engaging in hyperbole? But if you don't have SS, or if you have a kind of SS where you can blow it -- what mechanizm would prevent old people starving and freezing to death, as they used? You have to have demonstrate an alternative mechanism.
Anyway... maybe people should be willing to let the foolish and the unlucky die, and decrease the surplus population. Maybe if they read Ayn Rand they would be. But they aren't. That's political reality.
Politician know this, which is why President Bush is careful to apply they compassionate label to most everything he does.posted by: voice of the democracies on 02.25.04 at 03:16 PM [permalink]
I noticed that the major media (and most people posting) have not mentioned one very important factor. He actually said that we needed to "curb spending" to bring the deficit down. How come that doesn't get played?posted by: bassman on 02.25.04 at 03:16 PM [permalink]
I recently went home to visit with my 50-some parents, and my late 70s grandmother. Grandma is still working, pulling down $15,000, and also getting her $7000 in a year in social security benefits.
At this rate, and at the rate her medical bills are going up, she won't be able to support herself, the car she just bought, and the house she's lived in for 50 years.
Dad and I think she should move in, retire (she is getting tired of workin) either with my folks, or near me (as I live in a city) so she can stay relatively independent. She won't do it. She says "I've never planned in my life, and I'm not going to start now".
"I don't understand" she said one night over a card game "I thought Social security was going to take care of me when I grew old".
She was really angry when Dad and I started laughing.
The point is - Social security as it exists now is not keeping older people from starving (let's see how _you_ do on only $7000 a year). If it was her sole source of income, and she lacked any family who cared to help, she's be down right miserable, and homeless. $7,000 doesn't strech very far in our brave new American economy.
My father wants to retire at 62. I don't think he can do it either, because he and my mother didn't save. He, like me, doesn't believe Social Security is going to do all that much good when handed out in $500 increments a month.
Me, well, at almost 30 I don't plan to retire at all, nor do I expect to see Social security. I, like the gentleman who posted earlier, would much rather take my fate into my own hands, and invest the money in my 401 or under my mattress, then leave it in the hands of a government who treats it like their own private bank.
So while I agree - the people of this country want a social safety net, I disagree that our current SS system is the way to achieve it. Nor can you control people's foolishness - whether it be their lives or their money, people will do as they like.
Unless you can come up with a system where the governemnt can stop people from acting like fools and failing to plan for a future in which they will not work, you won't be able to achive your goal of stopping people from "quietly starving in their houses". People do that _right now_ despite our social networks. People refuse to make lifestyle adjustments. People continue to run up credit. People are going to act like fools...and asking the governemnt to save them from the long term consequences, is like asking the government to stop the tides.
A generally good post, but always with the Doom and Gloom scare lines.
So I'll take just one, your offered Miss Sullivan.
Heck, let's just use your "single random example univeral extrapolator" -(SRXUX) Which all the MIL/Gov types here will understand to pronounce 'Circus' - to disprove your hypo.
Miss Sullivan, supposing she doesn't starve before she retire's at 62, will draw on her 'X group teacher's union pension to buy her *Tuna* - not cat food, *TUNA* (See Thorley, above) - and heat her house - since she presumably lives above the Mason-Dixon line.
So much for your example. Why don't you trust your dear old teacher enough to let her opt out of SS?posted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
Reid: Bill Gates' SS eligibility
I understand your anger (without agreeing), but that's a design feature of Social Security -- that in coarse terms, your share of the total payouts is in proportion to your share of total contributions in your cohort. That's not quite accurate as your are contributing and receiving together with many other cohorts, but the basic principle stands.
So let them have it if they paid for it.
My quibble with Social Security (and FICA) is that the tax base is only working income. This creates incentives to engineer non-FICA working arrangements (like the infamous offshoring). Covering other income types as well (and of course building an entitlement for the people who have to pay the tax) could lend the system more stability, as it removes the tinkering with work arrangements loophole. But then maybe the financial system would be offshored?
MarkD: Don't forget to figure in the cost of taking out disability insurance with such terms that it would give you a level of income comparable to SSI should you (heavens forbid) lose your ability to work in a few years.
“He actually said that we needed to "curb spending" to bring the deficit down. How come that doesn't get played?”
The liberal media do not wish to place their Democrat partners in an awkward situation. The Democrats have no interest in curtailing government spending. This is how they bribe voters to support them. Does anybody truly believe that the Democrats are willing to address the Social Security mess? On the contrary, this issue is taylor made when it comes to beating up on Republicans. God help the Republican politician who even hints that cuts are needed in Social Security. The sound bite will be used repeatedly during the election campaign.posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
"But Stan, I think what Thorley, Mark and others here are saying is government 'entitlement' programs have no demonstrated history of
- Infact, I'm willing to wager that Dave Thomson would argue that givien it's reliance on taxing the public, 'economic sustainability' is a bit of a misnomer -"
Posted by Tommy G at February 26, 2004 10:13 AM
Tommy G, that our system has been run unsustainably is true. That politics may make it impossible to ever run it sustainably may be true (I don't agree, it is only unlikely). Neither of these points would make the lie that Social Secuirty = a ponzi scheme true however. One is not economically sustainable under any condition while there other is economically sustainable.
Posted by Reid at February 26, 2004 10:19 AM
Reid, the tax cuts were poorly targeted for the situation we were in. We clearly needed demand stimulus. I'm a political scientist and an economist. I don't need Paul O'Neill, Paul Krugman or anybody else to tell me why those cuts were chosen. Telling me that I shouldn't get taken in while making the claim you make is very ironic.
The small size of the cuts relative to Social Security doesn't absolve them of their impact on the trust fund. The only surplus we had was due to the trust fund. The President had a commission look into fixing Social Security as he came into office. Not once but twice he proposed tax cuts specifically omitting payroll taxes from the cuts. For somebody promising to "give the money back" - I think that is the quote, I'm not amused.
Posted by GWM at February 26, 2004 10:16 AM
Just because it is meant to be a safety net, doesn't somehow mean it isn't a retirement account. It is a large portion of many people's retirement savings.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
Krugman and DeLong Bush lite? What on earth are you smoking?
Clearly, you missed Howard Dean's talking points.
posted by: Bithead on 02.25.04 at 03:16 PM [permalink]
Tommy G, just to point out, I wouldn't comment if they stated something along the lines "Social Security has been operated like a ponzi scheme" instead. That statement is obstensibly true and is very defensible.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
regardsposted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
Sorry to club you with the obvious - but isn't it up to the individual (heaven forbid) to buy insurance policies?
If we're going to reform SS and SSI, why would isurance against disability to continue working be any different?posted by: Tommy G on 02.25.04 at 03:16 PM [permalink]
Every one of the ideas Greenspan brought up were either discussed within the Reagan administration, formally proposed to Congress, or reflected in the American position in trade negotiations during Reagan's term. This is going back over 20 years.
So none of what Greenspan says is new. The zeal of elected officials, particularly but not exclusively Democrats to denounce all of these ideas is not new either. Two things have changed: first, the GOP is George Bush's party now, not Reagan's. Second, in over 20 years the American economy has changed, the housing situation has changed, the working population has gotten older. Hardly any of the problems Greenspan refers to would not have been more easily dealt with then than now, and not one of them will be easier to deal with ten years from now than they are today.
The other thing Greenspan carries with him from the Reagan era is his insistence that tax increases be considered only as a last resort. This is disingenuous. While he knows that tax increases will not fix the Social Security problem if benefits are not addressed, he knows that the reverse is also true -- no amount of benefit reduction that has any chance of being approved by Congress now or in the future will maintain the solvency of Social Security without additional revenues coming into the system at some point. There is no free lunch for anyone at this table.posted by: Zathras on 02.25.04 at 03:16 PM [permalink]
The truth on this matter is somewhat in the middle. The oldman favors the course of action that he just recently discovered that Paul Oneill and Greenspan did, but he came to same conclusion separately. Greenspan never favored the tax cuts without triggers to prevent deficits in revenues were less than expected.
The original plan pushed by the policy pragmatists in the Bush Admin was tax cuts with triggers, set asides for SS, and about a trillion for a phasing out of SS. For about a trillion dollars at the turn of the millennium and with no deficits, it would have been possible to convert everyone 37 and under to wealth accumulation.
The only politically feasible, ethical, and practical approach is to guarentee the people already close to retirement age some SS and then take extramoney from elsewhere to create regulated/supervised investment accounts. These accounts would only be able to invest in diversified mutual funds with a mix of mostly stocks, and some bonds and cash in them. This would prevent people trying to game the system and end up bankrupting themselves. Choice would be limited to those funds meeting certain transparency and stability requirements (i.e. no all tech all the time funds).
The point is that we have to switch out of entitlement benefits to wealth accumulation benefits. Further to make it work, there would still have to be redistribution. That is some of the more well off wouldn't see all of their money go into their own account, and some of it would be dispersed to people less well off. In addition there will always be the widows, orphans, etc. who are assisted under SS now.
Any system that reforms SS would have to include such regulations preventing excesses, some redistribution, and a lifting on the cap of the payroll tax.
It just wouldn't work otherwise. The oldman is for such reform. He believes it timely and critical. He also notes that the cost of implementing such reform increases literally by the day.
Bush's economic policies have been disasterous as people have noted, because they have undermined the full faith of those expecting the US to meet its obligations in the future. This is already creating instabilities that will lead to higher interest rates.
In addition, think about it - what do you spend your money on? Housing prices are going up. Energy costs are up. Education costs increasing way more than nominal inflation on all ends of the spectrums - since public schools are falling apart, people are taking longer to complete college degrees, and they need to go to school more. Food prices are up. Medical costs are up. Insurance costs in premiums, copays, and denied coverage are up.
All of these are way up more than 1% yearly the oldman can tell you!!! So how can inflation be 1.1% which is what is being claimed? It can't. The oldman has been crunching the numbers. It isn't. The fix is in. Some prices like computers are declining. But most of people's incomes are going into areas where costs are spiraling.
Inflation is way more than the nominal percentage that is being toted. Yet wages are flat, Greenspan is touting "Chain-weighted" inflation indexing because he thinks the CPI overestimates inflation ...
no way. If you look at the real structural costs of cost of living - housing, education, food, energy, medical costs, insurance, etc. then inflation is way way up.
But if they admitted that, they'd have to pay out more. By suppressing inflation numbers, they can justify low wage increases, low interest rate policies, and low entitlement benefit increases. Can you imagine if SS were being indexed up at 4-5% yearly??? Yet that's what the oldman's calculation of true inflation is. It's about 5% per annum right now, with that being a conservative estimate.
If you make that adjustment, then all the other numbers fall in to line. Real GDP growth, job numbers, money supply, asset inflation, wage pressure, trade deficit - it all works out. There is no mystery. Except that the government is vastly lowballing inflation to keep the lid on the pot from boiling over. If they admitted real inflation was about 5% it would all fall apart. The markets would demand higher interest rates. The dollar would suffer a catastrophic fall. Real estate prices would crash. There would be a commercial real estate glut. The stock market would crash. SS would be instantly discredited. It would all fall apart.
They've been doing it for nigh on 20 years, and it's the reason why we had the "jobless recovery" in the 90's. That was the first sign of the deviation of real inflation from the measured nominal inflation in their indexes. The sad thing is that the Fed got caught doing this before - in the 70's under Burns. It just seemed unimaginable that they'd do it again. But they did.
It almost worked too. If they'd only been able to reform SS and the long term budget in the 90's or under Bush. Right now the deficit spending is sucking all the oxygen out of the economy. Consumer confidence contracted in February. The economy is not strongly recovering. Indeed, the reverse. Money supply continues to decline/contract. Soon it will be at a level that with actual inflation will tip the US economy into a double dip recession.
This is why Greenspan is pounding the doors, raising the alarms, we basically have just a few years - maybe 1-2 to clean up and start reform - or the whole charade will fall apart.posted by: Oldman on 02.25.04 at 03:16 PM [permalink]
Stan - "The only surplus we had was due to the trust fund."
If you really are "political scientist and an economist", then you know that the trust fund concept is a fraud from the get go. The government cannot have a "trust fund" in the sense that individuals can. The government spends the surplus because it must. There is no bank big enough to hold the government's assets (and, of course, it would make no sense, since the government provides the money to the banks in the first place) and, in this country, and for very good reasons, the government is prohibited from owning the means of production (no stock portfolio for Uncle Sam). The government can't just throw the money into a back room and pull it out when it is needed. That would be no different than just printing up new money at an arbitrary place and time, which is always within the government's power (more on this in response to Zathras below).
If the surplus is too large, then payroll taxes should be reduced to zero out the surplus. But, if people are not paying as much in, they cannot expect the same level of benefits so, this would amount to gutting the entire Social Security program.
What is needed now is NOT fiscal games and shuffling money from one place to the next. What is needed is full employment and rapid gains in productivity and infrastructure to ensure that the goods and services are there.
Make the goods and services and, prosperity will follow. It is sine qua non. No goods or services and, your worthless dollar bills are just so much paper.
That is what this White House is focusing on. That is what is needed.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
The other thing Greenspan carries with him from the Reagan era is his insistence that tax increases be considered only as a last resort. This is disingenuous. While he knows that tax increases will not fix the Social Security problem if benefits are not addressed, he knows that the reverse is also true -- no amount of benefit reduction that has any chance of being approved by Congress now or in the future will maintain the solvency of Social Security without additional revenues coming into the system at some point. There is no free lunch for anyone at this table.
If by which you mean that we will need to draw from general revenue to replenish the monies borrowed from the Social Security “trust fund” or possibly to make up for short-term deficits cause by letting younger workers opt out (which is still less of a problem than the long term deficits caused by forcing them to stay in), then I agree.
However if you mean that you think it will be necessary to raise taxes and that it is not politically possible to come up with a formula to make the system solvent without new taxes or raising existing ones, then I disagree.
The first two and last reform can also be applied to Medicare just as we can enact some of the market-oriented health care reforms the POTUS introduced in his SOTU such as health care savings accounts, letting the self-insured deduct their health care costs as can employers for their employees, and expanding the ability of people to form private risk pools outside of their employers. We can adopt similar reforms to Medicare and Medicaid, perhaps through vouchers or some other mechanism.
My point is that I think it is entirely doable to fix both problems without raising taxes and actually expand freedom for workers, patients, retirees, and taxpayers in the process.
“My point is that I think it is entirely doable to fix both problems without raising taxes and actually expand freedom for workers, patients, retirees, and taxpayers in the process.”
Your point abstractly may very well be accurate, but so what? Nothing is seriously going to occur until we encounter a near disaster. I’m sorry to have to bore people to death and be so damn redundant. Alas, I must once again repeat myself like a broken record: any Republican discussing this issue is indulging in suicidal behavior. They will be torn to shreds by the liberal media and political establishment. Every sentence they uttter will later be used in a sound bite to destroy them politically. Only the Democrats win votes on the Social Security issue. The Republicans will most assuredly be dismissed as a bunch of heartless scum bags forcing granny to eat out of garbage cans.posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
Medicare is a whole nother bucket of worms. Now that is one screwed up system. They dont even have the ability to know how much money is being wasted its so screwed up. Another bad idea come home to roost. And people actually want to socialize all of medicine?! Anyone who can look at the nuts and bolts of medicare (without throwing up) and then has the nuts to suggest universal healthcare is dangerous and should seek professional help.posted by: Mark Buehner on 02.25.04 at 03:16 PM [permalink]
“The senator from Massachusetts also vowed not to cut Social Security benefits to help reduce the federal budget deficit, a direct repudiation of a recommendation offered Wednesday on Capitol Hill by Federal Reserve Board Chairman Alan Greenspan. Kerry was joined in this by his major rival, Sen. John Edwards (N.C.), who lauded the attention the Fed chairman shined on deficits during the Bush administration but said in a statement, "it is an outrage for him to suggest that we should extend George Bush's tax cuts on unearned wealth while cutting Social Security benefits that working people earn."
In a fair world, the establishment media would be laughing at Kerry and Edwards. Anybody possessing a lick of sense knows that cuts in Social Security are mandatory. The typical Social Security recipient collects far more than they ever put into the system. I doubt very much if could find any Republican or moderate Democrats who would disagree. But we don’t live in a fair world, and therefore only Republicans come out losers in this debate.
“Medicare is a whole nother bucket of worms. “
Yup, and once again the Republicans are royal shafted if they address the issue. They will be immediately ambushed as soon as they open their mouths.posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
"I doubt very much if could find any Republican or moderate Democrats who would disagree." should read "I doubt very much if there are any conservative or moderate liberal economists who would disagree.posted by: David Thomson on 02.25.04 at 03:16 PM [permalink]
"Stan - "The only surplus we had was due to the trust fund."
If you really are "political scientist and an economist", then you know that the trust fund concept is a fraud from the get go. The government cannot have a "trust fund" in the sense that individuals can. The government spends the surplus because it must."
Posted by Reid at February 26, 2004 01:59 PM
Reid, you are confused. The trust fund does not have to be spent. It can be invested in assets as sure as any other form of capital. To the extent the trust fund pays down the U.S. debt, it is accumulating assets that can be exchanged for its IOUs when repayment comes due. We can borrow again in the market and be no worse off than before. Greenspan was concerned that the trust fund was going to pay down the debt too far. He was concerned with the potential impact of purchasing other hard assets and what would happen to the Treasury market. That in no way means the money has to be spent.
Posted by Oldman at February 26, 2004 01:48 PM
Oldman, it appears the basket of goods used in the CPI is much closer to reality in determining inflation than whatever you are using in your calculations. You neglected all of the segments of the economy where there is deflation or stagnant prices. Manufacturing, telecommunications, computers, etc. are all experiencing stable or declining prices. In your assessment of the real estate market you don't seem to make allowances for the impact increased wealth might have on the relative value of goods. I would love to see where you project productivity.
Greenspan is not saying that the sky is falling. He is saying that we do not have much time to act and he is putting Congress and the Whitehouse on notice in this regard. It is not an endorsement to extend the tax cuts. Any extension would have to be offset to keep with his language. I believe this was Dan's point.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
"If you really are "political scientist and an economist", then you know that the trust fund concept is a fraud from the get go. The government cannot have a "trust fund" in the sense that individuals can. The government spends the surplus because it must. There is no bank big enough to hold the government's assets (and, of course, it would make no sense, since the government provides the money to the banks in the first place) and, in this country, and for very good reasons, the government is prohibited from owning the means of production (no stock portfolio for Uncle Sam). The government can't just throw the money into a back room and pull it out when it is needed. That would be no different than just printing up new money at an arbitrary place and time, which is always within the government's power (more on this in response to Zathras below)."
I'm glad to see somebody understands this. Ponsi scheme is a perfect name for it. Except the perpetrators of Ponsi schemes eventually take the money and run, never to be heard from again. This Ponzi scheme ha sthe full weight of teh federal government behind it, meaning it will never go away.
There is no "lockbox". There is no lock and there is no box. It's just a file cabinet in an office in Washington. It doesn't even have a lock.
The SS "Surplus" was simply used to buy government debt. When that debt needs to be redeemed, guess where the government gets the money to pay itself back?
The first problem is the idea that the money you paid in to SS over the years is "yours". The Supreme Court ruled to the contrary many years ago, so get over it. Understanding that, maybe people will demand that this extra tax be rescinded so that I don't have to pay for Ross Perot's to retire.
Only the Democrats win votes on the Social Security issue. The Republicans will most assuredly be dismissed as a bunch of heartless scum bags forcing granny to eat out of garbage cans.
Posted by David Thomson at February 26, 2004 03:18 PM
David, there may be reason to believe otherwise. The swing to the right over the last two decades of U.S. voters is real enough. It may be possible to preserve the social insurance features and universiality of Social Security while removing political control. I acknowledge the numerous trojan horse efforts of the past to undermine the program aren't going to make it very easy.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
The SS "Surplus" was simply used to buy government debt. When that debt needs to be redeemed, guess where the government gets the money to pay itself back?
Posted by DSpears at February 26, 2004 04:33 PM
It borrows it from the market just like it did in the first place.posted by: Stan on 02.25.04 at 03:16 PM [permalink]
There was an interesting comment upthread about whether the government is underestimating the inflation rate. Alan Greenspan is on record as thinking that in some respects at least the CPI errs in the other direction, though he made those comments some time ago.
The implications for entitlement programs adjusted for inflation are obvious. Basically this means Social Security (retirement and disability) and government pensions (Medicare and Medicaid are affected by inflation within the health care sector directly). Benefits from these programs go primarily to the elderly, most of whom own their own homes and are long past the age when they need to fund their own education and that of their children. Of the consumer expenditures that are rising rapidly, the elderly face rising costs for health care, which the government already defrays with Medicare, and energy, which has risen from very low levels only within the last two years. This suggests that while the "real" inflation rate may be greater than the CPI, the effective inflation rate for most beneficiaries on inflation adjusted entitlements is likely less.
This assessment excludes certain factors like rising property values, which can increase property taxes on homeowners while holding open the prospect of a windfall for homeowners wishing to sell. And, if it is correct, it suggests limits on how much money further changes in the annual inflation adjustment could be expected to save. To the extent I am doing more than just making an observation here, I'd suggest that in this and other areas we may face temptations in the future to overstate the potential for certain less painful-looking changes in entitlement programs to meaningfully reduce their costs. These are temptations we ought to resist.posted by: Zathras on 02.25.04 at 03:16 PM [permalink]
What's the fuss about SS etc.? The underlying system is based on rot - debt. Some slips of paper are valued by some people, and they will give you goods or services you want in return. Some slips of paper are used to wipe things, and flush away. Without a solid gold/silver monetary base, all this other talk is superfluous.
But hey, it's a nice ride (^-^)posted by: daniel on 02.25.04 at 03:16 PM [permalink]
We ought to abolish the payroll tax entirely, adjust income taxes to compensate, and pay for SS benefits out of general revenue. The only justification for a separate, regressive payroll tax - one with no deductions or exemptions - is that the money was to be used for Social Security and only Social Security. The purpose of taking in more than was needed to pay current benefits (which Greenspan inaugurated in 1983) was to pay off debt so that the government would be in a better position to pay off the Boomers' benefits without soaking Generation X. But that never happened; instead the federal government embezzled the surplus and used it to fund other unrelated programs, so that they could hide expenditures off the budget. This means that for all intents and purposes, there is no difference between FICA and income tax from the government's standpoint. It all goes into the same pot. That being the case, the justification for this savage, regressive tax disappears. Abolishing the payroll tax and folding that cost into standard income taxes will not only produce a boost in the demand side of the economy, it will also make means testing politically easier, since it will destroy the illusion that SS is equivalent to private savings. (Of course, means testing would have to be phased in to avoid unfairnesses to people who have already factored in SS benefits to their retirement life style.) Costs would be more effectively controlled and would be spread out in a manner that the public considers politically fairer.posted by: Firebug on 02.25.04 at 03:16 PM [permalink]
Stan - "It can be invested in assets as sure as any other form of capital."
No it can't. I've already given the reasons above. The government must spend every dime. The government cannot invest in appreciating assets that can be liquidated for future expenses. Some points:
A) Lack of debt is not an asset. And, servicing the debt is a government expense, not an investment. Accelerated retirement of the debt does not pay a return, it merely obviates a future expenditure that has already been assumed. And, given that government debt is financed at a rate barely exceeding inflation, it doesn't do much of that in real terms. (If I could borrow at the rate the government does, I'd be leveraged to the hilts.)
B) The entire government debt is a small fraction of the unfunded Social Security liability. So, the entire question is moot as far as the discussion on this page is concerned. Once you have paid off the debt, then what do you do?
C) You are still just shuffling around money, not creating anything of tangible value. In fact, to the degree that the fiscal austerity required to accelerate repayment of the debt would depress economic activity, that would be an incredibly naive and boneheaded policy. All that matters is REAL PRODUCTION of GOODS and SERVICES. The rest is just figuring out how to slice up the pie. The smartest policy is to grow the pie, not to angle how to get a bigger share of a shrinking one.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
"The entire government debt is a small fraction of the unfunded Social Security liability. So, the entire question is moot as far as the discussion on this page is concerned. Once you have paid off the debt, then what do you do?"
I thought the point was not existing debt, but future deficits as far as the eye can see – so far in fact, that the forecasters decided to only look 5 years ahead, because the next 5 years might cause people to run screaming from the room.
"All that matters is REAL PRODUCTION of GOODS and SERVICES. The rest is just figuring out how to slice up the pie. The smartest policy is to grow the pie, not to angle how to get a bigger share of a shrinking one."
Remind me how eliminating the estate and gift tax results in goods and services. Are the heirs going to max out their credit cards to create demand like the little people have done? Looks like pie slicing to me. Trickle down pie?
TT - maybe it would keep the large number of family owned businesses, which currently have to be liquidated at the death of the proprietor, from going under.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
Just a parting comment. The fetish with paying down debt, what I call Parochial Checkbook Economics (PCE), is what doomed the British Empire. You have to take your eyes off the trees and focus on the forest. And, the forest is made up of GOODS and SERVICES.
If you have more goods and services, there are self correcting mechanisms that will ensure that they are distributed to the people. Good and services are WEALTH. Money is not wealth. A wealthy society is a happy society. All economic policies should be geared toward maximizing the rate of wealth creation.
The government does not have to pay off its debt. Ever. And, if the national income grows faster than the debt, the debt does not matter. Anyone who has ever taken out a student loan or a small business loan should be able to grasp the concept of borrowing to expand one's future income.
As to Social Security, it is unsustainable in its current form. The sooner everyone recognizes that hard fact, the sooner we can come up with a solution.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
There are all sorts of provisions in the IRC to prevent that from happening and most of them would be unnecessary if the unified credit were raised a bit. That dog wont hunt. Try again.posted by: TexasToast on 02.25.04 at 03:16 PM [permalink]
"The government does not have to pay off its debt. Ever. "
What I mean, of course, before some ignoramus goes ballistic on that, is that the government can always carry a balance of debt, propagating it along the generations of investors who want a low but safe return on investment.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
TT - "There are all sorts of provisions in the IRC to prevent that from "
It happens all the time. But not to you so, of course, you are unconcerned.posted by: Reid on 02.25.04 at 03:16 PM [permalink]
Dear Stan, the oldman has not neglected these areas. Actually, the oldman started out by examining the CPI calculations and was horrified to find some very bad statistics and economics going on. For instance, since about 1982 the CPI has used rental prices for calculating housing costs. What's the problem with this? Well rental prices have not kept up with housing prices. Indeed, a brief jaunt over to the Census Bureau reveals that since about 1987 that rental vacancies have doubled nationally to about 10% while single detached housing (e.g. homes) have had their vacancy rate halved. A look at the median asking prices for rent or homes show a corresponding divergence. So while the real cost of a home, a standard feature of cost of living in America since the home ownership rate has actually slightly increased over the same period, has increased the CPI has completely missed that rise.
This is not the only fatal flaw that the oldman has found. Other economists have pointed out some of these features as well, but they've never been paid much attention because statistical inflation measurements are too arcane and esoteric for most reporters to understand. For instance, sound analysis has found that overtime that inflation under the present measurements will increasingly dominated by housing, education, services like insurance or medical care, etc.
The reason is simple Stan. As you pay less and less for durable consumer goods, and you spend more and more on housing, education, etc. then those growing portions take up ever bigger pieces of the pie of your total expenditures. Because of that, inflation in those sectors becomes weighted more and more heavily.
So the very process that you've described, the fall in consumer goods prices means that over time these factors will contibute less and less toward real inflation growth. The only way to mask this is of course to lowball the growth in prices in the other segments.
The oldman has found for instance, linear regression analysis that is used to claim that since college textbooks have prices proportional to their size, number of pictures, etc. that year over year increases in their prices "don't count". This is the process of hedonic adjustment. Which is just a statistical way of saying since you got a "better deal" (a fatter textbook) then you really didn't pay more since you got more for what you paid.
Now most people in the real world when they have to buy a textbook that's been reissued with an expansion and have to pay more for it, would call that a price rise. This quality adjustment is then applied to all segments of the economy. Add a catalytic converter onto a car? Well the price really didn't go up according to the inflation measurements, because you "got more" for your money - a catalytic converter in addition to the car.
In this way, they've been masking the growth in prices from everything to cars, textbooks, to apples. Oh yes, production improvements in the production of apples to produce higher quality apples that cost more also can be deducted from the inflation measurements using this hedonic methodology.
So you can see, it really all is a scam. In addition, there's a reason to push it. First of all, if prices "aren't rising" then the government can claim that wages aren't falling relative to inflation. If it was perceived that standards of living were falling, then the government would have to do something about it. Second of all, lower inflation gives the government a freer hand with monetary policy. If Greenspan acknowledged that over time the actual rate of inflation has diverged from the CPI by about 3-4% then he'd have to raise interest rates tomorrow, stalling the economy. Third of all, there are allot of government payouts linked to the CPI. Like Greenspan has suggested, if you use an even lower inflating measure than the CPI - the socalled "chain" method - then you have to pay out even less. Remember Greenspan touted the chain method as lowering inflation and therefore government payout increases, at the same time he was arguing for cutting back social security benefits.
Over time, costs have significantly diverged from the CPI. In addition, there is a historical precedent since the Fed got caught doing this before - in the stagflation scenario of the 70's. Would the government do something like this? You bet your bottom dollar they would. The evidence is all there, if you bother to actually dig into the numbers and ask how accurate they are. It's disgusting frankly.
The education component of the CPI alone doesn't reflect the year over year much greater than inflation costs of tuition, longer degree completion times, and more frequent reducation rates. Furthermore, if it was just a claim about an out of line inflation number it would be an esoteric claim.
However, this deviation has real results. If you calculate real GDP with the actual inflation number deducted, you'd see we were in a period of flat or declining economic growth - which is completely consistent with all the other numbers. Which means that all the other macroeconomic numbers - productivity, jobs created, structural unemployment, factory orders, services growth - it all makes sense if you adopt a different inflation number than the one touted.
So there is no mystery to the "jobless recovery". Inflation is higher than reported or admitted, and this means real growth is being squished. The statistical masking of price increases at the macro level can't trick business owners into hiring when they have to pay out more real costs. They see prices increasing at a level that is inconsistent with being able to add jobs at this level of growth. That's the real story. This has also been going on for over two decades. The first "jobless recovery" was a sign that actual inflation was deviating from predicted inflation.
Check it out for yourself Stan, it's all there.
Oh, and btw as for productivity it's necessary to find some way to discern total labor force productivity from per capita manhour productivity. This is what the oldman is working on now. Only then can we see how much per manhour efficiency has been increased from technological investments. The oldman believes that it is positive, but less than the total labor force productivity which includes more hours worked and more hours trained per increase and so confuses output increases with efficiency increases.posted by: Oldman on 02.25.04 at 03:16 PM [permalink]
The Fed. Gov't never saves any money, but it could, by simply buying the debt [bonds] of other Countries. Any excess "trust" fund collections do not amount to much per year, say 3 trillion/60 years=50 billion/year. This could have certainly been spread around to mimimize its impact, thus saved.
But why was the excess collected in the first place? Duh, so the Gov't could justify more spending, thus buying votes and establishing bigger bureaucracies with which to control the Country.
Actually, the really big National Debt is that represented by all taxes collected, which are, in effect, debt payments. Raising taxes to pay off debt/deficits is therefore somewhat of an illogical argument, as the raised taxes continue as debt payments, which then fund more spending, just as did the SS, etc., tax to begin with, which created more debt.
It is interesting that the "bonds" held in the SS fund are not really bonds and will never be retired. They will simply be "forgiven" as debt. There would be no point in paying them off, as the Gov't would just take the money and spend it on other things anyway.
Thus, increasing spending and taxes creates a debt. Raising the ceiling on income taxable in the case of the payroll tax enlarges the debt. In any case, why should it even be considered before SS goes "bankrupt"? We already did this once and it did not work.
On the other hand, decreasing spending works. But why should SS recipients bear the brunt of decreased spending? Maybe they simply must. But the fact that they will indicates what would happen in a Nat. Health Care system. The providers and patients will get stiffed by limiting payouts and defining what health care is, even more so now that it would be but another entitlement on top of the others. The Gov't, though, will have another tax to play with, allowing more extraneous spending, creating more debt.
But somehow it is claimed that only Gov't debt is bad, not taxpayer debt, payed as taxes. This is because in the Socialistic conception, the people exist mainly to support the Gov't, not the converse. Seems to be working that way to me.posted by: Joe Peden on 02.25.04 at 03:16 PM [permalink]
Reid, you took my answer. Thanks for saving my fingers all the wear and tear.posted by: DSpears on 02.25.04 at 03:16 PM [permalink]
Oldman: Your inflation research
Good essay, and very plausible. I have been suspecting something along those lines for some time. I live in the SF Bay Area, and I have seen grocery prices in major stores up until H1/2003 go up at rates inconsistent with inflation numbers. But then that's only a small part of the nationwide picture.
Can you share a few pointers to the methodologies of inflation measurement (basket composition, price indexing etc.) you are describing?
Hey, Oldamn, your analysis of US stocks vulnerabaility strikes us as very sound. What do you say to Asian capital funds?posted by: scotus on 02.25.04 at 03:16 PM [permalink]
The first line of research is to examine the biases in the CPI. Suppose though that I wanted to construct a cost of living index to measure actual inflation. The first thing is that is necessary is to disaggregate the data. The fact is that spending needs and habits are different for someone making $100,000 and someone making $30,000. So actually, a person in the lowest quintile could be experiencing a very different rate of inflation or cost of living increase than a person in the highest quintile.
A single person renting an apartment, buying used cars, working at a steady job, and buying cheap consumer goods has probably experienced a very low rate of inflation and this person is probably the closest to the current CPI estimate based upon the assumptions built into it.
However a person trying to buy a home, raise a family, purchase life insurance, retrain for a new career, supplement their children's education, etc. is probably experiencing a fairly high rate of inflation and has been for about 20 or so years. So my answer to you CM is that we have to take a cost of living approach and recognize different categories of persons - well off, upper middle class, lower middle class, working class, and working poor essentially.
If we are trying to calculate overall inflation in the economy as a macroeconomic indicator, I believe that the best indicator is a combination of ROI or return on investment of capital, cost of capital, the degree of contestable markets, and per capita per manhour productivity.
ROI and cost of capital investment measure effectively the difficulty and yeild on investment. When this diminishes, actual inflation must increase. Likewise market efficiency is best measured by the degree of entry barriers to competition. When there are low entry barriers, then markets force even monopolies to reduce prices. And of course per capita manhour productivity is the best measure of laborforce output efficiency.
If you take all these things and measure them versus GDP and money supply, you will have a very excellent, accurate, and precise measurement of total aggregate inflation. Trying to measure inflation using a weighted basket of goods and services is useful household information because it essentially indicates trends in entry barriers to socioeconomic mobility. However over time it's proven a very poor way to measure total aggregate inflation, and has been repeatedly subject to statisticians tweaking it to say what they want it to say.
Right now the government wants the CPI to say that inflation is quite low. It's not.
So my answer CM, is that I would split up the basket approach for different economic household categories as handy comparator but remove total aggregate inflation to a market and macroeconomic output comparison model. In the oldman's estimation this is a much more transparent, accurate, and precise way of calculating true inflation.posted by: Oldman on 02.25.04 at 03:16 PM [permalink]
I would say that Asian countries depending in the short term based on an export-led model to the United States are in trouble. There is also a significant market risk due to political instability in Chinese-Taiwanese-Korean relations in the next year. I would be in extremely short term investments. Also as others pointed out, the tech investment demand has not recovered. Asian tech stocks will probably continue to be depressed. The bigger winners are probably going to be domestic market consumables and companies in Asia that focus on making consumer durable good knockoffs to sell to their own markets. I woule be looking for the Gillettes and such of Asia. Car usage is also likely to go up, so car companies that sell to the Asian market should benefit. Also Tobacco should be a sound investment as Asian markets are expanding and will expand their consumption of those at a significant rate. Japan is also converting into a modern consumer society from an export-led one, ever so painfully and slowly, so this should help.
The real money is probably to be made in going long on commodities as long as one has determined that the particular commodity isn't going to be subject to a price war/trade war. Weather will continue to destabilize and this will increase agricultural commodity prices. Also potable water will continue to see a consistent demand increases. Oil prices seem prone to rise the next several years, with no prospect of supply shocks except to the downside. The future prospect of international uncertainty, dollar hegemony destabilization, and possible wars in the next few years will increase oil prices from structural supply / demand levels.
Back in 2000 when oil prices were quite low the oldman predicted that for the decade they would average $28 or higher per barrell ... he was correct generally. The oldman now thinks there is serious upside in the price of oil, with possible $45 per barrell prices in the next few years depending on how things go. Going long on oil should be a lucrative proposition. The dollar has sometimes been called the new gold, but if the greenback should be tarnished then what? To go back to gold again? No.
While there remains speculative upside potential to the gold markets, it is too unstable except for traders in order to indulge. The new gold will be most likely black gold. Long term futures on oil should yield hefty returns going into the future, even with new supply coming on hand. In the shorter term, natural gas demand is structurally increasing in the United States and this should support and increase prices.
In short, the oldman would in a time of uncertainty eschew currency, eschew stocks except for solid consumer consumables and durable goods, eschew national debt which is like the kiss of death now, and balance a portfolio on a spread of diversified commodity spreads. This would be the most sensible way to capture the best return versus risk. Whatever social disruption or financial shennanigans may occur, and there may be quite a bit of it near term, people will still need the basics - food, water, energy, and a judicious spread of agricultural and metal commodities that will appreciate handily in the next few years. That's where the oldman is going now mentally ... and the oldman has been a solidly stockmarket man for quite some time ... the situation has become so bad however that commodities seem quite promising by comparison prompting a long term philosophical switch in investment.posted by: Oldman on 02.25.04 at 03:16 PM [permalink]
Oldman, the used vehicle market is no more detached from the new vehicle market than rent is from the housing market. Most Americans do not buy their houses outright. At the same time home prices have increased, mortgage rates have decreased. Rent is still a reasonable proxy for consumer inflation in the housing market as experienced by most consumers. The CPI factsheet a little:
A) "Lack of debt is not an asset. And, servicing the debt is a government expense, not an investment. Accelerated retirement of the debt does not pay a return, it merely obviates a future expenditure that has already been assumed."
Lack of debt certainly is an asset. The bond market does not have an infinite appetite for U.S. bonds and U.S. bonds compete with the private sector for funds. You say so yourself in C).
B) "Once you have paid off the debt, then what do you do?"
You could quit collecting the tax. You could purchase another hard asset, or you could play class warfare and give an income tax cut to the top 1% of U.S. households.
C) "In fact, to the degree that the fiscal austerity required to accelerate repayment of the debt would depress economic activity, that would be an incredibly naive and boneheaded policy. All that matters is REAL PRODUCTION of GOODS and SERVICES. The smartest policy is to grow the pie, not to angle how to get a bigger share of a shrinking one."
So claiming that the money had to be spent is an attempt to grow the pie? Allen Smith does a great job of laying out the facts about the trust fund: http://www.ironwoodpublications.com/pages/856707/index.htmposted by: Stan on 02.25.04 at 03:16 PM [permalink]
The CPI factsheet: http://www.bls.gov/cpi/cpifaq.htmposted by: Stan on 02.25.04 at 03:16 PM [permalink]
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