Written by a blogger while seeming to advise his readers they need to appeal to the “genuine conservative.”
But when you look at the big picture, you’ll see these climate horrors are a sideshow. The extent to which the country is being mauled and wrecked by people with a grade school understanding of economics is so astonishing and terrifying that the climate fiasco is beside the point. More to the point, if the Republicans are so much under the control of a cultural thread that is juvenile and arrogantly stupid that they really believe a 30 billion dollar cut infederal expenditures in a weak economy is appropriate, the rank stupidity of their approach to climate issues not surprising. In fact, they embrace that foolishness happily; it is emblematic of their rejection of the sense that emerges from centuries of accumulated experience and decades of individual study.
Wow. The blogger appears to be suggesting that relative to the Republican’s desire to cut $30 billion in federal expenditure, “climate change horrors” are a “sideshow”. That relative to these purely economic issues “the climate fiasco is beside the point”.
Questions for readers: Who wrote that prose? Does s/he really intend to communicate that relative to a 30 billion cut in federal spending the worst possible harm that could arise from changes in climate induced by man-made greenhouse gases is a “sideshow” or “beside the point”? Do you think this climate blogger’s posts could assist anyone trying to figure out how to appeal to red necks or genuine conservatives?
Please try to answer the first question before visiting the blog post in question but click here if you want to cheat. Feel free to discuss the other two questions even if you cheat.
Also, you are invited to put above-quoted text in context of this redacted statement
***** retain a seat in the policy debate, and even though ***** reject the ***** movement’s viewpoint, it is impossible to evaluate the most effective way to counter their views without understanding the underlying motivations and cultural foundations of their arguments.
which I found in this paper discussed at collide-a-scape. [My goal in redaction is to create a fill in the blank statement that could apply to anyone.]
Feel free to play arm chair social scientist and muse over what readers might infer about the “the possible underlying motivations and cultural foundation of the arguments” of the blogger who wrote the material in the first quote.
Maybe the author will even jump in and tell us himself. Or not. Who knows?
To other visitors: It’s Friday. Feel free to treat this as an open thread.
What a Laffer.
==========
Lots of spending and effectively zero interest rates didn’t help Japan recover from their lost decade, it hasn’t helped us much so the obvious solution is then to spend and inflate even more? *sigh*
I should have added: What’s are the odd’s that post will be linked by Morano?
Let’s see… the blogger must be very ‘progressive’; must be blissfully unaware (or not care at all) about making offensive remarks about people he disagrees with; must like to make pretentious appeals to authority (“centuries of accumulated experience and decades of individual study”), and like a fulminating preacher, must enjoy preaching to the choir. Hummm…. that doesn’t narrow it much, but I’ll make a wild guess…. Michael Tobis?
(I didn’t cheat!)
DeWitt,
Low interest rates are an ineffective economic stimulus if borrowers who want loans can’t meet lenders’ requirements, and borrowers who meet the requirements don’t want to borrow.
Increased spending, government or private, is an effective economic stimulus. Greater spending can lead to inflation, but the government’s stimulus spending hasn’t so far.
Inflation likely will return as the economy recovers, but when and how much is the question. I hedge a little by shifting some funds from long- and medium-term bonds to short-term bonds and the Treasury’s Inflation Protected Securities.
Max_OK (Comment#73273)
Reminds me a bit of a comment I once heard from a business associate: “Banks are always ready to lend you money…. so long as you don’t want or need a loan.” The same bank that my company uses for writing checks (maintaining an average account balance of >$150,000 for the last 5 years!) will not issue the company a corporate credit card with more than a $2,000 credit limit. Bankers strike me as very strange individuals.
Sounds like former ENRON-advisor, Paul Krugman.
$30 Billion, $300 Billion, whatever, this is chicken feed. Anything less than a $Trillion in federal or EU cuts is meaningless. On the Economy, hummmmm… I think we need to close the Mint and the Government Printing Offices for five years. There’s too much money out there now, and it’s not worth very much –well, not as much as it should be.
Anyway, light moments aside, the crux of one of the problems is 19th Century unions. They’ve outlived their social usefullness. There needs to be an evolution of the worker/management relationship wherein both parties are intimately wedded to the success of the industry involved. Not two “teams”, ONE team. (And, dare I say it, this must be an industrial solution, not one dictated by the old Mob of judicial hacks and politicians in elected positions.)
About “Climate”, I must agree, its been a ‘sideshow’ for quite sometime and I don’t see it becoming a serious issue again until after WWIII (whenever that is).
Next problem!
SteveF–
I suspected many could guess without cheating.
I found that post sidesplittingly funny. He criticizes John Abraham for co-authoring an article with a Democratic Congresional Representative because “By publishing a piece where a scientist and a Democrat speak together, their article, however cogent, reinforces the incorrect idea that climate science is an interest group with a political alliance.”
Then he goes on a tear in which he associates “Republican” with the following words and phrases: ‘zealots’, “trail of destruction”, “detatched-from-reality “, “grade school understanding of economics”, “juvenile and arrogantly stupid”, “rank stupidity”, “embrace that foolishness happily”,and “rejection of … sense”.
Then he closes with “You need to talk to rednecks, so get a redneck, and if you can’t, at least get somebody who likes and respects rednecks and who rednecks like and respect in turn.”
As usual, I blinked and wondered what exactly he meant. Earlier he suggested “it is to the genuine conservative that we must appeal.”. I’m not sure who he considers to be a “genuine conservative”. I’ve never been under the impression that all or even most genuine conservatives are rednecks nor that all or even most rednecks are conservative. According to wikipedia, the origin of “redneck” was “union man” http://en.wikipedia.org/wiki/Redneck .
The word usage has evolved, but it seems to me that quite a few rednecks are still strong prounion types who tend to favor the Democrats, labor and view free market capitalism with suspicion. To be sure, I could be wrong about precisely who “rednecks” are and equally mistaken as to their political views. But I’ve never thought of rednecks as strongly associated with what I consider a “genuine conservative”. But then, I don’t know what Tobis means by “genuine conservative”.
So now we’re declaring economics a “settled science” with Keynesianism the victor? Just trying to keep up with the terms of the debate, and this seems to be fairly revolutionary news.
Lucia,
I think Michael makes himself too easy a target. I honestly don’t care much any more what he writes. Too mindlessly predictable. Too lacking of doubt. Too callously offensive. Not interesting… but still offensive. I find negative value in reading what he writes.
Uh… Reading the whole piece, I take “climate fiasco” to mean the political dispute and polarization about climate change (which is what the author discusses at length), not the actual consequences of climate change.
We conservatives adopted “redneck” because liberals tried to use it as a derogatory term. “You want to call me a redneck? OK, I’m a redneck. What’s next?”
Redneck, cracker, extremist – pick one – name calling never works to convince anyone on the other side of your point of view; it only inflames the passions of your side.
toto–
Ok. Interesting. He does discuss the polarization. If so I’d suggest he’s right in their doing his best to polarize more!
1) Maybe I also have a grade school education in economics but I am pretty sure Messers. Obama, Biden and Reid are already on board for a $30+ billion target for cuts–it is the additional, cuts funding restrictions and program eliminations proposed by the House GOP they object to. So aren’t they also mauling the country with their unenlightened, non-Krugmanesque economic outlook regarding cuts?
2) I thought mauling the American economy was good for the planet–fewer SUVs, higher heating bills, forced to make our own tofu, etc. Isn’t that the whole point of greening?
3) What do you call people who get so emotionally invested in caricature-bashing and shallow reasoning yet remain wholly convinced of their own intellectual depth? Michael Tobis is like a living bumper sticker–what’s the point of ever reading his blog more than once?
Take a look at Federal Spending the last five years (includes 2011 projection) here:
http://www.usgovernmentspending.com/
So according to MT cutting $30 billion this year is going to make a weak economy worse? Even though by the end of 2011 over $11 trillion would have been spent by the Federal government since January 1, 2009. And how is the economy looking to all of you.
Can someone please post the definition of insanity and see if MT might have a slight infliction?
DeWitt,
There is an interesting debate over the timing of federal stimulus spending to prevent extended recession and how it relates the Japanese case (e.g. relative inaction/austerity followed later by stimulus): http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/recession-fighting_serendipity
http://www.nytimes.com/2009/02/06/world/asia/06iht-japan.1.19983822.html goes into a bit of detail as well.
Frankly, I don’t have the expertise to determine who is right, though I tend to be a bit skeptical of both extremes. In the short term, however, I’m a bit more concerned about economic recovery than deficit, though the two are somewhat related. Either way, 30 billion is peanuts as far as federal spending goes.
Economics isn’t a settled science or even a particulalry robust science – that doesn’t mean anything goes or that economic policy needs no better justification than faith or loud voices.
The author’s tether to what most consider reality is fraying. Probably best to leave him be.
As a genuine Redneck, I’m not sure what a genuine conservative is. Redneck conservatives would be genuinely pleased if he were to accept a public union position in Wisconsin.
Some people say if the government spends more money to get out of this recession, the government won’t have that money years from now when it’s needed for something really serious.
Hmm …. ?
What about people who think this recession is really serious? While the recession hasn’t been serious for me, I can understand how people who have lost their jobs and houses might think it’s serious.
But the unemployed should know that helping them now with government stimulus spending means my taxes will have to go up after the recovery. Then it will be me who is hurting. Well, OK, not hurting a lot, but I dislike even being inconvenienced.
Besides, people who take jobs vulnerable to economic cycles should put aside lots of money to get them through the inevitable downturns. As a rule of thumb, I recommend saving one-half of earnings.
Re: Max_OK (Apr 8 14:48),
And pay off your mortgage instead of refinancing to live beyond your means on what may be a temporary increase in equity. It never ceases to amaze me that apparently most boomers are planning to retire while still having large balances due on their home mortgages.
Max_OK #73310
But the unemployed should know that helping them now with government stimulus spending means my taxes will have to go up after the recovery. Then it will be me who is hurting. Well, OK, not hurting a lot, but I dislike even being inconvenienced.
Max speaking as an unemployed person has a result of the severe economic town turn I can tell you I am not complaing about the stimulus. It is you and other fortunate people who are employed are not effected by the down turn who are rightly concerned. Also those who have been able to gain employment at severly reduced compensation are grumpling also. Secondly how do you reconcile Public Unions opposition to cuts in light of the fact that the government has a severe revenue problem? Being snarky should the unemployed masses gather, protest, sue the government for our benefits. I am remeinded of the tent city riots of the depression.
Whoever this is has it backwards. If Republicans think that climate science is a conspiracy, then that would undermine their opinions on less cut and dried matters such as economics.
But ultimately it’s a matter of priorities. I’d rather keep cuts to medicare to a minimum and have deep cuts to defense and raise taxes. The fact is, none of the cuts or revenue generators is politically viable. We are all ******.
Dewitt,
Do you need your mortgage paid off to get a reverse mortgage?
I guess a reverse mortgages could make sense, providing the terms are right, and you don’t intend to leave your house to anyone.
Jeff,
I’m not old enough to remember the Great Depression, but the photos are grim.
If I were a public employee would I object to a pay cut? Probably. If I were wealthy, would I object to a tax increase? Probably.
I think people in general want to keep what they have.
Interest in the public employees face off has many eyes watching the judicial race in WI:
http://www.csmonitor.com/USA/Politics/2011/0408/Vote-count-mishap-in-Wisconsin-election-raises-eyebrows-distrust
Max,
I am not old enough either but I enjoy history. Change it to riots, protest in Greece.
I think it goes farther than wealthy, even the financial secure object to tax increase as presented at this time
You have to remember that the japanese bubble was a monster compared to the U.S. They successfully came off a real estate bubble where the imperial palace grounds were valued at more than the entire state of California – and did this without the crushing 30% unemployment of Depression America. Richard Koo’s presentation here under FILES is educational. Japan may have had a lost decade, but I think the perception is bigger for investors in the Japanese stock market than for people living there.
DeWitt Payne (Comment#73313)
Nothing wrong with having a high balance on your mortgage. I’m a boomer in that situation, but then instead of paying off my mortgage I invested the money in ways that yielded higher returns than my mortgage cost, unlike most of the boomer grasshoppers who pulled their equity out of their house and wasted it.
Those who used their houses and credit cards to live beyond their “true” means were and are idiots that will use the government to save their asses in retirement.
Lucia, the judicial race in Wisconsin is close to a tie. So about one-half of the voters are going to be dissatisfied regardless of who wins the race.
SteveF:
The quote you are looking for is, I think, supposedly Mark Twain’s:
“A banker is a man who lends you an umbrella when the weather is fair, and takes it away from you when it rains.â€
Max_OK–
Agreed. Initially it looked like Kloppenburg was on the plus side of the vote count with tallies enough to trigger and automatic recount, it now looks like Prosser. Now it looks like Prosser is in the lead and Kloppenburg may have to pay for any recount.
RB (Comment#73335),
Well, I wasn’t looking for that quote, but it is clear Mark Twain could turn a more cleaver phase than my business associate…. even if the meaning is exactly the same.
Re: BarryW (Apr 8 16:43),
I should have qualified that by saying near zero liquid net worth because of a high mortgage balance. You’ve got DINKS, both of whom with 6 figure incomes who have a liquid net worth at retirement of less than $500,000. The net present value of their pensions is probably a lot, but unless they have a lump sum option, it isn’t liquid. I think the standard advice is to spend down your savings and delay applying for Social Security until 70.5 for maximum SS payout. Seems very scary to me.
Re: Max_OK (Apr 8 16:28),
Dunno for sure, but if it isn’t then most likely all other debts on the house would be paid off in the process of obtaining a reverse mortgage so the proceeds would amount to only your equity in the house.
I can see Paradise from a back porch in Waukesha.
===============
Open thread? OK – here goes.
I don’t normally have much trouble with moderation at WUWT or CA, and I appreciate that. However, it seems at WUWT when fund-raising is on, that doesn’t apply. They’re currently rattling the tin for Dr Tim Ball in his defence of Mann’s lawsuit. And it seems nothing negative can appear.
I wrote the following. It’s logged there at 4.08 pm, awaiting moderation. Comments have been appearing, the latest at 7.08pm. But not mine, which said:
”
Double standards here aplenty. This “72 year old pensioner” himself sued numerous parties because Dr Dan Johnson had suggested that he (Ball) was not really a climatologist.
I note that while there are protestations that what Ball said about Mann was not libellous, this post is careful not to repeat it. And it wasn’t just a slip or passing snark. His current website headlines:
“Evidence Points To Mann’s Criminal Misconduct” “
Qualitative assessment, as opposed to quantitative modeling, of a $60 billion reduction in federal government spending over the next six months leads this economist to conclude continued spending without the cut would be less stimulative than the cut. Market psychology matters and in my judgment demonstration of real performance in restraining deficit spending would tend to firm dollar exchange rates, lessen inflation concern by restraining imported raw material $ prices, and support business and consumer confidence. Net stiumulative effect.
In other words, I do not concur with the blogger’s ‘economic’ assessment.
FWIW.
To Nick Stokes (Comment#73344)
Did you make a contribution?…
Nick just reposted your comment over at WUWT and it went through after about 36 minutes no other posts got in ahead of me. Either you are banned or it was because of too many links in the original post. I did add a snarky comment could not resist.
Anyone who thinks cutting $30 billion in clearly redundant programs is going to hurt anything of any significance except for those interests not getting the $30billion is beyond naive and likely delusional.
But to the point: since the dangerous outcomes of climate change caused by CO2 are nil, climate change will always look like nothing when compared to anything.
By the way, nick, your post is now there. So… what was that you were saying?
Thanks, Jeff, yes I saw that. And I noticed that the latest post is logged at 8.33pm. Mine is still waiting. Odd that the content passed via your post.
But I don’t think links are the problem. At CA that sends you into moderation, which takes forever, but at WUWT everything is moderated. And a human shouldn’t mind the (2) links.
NIck,
Mann being put up by wealthy interests to silence critics in a convenient venue, is much more interesting than any contortion you are performing to pretend it is unfair of those who like Mann’s appointed victim to offer him help.
Re: Jimmy Haigh (Apr 8 21:56),
Thanks again, Jeff, looks like you got some action. It waited just under 5 hours, which is a long time in the life of a WUWT thread.
Nick
I suggested this to earlier Mr Tobis
Robert Heinlein
“You have attributed conditions to villainy that simply result from stupidityâ€
Now I am not calling the MODS at WUWT stupid and I know you have some history there too. But one of my philosphies is SHXX happens.
Nick Stokes. Maybe you don’t know but Mr. Watts is offline for a couple of days dealing with his wife’s surgery. It was on his “open thread”. Volunteers filling in but there hasn’t been much new stuff today.
Gee… he’s dealing with a family medical issue and you are whining about your comment not showing up. Cut the guy some slack!
DeWitt [73338]; MaxO [73329]; BarryW [73333]
Speaking as a political economist, the data available tells us that Boomers as a cohort are in deep trouble. Having grown up with the “Peter Pan” idea that everything will always be just fine [bubbles notwithstanding] they are now finding themselves to be living on the “under water” side of “never-never-land”. Forget about interest rates and the the rest of the “excuses”. Bottom line is: no positive net worth.
By way of perspective, the internationally accepted definition [by all major accounting and actuary institutions included] of a “High Net Worth” individual [or a “couple over 60” -their obligations to their offspring done with-] is a net worth of a minimum of US$ 1 million of unencumbered and marketable assets. N.B.: excluding the value of the principle residence. By best accounts, with a global population of approx 6.5 billion souls, there are approx. 25 million that meet that criterion world-wide – and as of this year for the first time are evenly divided around the world between North America, Europe and Asia.
I am one of that cohort, through a combination of what I was taught by way of upbringing, my pathway towards a PhD by demanding profs who were tops because they never took BS for an answer, followed by 25 plus years of hard nosed learning and executing in venture capital, and -in passing- the building five advanced technology companies. Against prevailing winds and currents. Fast failure. Data rules. No BS. Call it the “Protestant Work Ethic”, although ironically that core “concept” somehow seems to be oh so well understood in Confucian Asia.. [“as you make your bed, you sleep”].
The vast majority of “boomers” – be they from the private or the public sector- have over the past 25 years sailed with the prevailing winds/currents, thinking they were making true headway, but now find themselves “under water”.
That is the single biggest political and economic/fiscal entitlement “chicken” in the process of coming home to roost throughout the developed economies. And in that context, from late 2009 onwards AGW/ACC and whatever passes for the science/understanding-of-the-available-data underpinning that hypothesis, ceased to be relevant to most of the folks on the street. The very idea of a [carbon] tax on energy translates into a tax on their chance of getting a new job. Right or wrong, that is why.
From Timothy Balls website
“John O’Sullivan’s Comments on My Lawsuits Part 1.
Deep-pocketed environmentalist group is implicated in bank rolling a new initiative to silence climate skeptics using libel laws.
Beleaguered global warming religionist, Michael Mann has signed up a Canadian law firm with ties to the ultra-green David Suzuki Foundation (DSF) to help buffer him against the increasing tide of criticism for his key role in helping to corrupt climate science. Skeptics fear DSF and other warmist groups will be employing the likes of McConchie for reprisal attacks against skeptic scientists who helped derail the global warming tax raising juggernaut.
Internationally renowned climate scientist, Dr. Tim Ball and prominent U.S. skeptic Chris Horner appear to be the first victims of a coordinated attack by discredited ‘hockey stick’ graph conjurer, Michael Mann.”
How does that compare to Michael Tobis?
lol Tim Ball.
Did anybody see the Jesse Ventura “Conspiracy Theory” on global warming? Tim Ball played the role of a real climate scientist in hiding. They had him in silhouette and everything. But, of course, you could recognize his voice and shape, which made me laugh to no end.
So he claimed he feared for his life when it was clear what his identity was and he goes on TV all the time. What an ass.
A ‘climate scientist’ who doesn’t believe the greenhouse gas effect is real. Hope he’s enjoying all those royalties from Slaying the Sky Dragon.
Boris–
I didn’t even know the show existed. I guess I miss a lot without cable…
We are just a little over 10% into The Great Depression of 2008-2028, I don’t understand how anyone can smile or say that things are improving. (sarcoff)
Heh, bugs, as I told Nick over at Watts Up, you can have all of the discovery in Ball v. Johnson, just give me all the discovery in Mann v. Ball.
===============
Re: bugs (Apr 9 03:06),
So you believe that Mann is paying for this venture himself?
bugs (Comment#73362) April 9th, 2011 at 3:06 am ,
“How does that compare to Michael Tobis?”
.
Good point. IMO, both sites are rubbish. I wish both would focus on rational analysis and calm discussion of political disagreements, but I don’t think that will happen.
Re: Barnaby (Apr 8 22:06),
I’m well aware that Tony Watts is away. But he is not the sole moderator (eg ctm?). Anyway someone is moderating the site, and many comments got through while mine was held.
Dr.Mann rather spends tax payers money on legal battles to save his reputation (or what’s left of it) than using it for producing sound climate research…
This was spotted at Judith Curry’s website.
http://judithcurry.com/2011/04/04/reactions-to-mullers-testimony/#comment-59853
Free the data I say.
John O’Sullivan? Now where did Eli see that name. . . Hmm, Oh yeah, the John O’Sullivan who wrote
—————————–
Hi Kent,
I have a very prominent climate sceptic contact in a leading national UK newspaper sympathetic to our cause – they would be interested in this story. I am a bit tied up today with family commitments but what I would like to do, with your consent, is possibly offer the story to the British press as well as running it in climategate.com. I feel this is the best way to create maximum discomfort to Michael Mann and create as wide an audience as possible.
I look forward to discussing this in more detail with you soon.
Regards,
John
bugs (Comment#73393)
April 9th, 2011 at 3:10 pm
Bugs, I know sometimes you have trouble with that “nuance” thing, so let me help you out.
“Free the data” refers to after the paper is published.
Nick Stokes,
“many comments got through while mine was held.”
.
Well, just think of yourself as as a young Arab man an at a US airport… probably OK, but subject to a bit more checking than most….
Eli,
“Now where did Eli see that name”
.
Somehow you have to find a way to get past this idiotic third person stuff. It was already ridiculous more than a year ago. It is not cute. It is not a bit cleaver. It is just plain stupid.
John M (Comment#73396)
April 9th, 2011 at 3:27 pm
Watts is having it both ways. He keeps making accusations, smears even, about the stations, and keeps saying he’s going to publish his paper. Years later, still no paper, just the smears and feeding ‘secret’ information to people such as Muller, who reveals that the smears are baseless. Watts is much better off with it not published, since it removes his ability to continue his smear campaign.
DeWitt, the Social Security strategy in the US for a married couple, is that the lower earning one takes the pension at 62 while the higher earning one waits until fully vested and maybe a bit beyond (depends on other sources of income). It actually is worthwhile being married according to Ms. Rabett.
Tetris, $1M is not enough, you need at least $2M, and don’t pat yourself on the back so hard, even a poor bunny can make those goals. Still, the part that few discuss is how government programs including Social Security and Medicare have relieved the past two generations of caring for their parents, allowing us to build up substantial support in our burrows. It is also not clear that you are really talking about the boomers (1946-1960) or the generation after the boomers moved to the suburbs.
Steve: Eli is Eli because it amuses him and a few other discerning souls. That it annoys certain others is a feature not a bug.
Receiving secret message loud and clear.
bugs–
I’m testing whether a spam plugin does what I want it to do. It doesn’t. More testing ahead. 🙂
Eli,
“Eli is Eli because it amuses him and a few other discerning souls. That it annoys certain others is a feature not a bug.”
Says a great deal about your mindset I think. BTW, the third person act takes away from whatever else you say. Too bad.
Lucia,
“I’m testing whether a spam plugin does what I want it to do. It doesn’t.”
.
Is it possible to configure the plugin to block comments from people who refer to themselves in the third person? The restriction would appear to apply only to the Queen of England and one other person.
SteveF-
Sorry. I don’t know how to detect that. I could configure to block Eli but I wasn’t planning to do so.
Lucia,
Perhaps you could enlist the services of Watson…
Steve–Watson?
I found the problem. WordPress used to let spamfilters fish out stuff from the comment data aray using
$commentdata->comment_author_IP
For some mysterious reason, that’s not working. (It used to work just fine in the plugin that I’d been using all along. I don’t know if that way was considered lesser but it worked. Now… no.)
Now I have to fish it out like this:
$commentdata[‘comment_author_IP’]
The time out spam filter should now be functional once more with expanded functionality.
Eli Rabett said in Comment#73408, April 9th, 2011 at 6:47 pm
“Still, the part that few discuss is how government programs including Social Security and Medicare have relieved the past two generations of caring for their parents, allowing us to build up substantial support in our burrows.”
————-
Looking ahead, the choice for younger workers is to pay a higher Social Security tax so their their parents won’t have to deplete assets, or get less inheritance when the parents expire.
Bugs,
Tell you what. You can apologize when the paper is published and we can all see the “submitted” date.
Lucia:
“I didn’t even know the show existed. I guess I miss a lot without cable…”
http://www.youtube.com/watch?v=A0rtJ9CYSdY
It’s a pretty entertaining show, actually. Also, he’s (Ventura) turned it into a book deal I guess. I saw a copy at Target today. Cover said it had been a NYT bestseller.
But, global warming wasn’t even in the book. So it’s not even the 16th biggest conspiracy out there. Kinda scary.
Boris
You may have managed to find a pro-AGW video. Hasn’t gone viral, but it’s moderately funny.
“I’ll be out of cell phone range made me grin.”
Is the show in general just a spoof of all conspiracy shows? (Music, serious demeanors etc.?)
John M (Comment#73423) April 9th, 2011 at 8:37 pm
We shall see what it actually claims when it is published. From what I have read, nothing like what he gets away with on his website.
bugs:
Or on the SPPI website.
One possibility is that Watts is going for the full double-take. He will publish a paper that explicitly states the temperature trends are reliable (as in, you get pretty much the same trends even if you exclude the low-quality / poorly sited stations), but he will still keep claiming the exact opposite on his blog. Actually, he might even use his peer-reviewed paper as “support” for his contradicting claims.
.
His audience will probably fail to see any problem with it. After all, many didn’t see a problem with the Easterbrook “coldest in 10K years” post (even after the problem was pointed out), or the Bolt + Josh posts on that Tim Flannery quote.
Max, Eli remembers when folk like Ronald Reagan and Alan Greenspan told us that US social security taxes had to go up to pay for our retirement, and the bunnies said, yeah, that is a fine idea. And know what, it worked until Jamie Dimon and the rest of the banksters got this huge tax break in 2001.
Still, lots of folk have inherited some fortune from their parents, so yes, intergenerational transfer of wealth works in both directions.
Leave Eli alone.
He’s mildly amusing and harmless.
I take your new tack to mean you’d like to move on from the “free the data” snipe that was the focus of my initial comment.
But if you’d now like to move the discussion to whether everyone needs to be consistent with regard to what they can publish in a peer-reviewed paper and what they can say in other fora (press releases, press conferences, congressional testimony, op-ed pieces, blogs, fawning 60 Minutes interviews, as technical advisors to Academy Award-winning movies, etc.), I suspect Lucia would have to start another thread.
kdk33 (Comment#73438)
April 10th, 2011 at 7:10 am
“Leave Eli alone.
He’s mildly amusing and harmless.”
He gives me the creeps.
Lucia,
“Watson?”
Would probably make a really cleaver spam filter.
http://www-03.ibm.com/innovation/us/watson/what-is-watson/index.html
Re: Eli Rabett (Apr 10 03:18),
The automatic cost of living increase was far more damaging as benefits went up at nearly twice the rate of inflation for a long time. Also, it depends on what you mean by ‘worked’. If you believe that something called the Social Security Trust Fund is real, then perhaps it might have worked. But of course it isn’t real and SS is now bankrupt as payouts exceed revenues. Medicare is still nominally in the black but has much higher long term unfunded liability than SS.
Steve–
Ok. But I doubt I could afford the CPU for that sort of thing. 🙂
My personally tweaked time-out plugin now has extended functionality. It will now limit people who I think need to learn to focus on their main point to 40 words as counted by the php command “str_word_count”. I don’t know how well that works if someone includes html tags or links in their comment, but I can tweak after I see if the limit is too stringent.
While I think Eli often posts cryptic obscure comments that require the reader to guess what point he is trying to make, I don’t think limiting him to 40 words would make any difference. So his email has not been entered into the list of people who need to use fewer words.
Lucia,
I wasn’t seriously suggesting you limit Eli because of his third person act… I was joking. The best response to cryptic, obscure comments is probably just to ignore them. Maybe more so if they are written in the third person. 😉
.
BTW, 40 words seems to me a bit draconian… but it’s your blog.
DeWitt,
The interesting thing about the SS ‘trust fund’ is that it was just a political tactic to placate people and get the law through Congress. It is the sort of ‘political expediency’ that always comes back to bite us in the butt, long after the politicians involved have left the scene.
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You see much the same going on today, of course. The red-faced screams of protest we hear from politicians about any meaningful effort to eliminate the unfunded liability of Medicare and SS are disingenuous at best, and intellectually corrupt at worst. You can count on lots of effort to substitute political tactics for meaningful reductions in the unfunded liabilities.
SteveF–
I was trying to decide between 40 & 50 words. Instapundit’s average blog post seem to fall below that range. (http://pajamasmedia.com/instapundit/)
The limit is only being applied to people who have proven themselves to pointless rambling and pretty much never posting anything whose substance could not be stated in 20 words.
But… I could increase to 50 words. I’ll go check the word count at Instapundit and see.
http://is.gd/mQq4e6
Regarding the deal in DC, economist Bradford deLong estimates ‘It will knock between 0.5% and 1.0% off the growth rate of real GDP in the second half of 2011, and leave us at the start of 2012 with an unemployment rate a couple of tenths of a percent higher than it would have been otherwise.’
He says ‘To reduce federal government spending by $38 billion in the second and third quarters of 2011 when the unemployment rate is 8.9% and the U.S. Treasury can borrow on terms that make pulling spending forward from the future into the present essentially free is not an accomplishment.’
He may be wrong but he may be right, and this sounds sensible to me, though I’ve only had one course in economics a long time ago. I don’t think taking him seriously qualifies as delusional.
Eli:
It did go up:
Historical tax rates (Your employer matches this amount, so total FICA rate is twice that percentage times your gross salary.)
Or course this means that self-employed people pay twice that amount.
They also raised the age where you got full retirement benefits.
Dropping the tax rate for the highest income group (boo hoo, that’s so unfair) has literally no effect on SSA income, because there is a wage cap on the amount you have to pay in. Last I checked it applied to banksters and other felons too.
By the way, without a large immigration rate (the Evil Anglo Warlord, Ronald Wilson Reagan, had something to do with that), SS would be much worse off than it it now, because without including the immigrant population, we’d actually have been experiencing negative population growth.
Michael Tobis:
Listening to anything a social scientist from Berkeley says may indeed qualify you as delusional. If you want I can check the DSM IV.
$38B is a hair over 1%. Stretches credibility to think it matters so much. We need to be talking numbers that start with a ‘T’.
Well, this will take a few more than 40 words.
As those few of you born before 2000 may remember, the US was well on it’s way to reducing the debt, the deficit having been wiped out by Clinton in what 1998? If this had continued, there would have been available funding to cover much of the SS (saving words there) for the boomers, and the reduced debt would have made it possible to convert the SS trust fund into external (to the government) debt at low interest. Come to think of it, interest is low because of the recent unpleasantness anyhow. So yes, without the tax give away and the bizarre Republican budgets btw 2001 and 2007 (not to mention …. and ….. which others, not Eli, do) there would have been no problem at all.
As to the cost of living increases, one of the subtle things not mentioned is that the cap on SS taxed income did not grow as rapidly as it should have to match the top amount to the fraction of income that it should have, and, mentioned more often, though often ignored, even now, if the US lifted this cap, there would be no problem.
kdk33,
Yup, a trillion a year reduction in deficit, starting now, would be in the right range. I don’t expect this will happen until/unless one party or the other controls both houses of Congress (with more than 60 seats in the Senate) and the Presidency at the same time. If it is the Democrats, the gap will be closed by pushing federal tax rates on the ‘rich’ to >40% (my guess: 45% marginal), confiscatory estate taxes, and increasing the net take for SS and Medicare, using a higher % rate for medicare and higher income limit on SS. If it is the Republicans, it will be mostly cuts in entitlements, but with some cuts in discretionary items and defense.
.
Of course, if it is the Democrats, the deficit reduction will be less, and the deficit will likely return with expanded Federal spending, until, as Maggie Thatcher noted, they run out of other people’s money.
.
The philosophical choice is very clear, and compromise looks out of the question for the crowd currently in Washington. The electorate has been so far unwilling to make a decision. All rather depressing for a Sunday afternoon.
Eli,
Other than on the recent open thread, you aren’t limited by the maximum word limit nor are you identified as someone who needs “time outs” between comments. (Dr. Shoosmoon and AndrewKY were required timeouts between comments. Both were posting at a rate I considered relentless.)
Eli,
“if the US lifted this cap, there would be no problem.”
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Well, no problem at all… except for all the people who would suddenly be paying a lot more in SS taxes. Somehow I suspect that there are no circumstances under which you would consider ‘soaking the rich’ is a problem. But please correct me if I am wrong about that.
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The whole concept of SS (personal ‘accounts’, a ‘trust fund’, benefits tied to income) limited the maximum tax take because the benefits are limited. All you want to do is remove the last fig leaf, and make SS a welfare program for those over 62.
Are you assuming the cap on benefits would remain?
Otherwise, removing the cap on both payments and benefits wouldn’t buy much.
“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.” Rahm Emanuel
“You must not fight too often with one enemy, or you will teach him all your tricks of war “Napoleon
There have been rumblings by the Republicans that they will use the need to raise the debt limit to make changes to other programs Entitlement reform, spending caps, a balanced-budget amendment and an overhaul of the budget process are among the items on that possible wish list.
Will it work? Don’t know but this kind of brinkmanship has possiblites.
Michael Tobis (Comment#73451)
April 10th, 2011 at 9:46 am
Regarding the deal in DC, economist Bradford deLong estimates ‘It will knock between 0.5% and 1.0% off the growth rate of real GDP in the second half of 2011, and leave us at the start of 2012 with an unemployment rate a couple of tenths of a percent higher than it would have been otherwise.’
Ah the perfect arguement. So no matter what the above numbers are, Democrats are going to claim if it was not for the cuts they would have been better, yeah right. If that were true with all the spending the last two years we should be experiencing 5% growth right now. Oh that’s right it would have been worse…
How about a little perspective.
So the final agreement is to cut $38.5 billion from the 2011 budget (yeah the one the Dems were to incompetent to pass last year).
I guess our fragile “recovery†is now over (if it ever existed) and our economy will now spiral into depression because the government is going to spend $3.56 trillion instead of $3.6 trillion. Not exact numbers, but close enough to understand the proportion of the cut.
What is the size of the US economy projected to be for 2011?
Oh around $13 trillion.
http://www.usgovernmentspending.com/fed_us_real_gdp_chart_09_k.html
Maybe MT focused on Science while in school or…
Also funny to see Eli could not find the pea under the shell from the illusion of the late 1990’s surplus. Also interesting how some other party in Congress at that time forced his hand, remember he said no a few times before he signed.
Eli and MT why don’t you take all your income that is above the average for an American family and donate it to families that are below that average. When you do it I might add weight to your arguements for redistribution of wealth. You do “feel” strongly on the issue, right?
Eli:
I agree with the first part.
The second part needs a lot more substantiation:
It’s not obvious that a sudden 7% increase in taxes on people earning more than say $200k would have “no problem”.
Who do you think is primarily responsible for economic growth and job creation in the US, and what do you think would happen if you suddenly removed another 7% of their net income?
Short answer to my (non-rhetorical question): Certainly not large corporations.
It is an increase on marginal rates, e.g. the amount earned over the current cap, and, in effect, well, go read in effect what it would do. Don’t cry for Jamie Dimon is the bottom line
Allow Eli to assume Carrick is correct. If so, since those earning over 200K$ in the US have had massively good times since 2001, we should be swimming in jobs.
Sorry, Eli missed this the first time. Here is the Congressional Research Service report on various flavors of lifting the cap.
Summary FWIW
Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security Trust Funds. For example, if the maximum taxable earnings amount had been raised in 2005 from $90,000 to $150,000—roughly the level needed to cover 90% of all earnings—it would have eliminated roughly 40% of the long-range shortfall in Social Security. If all earnings were subject to the payroll tax, but the base was retained for benefit calculations, the Social Security Trust Funds would remain solvent for the next 75 years. However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.
Of course, raising taxes will seem to increase revenue; and, in a static analysis can pay for all manner of stuff. In a real analysis the revenue is partially, if not totally, offset as the economy reacts. Those on the recieving end prefer the former; those that pay the latter.
It probably matters that SS was never meant to be a retirement plan, and medicare is, apparently, much worse off than SS. Further, the notion that government should be a provider of so much to so many (I’m now thinking SS+medicaire+OC+etc) is not something to be considered lightly – government is typically inefficient and corrupt, and should be constrained.
There looms, I believe (I’m not alone), a significant battle between those who create the wealth that government taxes and those that recieve those taxes. That’s not to say that recievers add no value or that there should be none; but it is to say I see soon a reckoning where taxpayers will rationalize what taxtakers get. It won’t be pretty.
How can we possibly talk about raising taxes, MT has already stated that simply removing $38.5 billion from the economy will shave .5-1% off of GDP and keep a few tenths of a percent unemployed. If we were to take 100’s of billions out of the economy to build up a trust fund, that will spiral us into a depression, right Eli and MT?
It is Medicare and Medicaid that are in trouble. Not Social Security. The payroll tax was increased in the ’80s to ensure that SS would stay solvent through the retirement of the baby boomers. Today the “trust fund” has $2.5 trillion in it and is “solvent” until the year 2037. That’s $2.5 trillion in extra taxes shouldered by the middle class and the working poor (and their employers, but as everyone likes to say, “business don’t pay taxes”). Of course, every dollar of that $2.5 trillion has been spent as if it were regular tax revenue. But at the same time payroll taxes were being used to fund the basic operations of the government, the effective tax rate of the very rich has come down from about 70% to 35%. Some might call this class warfare or redistribution of wealth, but certainly not me. Funny how the country didn’t collapse into socialism even with all those rich people paying such high taxes for all those decades.
However, in this discussion there has been misrepresention of the definition of “rich.” A lot of people might consider households making $250,000 to be “rich,” but in reality they’re the upper middle class, and they are the ones who have received the worst deal in the last few decades. They’re rich enough to earn the scorn of the masses, but not rich enough to buy politicians. It’s the very rich, those making over, say, $1 million are the ones getting best deal. These include trust fund babies, bankers, corporate executives, hedge fund managers, and real estate moguls, who are, in reality, not “the most productive Americans” despite making hundreds if not thousands of times more than a typical American. The secret of their success is not their productitivity, but instead compound interest and idiot boards and shareholders who rubber stamp compensation that has little relationship to performance.
In absolute terms, corporate profits are at an all time high. When adjusted for inflation, they are very near the all time high. Corporate America is sitting on trillions of dollars in cash. If they were interested in creating jobs, they’d be creating jobs. But we worry so much about upsetting the very, very rich with talk of higher taxes. Why, they might move their factories to China and their corporate charter to Bermuda. Oh, I forgot, they’ve already done that.
$38.5 billion is the equivalent of the combined income of about 800,000 typical households. It’s also about two years worth of Wall Street bonuses.
cce
Is your point that the cuts are so small they can’t possibly slow the economy the way Tobis suggested? (Not rhetorical. I’d like to know what you consider to be the significance of your observation that these cuts are trivially small.)
Eli:
It’s well known to be correct, but the “swimming in jobs” is a particularly silly argument even coming from smarmy people who think it’s clever to talk in third person.
Who do you think creates jobs, people who earn minimum wages???
Also, simple facts check: Jamie Dimon earns quite a bit more than $200k/year.
cce:
I agree with you. But it this group that will be hit the hardest by a 7% increase in SS taxes on their income above the current cap. (Key concept is fraction of disposable income.)
Note I didn’t say it was corporate america that is primarily responsible for jobs creation. IMO they are likely a net job sink, nor do I think they represent peak economic efficiency.
Let’s see. If we cut government services by $38.5 billion over the remaining portion of fiscal 2011, that would likely have a greater impact on the economy than confiscating two years worth of Wall Street bonuses. Although it probably would disproportionately impact the income of New York City prostitutes.
Carrick,
If your point is that small businesses create the jobs, I agree with you. However, the small businessmen that I know don’t make over $200,000 per year. And if they did, I’d ask them, “Why don’t you hire more people? You have the money to do so.” Where the tax code is hemorrhaging money is with the very rich and that means corporate America.
Personally, the $500,000 per person or $1,000,000 per household threshold of “rich” makes more sense to me, but there’s a lot of things wrong with the tax code than just the tax brackets.
cce, I think you might agree with me the question of what effect the cuts have depends on where the spending cuts come from.
Interesting upcoming webinar here:
“A Perfect Storm: Impact of Funding Shortfalls and Budget Cuts on Government Contractors”
I don’t see this as somehow stimulating productivity (in addition to being a meaningless drop in the bucket of the current federal deficit).
cce:
Most of the small businessmen I know gross at least $200k in personal income, some closer to $1 million. The average salary nationwide for small business owners is around $240k. link.
Most job creation comes from companies with under 50 employees, and that probably pushes you up to over $5 million in annual gross revenue for the business.
Here’s a slightly dated reference.
I agree with you there is a lot broken in our system, but it is not just taxation, it is bailouts for the super-rich, aka “money sponges”, as well as subsidies and regulation designed to allow mega-corporations to compete with small businesses in markets that they otherwise wouldn’t be competitive in. (etc etc etc.)
Class warriors in full throated hoot and holler. Quite a spectacle!
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Carrick,
Lifting the limit on earnings subject to SS would have more than 7% impact on high wage earners at larger companies…. companies still need to pony up the matching share… so less money available for wages. In spite of what cce might imagine, most high earning individuals are in fact owners/operators of small businesses, including closely held small corporations and LLC’s. This includes all manner of doctors and lot of lawyers, as well as many other modest size businesses. Of course, these folks are no dummies, their personal compensation is normally structured as a combination of relatively modest wages and the remainder as distributed profits, which are not (presently) subject to SS tax.
Update: you beat me to posting the correction to cce’s imaginings about small businesses.
“Corporate America is sitting on trillions of dollars in cash. If they were interested in creating jobs, they’d be creating jobs.”
Corporations don’t exist to create jobs; they exist to make money and increase their stock value.
Are they engaged in a sinister cash hording scheme? How do they benefit and why?
kdk33:
And as long as that is the model that
businesseslarge corporations operate under, they are essentially worthless to us, except for what immediate value they give to us.This means there is no longer a reason to give corporations special dispensation, bailouts, subsidies, and so forth, since there is a guarantee of no reciprocation for it. (Remove the farm subsidies and watch who suffers for it.)
SteveF, there is also a strange reverse class warfare that goes on, where people see large corporations as the penultimate sign of progress for a nation. From a sociological perspective it’s interesting how this comes about: Congressmen’s campaigns gets lined with donations from both corporations that suckle on the government’s teats, and the unions that suckle on the the corporations teats, and curiously both socialists and capitalists value them more than they do small businesses.
The reality is, it is small businesses that give our economy its vibrancy, and ownership of small businesses that provides the ultimate in personal freedom that our social-economic system can provide (as a business owner, I know you realize this).
“This means there is no longer a reason to give corporations special dispensation, bailouts, subsidies, and so forth”
Agreed.
Is there a certain size at which business/corporations incentives shift from profit to the more altruistic goal of job creation? And what is behind the sinister corporatemoney hoarding?
kdk33, recognizing the “corporatemoney hoarding” phrasing as demagoguery (not promulgated by you), I’d cast it a bit differently than you. Small business owners are acutely aware, since they live in the community in which they do business, of the impact of their business on their community. And as owners, they answer personally to the community in which they work for the policies they set for their own company.
It has been argued that large corporations should be answerable to the global communities in which they live for their ethical behavior (or lack there of). (In my memory, Carly Fiorina, but it may have been another CEO, made an argument that corporations need to accept more responsibility for the global consequences of their business decisions.)
Eli is not quite sure what is meant by SS was never supposed to be a retirement plan? Remember, it started in the 1930s. By the 1970s the general consensus was that retirement required additional resources but SS is still the only source of income for many old folk and it is enough with Medicare, for them to survive.
The next time you see Eli, you might suggest this:
SS was menat to provide something for those who could no longer support themselves. It was born when manual labor jobs were the norm (older folk simply could not work any more) and people did not live so long.
Nowadays people live longer and working lives are much extended – especially for white collar workers. Yet SS has become part and parcel of even terribly generous pension plans. Supplemental income for RVrs. This was not the original intent; and needs to change, IMO.
khk33,
“Is there a certain size at which business/corporations incentives shift from profit to the more altruistic goal of job creation? And what is behind the sinister corporatemoney hoarding?”
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I am not certain that these are serious questions. But in case they are:
.
There is no size company that exists for altruistic motives… at least not for very long. Last year my company had to lay off a couple of workers. This year we have added one. Altruism had nothing to do with either move. Companies (large and small) pretty much all exist to make money; and grow to become more profitable if they can.
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There is no sinister hoarding of cash by large corporations. Most managers are motivated as much by fear as anything else; and large cash reserves reduce fear. In addition, hiring and investment depend on credible projections of expanding existing markets or the expectation of new markets. When these are nowhere to be found, corporations sit on cash. Nothing sinister is going on.
Carrick, that salary.com survey looks fishy, or rather it is not clear what group of small businesses they sampled. This report based on IRS data looks more reasonable and provides a breakdown by industry. Suffice it to say that the average/median is way under 250K$
Carrick,
“The reality is, it is small businesses that give our economy its vibrancy, and ownership of small businesses that provides the ultimate in personal freedom that our social-economic system can provide (as a business owner, I know you realize this).”
.
For sure. I have innovated within a big corporation, and innovated within the company I founded. I can assure you an owner can do much more, do it more quickly, and at lower cost than a corporate employee… even if they are equally smart and motivated. Most large corporations have too much ‘structure’, too many ‘policies’, too much politics, and far too many risk-averse drones to be dynamic.
Talk about grampa warfare
———————
Approximately 60 million Americans who receive some form of SSI will be impacted by this change. Of this group, 65% relied on the SSI benefit as their primary source of income, with the the average Social Security benefits payment worth $1,072 a month.
——————–
Right, it’s all those greedy oldsters. Eli didn’t call the Simpson-Bowles nonsense the catfood commission for nothing.
SteveF:
I haven’t ever worked in large industry, but I get (in a bad sense) to work with them quite a bit on military R&D projects.
Risk adverse is just part of the problem.
Another part is the layers of salespeople and other snake-oil salesmen you have to penetrate to actually find somebody who knows anything, if you want to work with them on new projects.
A third is that many big companies have whole departments set up just to generate “free” government money, that they fulfill the contractual agreements with shoddily put-together power point presentations. In the military, these guys are known as “power point warriors.
If you get too close to these guys, it’s bad news: They’ll literally spend at least as much energy trying to figure out how to finagle all of your funding away from you (and to them) as they will on any actual problem solving. (And I still can’t forget the time we payed $4 million to a large corp for a helicopter based sensing system, and what we got was literally a 200+ page report full of nothing new and a marginally related demonstration on the hood on the car of the guy running the program, scraped together at the last minute.)
cce comments: “$38.5 billion is the equivalent of the combined income of about 800,000 typical households.”
Lucia replies: “Is your point that the cuts are so small they can’t possibly slow the economy the way Tobis suggested? (Not rhetorical. I’d like to know what you consider to be the significance of your observation that these cuts are trivially small.)”
Interesting.
Carrick,
Just so we’re clear, I’m talking about how much the business owner/partner/CEO retains for his or herself, which excludes investment in his or her business. If the average compensation is $233,000, or about 5 times median household income, taxes aren’t preventing them from investing in their company.
kdk33,
The argument is that taxes prevent the “wealth creators” from creating wealth or creating jobs, when in fact, they have everything they need to do that and more. What they really want is lower taxes so they can keep more of their money, which I think is a pretty common desire.
The US government spent about $900 billion on stimulus (1/3rd was tax cuts) and extended the Bush tax cuts for two more years (another $900 billion). Money is as loose as government can make it. Business has about $2 trillion sitting in the bank. If all of that isn’t enough to shake them out of a liquidity trap, then no force on earth will do it. If they want to create jobs or wealth, nothing is stopping them other than their newly rediscovered fear. I think someone once said something about fearing fear.
cce:
Spoken like somebody with no real-world experience with running a company.
Trying dropping your income by 14% and see what happens. Remember you pay double, because you are self employed.
Also remember several other things: You are competing against corporations, which have deeper pockets: so it’s anticompetitive.
Also remember you have to pay for your retirement, for your medical bills and so forth, all out of pocket.
It isn’t as easy as you suggest, and it would have a negative impact on job creation.
You are right they will protect themselves first, which means the 14% extra taxes comes out of the companies kitty… less money for reinvestment, etc. Less money to add jobs, equals less jobs, probably more failed small businesses.
I’ve lost track of the players…
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One of those Elis posted a broken Grandpa link. As far as I know, cats are not SS eligible.
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Yes, Steve, those are serious questions, but not directed at you (see comments upthread). I agree, Bbsinesses (small, medium, and really big) are in it for the $$$. Altruism & social responsibility only go so far, and there’s a reasonable argument that it goes further in large companies than small (something about stock values and salaried managers being freer with other peoples money), IMO.
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If companies are sitting on cash, it’s because they percieve investing too risky for now, so something has changed. I don’t think business has suddenly become risk averse, but a good financial crises will cool some heels. There’s always somebody looking to make a buck and Americans are an industrious lot. Rather than criticize for hoarding cash, we should figure out might be done to reduce percieved risk.
.
So, what feature of our economy is new or has changed and is driving this increase in percieved risk and what can we do about it?
Eli,
Your link to small business income data appears to tell only part of the story. Owner operators of small, closely held companies (s-corps and similar) are on the payroll as employees in addition to receiving distributed net profit. Their total compensation can be much higher. IRS rules pretty much require this… so that these folks have to make contributions to SS for the salary part of their earnings. Of course, if you include self-employed individuals who’s operations are very small (mostly sole proprietors with no employees), such as rug cleaning services and the like, individual earnings will be lower. Small business owners that make products (physical or intellectual) and that employ some people are usually pretty well compensated… if their businesses are at all successful.
cce,
“Money is as loose as government can make it.”
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The Fed DOES NOT make money loose or tight for companies. The Fed makes money loose or tight for Banks. Banks are sitting on a huge inventory of garbage mortgage assets. They are not at all in good financial shape, and they are being beaten on by Federal regulators to not take too many ‘risks’. Far too many insolvent banks (and other financial organizations) were allowed to survive with infusions of Federal “stimulus” money… probably as Orwellian a word selection as could possibly be found. This money stimulated nothing except the creation of marginally functional ‘zombie’ (really dead, yet still wandering about) financial organizations. It hurt rather than helped recovery.
.
I suggest you consider starting a company and finding out for yourself how loose money is.
Hmm, this has been an interesting thread but unfortunately the economic basics have been rather lacking.
I normally skip over whatever the bunny says because I find his cryptic approach, weird syntax and general lack of clarity quite painful to read. I decided to ignore my rule this time and am sincerely regretting it. My poor head – I feel like scratching my eyes out. However, once I have already suffered the pain, I might as well correct a few of of his misunderstandings.
Let’s start with “As those few of you born before 2000 may remember, the US was well on it’s way to reducing the debt, the deficit having been wiped out by Clinton in what 1998?”. The rabbit has not been eating his carrots and forgets the minor point that Clinton left an economy heading for recession. Officially, the NBER places the recession beginning in March 2001 – can’t really blame Bush for that one. September 11 of course severely exacerbated the recession. I assume the hare knows what recessions do to tax revenues. Of course the wars did not help matters, but it is a fantasy to think we would be in a balanced budget position otherwise with the combination of a recession and entitlement growth.
There is the old fallacy that the budget deficit is a result of cutting tax rates. A nice soundbite, but just not true. The fact is that tax rates as a % of GDP have remained remarkably stable over time, as pointed out by numerous economists – see the WSJ for example: http://online.wsj.com/article/SB10001424052748703514904575602943209741952.html?KEYWORDS=hauser
There is a reasonable point to be made about tax fairness and whether higher income people pay their fair share (cough *carried interest* cough) but that is independent of the impact on the deficit.
Yes, the deficit is primarily an entitlement issue. And, yes, that includes social security. Notwithstanding former Enron advisor Paul Krugman’s protests about the validity of the Trust Fund (though he does seem less convinced these days), it is an accounting fiction. And for that reason, increasing the cap really does nothing under the current practice of spending available income. Focusing only on the federal level also omits a significant part of the picture. Public employee entitlements have severely compromised the finances of many states (New Jersey, Illinois, California, New York among others). This is not a tax issue (except probably California with its crazy prop 13).
On the other hand, SteveF is quite correct that money is not loose for small businesses (though it is quite available for larger / medium-sized corporates- even those rated below investment grade). The government / Fed has tried to stimulate lending through quantitative easing but they cannot force banks to lend. And the banks still don’t like the risks and are not lending.
So? you doubting that the 2001 tax cuts blew a hole in the budget? That the…. and … adventures blew a hole in the budget. That the unpaid for Medicare Part D blew a hole in the budget.
no wonder your head hurts, you blew a hole in it.
Steve, if you limit small businesses to large small businesses, yes the average take home is larger. Eli will agree that the question is a tricky one, without that much good data out there except for the sole proprietorships where income is take home.
Oh yes, just a small one at tax season, S and sole proprietorships don’t pay double SS tax, because the business 7% comes off the bottom line as an expense.
brid said in Comment#73618), April 11th, 2011 at 4:02 pm
“There is the old fallacy that the budget deficit is a result of cutting tax rates. A nice soundbite, but just not true. The fact is that tax rates as a % of GDP have remained remarkably stable over time, as pointed out by numerous economists – see the WSJ for example: http://online.wsj.com/article/…..RDS=hauser”
———-
Tax rates as a percent of GDP? I’m not sure what that’s supposed to mean.
According to the CBO, total revenues amounted to 15% of GDP in 2010, down from about 21% in 2000, as near as I can make out from Figure 4-1 (p.86) of the following publication:
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
So the budget deficit is partly a result of the drop in revenues, which I suspect reflect a cut in tax rates.
Eli,
.
Are you joking?
.
No matter how oddly you may choose to look at it, the net SS rate paid to the feds by the small business owner is 14% of his or her own salary.
DeWitt Payne said in Comment#73445, April 10th, 2011 at 8:37 am
“The automatic cost of living increase was far more damaging as benefits went up at nearly twice the rate of inflation for a long time.”
“If you believe that something called the Social Security Trust Fund is real, then perhaps it might have worked. But of course it isn’t real and SS is now bankrupt as payouts exceed revenues.”
———–
DeWitt, if you believe inflation has risen only one-half as fast as the Consumer Price Index, I want to shop where you shop.
The Social Security Trust Fund is invested in Treasury Securities. I invest in Treasury Securities. I hope you are wrong about these securities not being real.
Is it a good idea to compel working people to invest for their retirement? Probably, since quite a few wouldn’t otherwise, and would have to resort to welfare in their old age.
Is Social Security the best way to force people to save for their retirement? Well, it’s one way, but it hasn’t forced boomers to save enough.
Would any compulsory program provide sufficient funds for retirement if it didn’t force people to save more than Social Security does? I doubt it.
Eli Rabett (Comment#73631)
April 11th, 2011 at 9:06 pm
So? you doubting that the 2001 tax cuts blew a hole in the budget? That the…. and … adventures blew a hole in the budget. That the unpaid for Medicare Part D blew a hole in the budget.
no wonder your head hurts, you blew a hole in it.
———————————-
It’s funny that you and MT are for making the hole larger as a way to fix it. “Hey Rabett pass me that 1″ drill these 1/8″ inch holes in the boat are causing us to sink and I want to let some of that water drain out!”
KDK33
“If companies are sitting on cash, it’s because they percieve [sic] investing too risky for now, so something has changed.”
Ummm, you think that complete unknown’s such as the cost of Obamacare, or the Dodd Frank financial reform, might qualify as something changing?
Nobody, and I mean nobody, knows what Obamacare will actually cost per employee. Why, because the rules are still being invented. Same for Dodd Frank.
Also, remember the current budget issue is due to the Democratically controlled House, Senate and President failing to create and pass a budget for the year 2011 (1/4 quarter already over). 2012 is another story…
Carrick,
Anyone making $233,000 is not struggling. It does not matter if they are competing against corporations (we’re talking about money they actually make, not hypothetical money). It does not matter if they are paying their own healthcare. They can and will cope better than the 98% of people who make less than them or are currently making $0 because they are unemployed.
You will get no argument from me that it is the very, very rich that are the real villains here, and that the upper middle class is not to blame. What I am asking is for a little bit of perspective as to how the vast, vast majority of people actually live. If the choice is between raising the cap or ripping off the people who have paid into it their whole lives, I’ll pick the former. I personally don’t think the SS cap needs to be raised, because, as I said, there is nothing wrong with SS. It has collected more than enough money for its own purposes. The revenue to make up the shortfall should come from all other parts of the government and those taxpayers who have benefited most from the $2.5 trillion subsidy the payroll tax has provided them over the past 30 years.
SteveF,
That has little to do with anything I’ve said. Money is as loose as government can make it. Perhaps the Fed should raise the prime rate to 20% and see if there is a reaction from small business? Also, you are confusing the stimulus (ARRA) with TARP.
Brid,
In the last 10 years, the US inflated a real estate bubble the likes of which the modern world has never seen. Yet tax revenues and unemployment figures didn’t touch those of the ’90s. Nor did the ’80s touch revenues seen in the ’90s. A case can be made for cutting taxes if they are overly burdensome, or if they are overly complex, but the fact of the matter is that we are currently well on the left side of the Laffer curve. Any cursory examination of tax data will tell you this.
The senate did not pass the budget last year because virtually every bill was fillibustered, even those passing with no opposition. The last chance was the lame duck session, and the budget was given up in exchange for passing the food safety bill, (the first revamp in 70 years) and extending the bush tax cuts.
Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long term perspective on it.
=====================
Kan,
Actually I had three things in mind; you got the first. I was thinking:
.
1) Obama care
2) climate change/disruption/weirding legislation
3) Government takovers of large business (banks/insurance/cars)
.
Probably in that order.
Though it is unpopular to say today, I submit that the original purpose of SS was to provide basic necessities to those who could not provide for themselves. It was not a savings plan for retirement – at least not the way it is often used today. If we returned it to its intended purpose, that would go a long towards sustainability, but some would get less benefits. It would work more like insurance, you only get paid if you need it, OTOH you’re covered if you need it. The basic ideas are out there: 1) means testing, 2) raising the retirement age.
.
From the preamble to the social security act:
An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.
.
Note the aged, blindness, crippled equivilancy. To these shall we bestow benefits. Nowhere does it say ‘forced savings for retirement’.
Anyone who thinks that the reduction of the deficit in the late 1990’s meant that the US debt was shrinking is confused.
Here is a link that will hopefully unconfuse:
http://www.usgovernmentspending.com/debt_deficit_history
The small deflection in the graph was the late Clinton years.
We were never close to solving anything. But we did run a better spending than we had in prior years.
A better interpretation of the late 1990’s is to ponder how amazing things could have been if we had ever in the last 40 plus years had a responsible government that got close to running responsible policy on spending.
The curve of our debt rate is making a nice, steady asymptote. Soon it will be unsustainable.
Then we will find out the reality of economics.
cce:
I’d love to see proof from you that the reason the budget didn’t get passed was due to fillabustering. At best this is conjecture, at worst, just partisan talk to explain away why the Democrats acted in self-interest in not passing the budget after losing the election.
Someone must have spiked the bunny’s carrots as he seems to be hallucinating as to what I said. The wabbit weplies:
“So? you doubting that the 2001 tax cuts blew a hole in the budget? That the…. and … adventures blew a hole in the budget. That the unpaid for Medicare Part D blew a hole in the budget.”
Again it hurts to try read this, but I’ll try. I can’t see where I claimed that Medicare Part D was not bad for the budget. On the contrary, I clearly stated that “the deficit is primarily an entitlement issue”. I guess I didn’t spell out that Medicare is an entitlement but I assumed most people and most leporidae are well aware of this. Of course, Medicare Part D enlarges the deficit. Apart from the pure entitlement, it was also a significant give-away to big pharma through the dual eligibles. While we are about it, I didn’t spell out either that the President’s healthcare legislation similarly increases the deficit. Please don’t rely on the CBO scoring. The CBO does a good job but they have no discretion to change assumptions and overrule the accounting sleight of hand in the bill. Just look at the dreamed-up savings from revisions to the medicare improvement fund or the clearly erroneous assumption that the so called “doc fix” would not be extended (among other invented numbers)
As regards the wars, I don’t recall either saying they are not negative to the budget. My exact words were “Of course the wars did not help matters”. Admittedly, this is rather understated and I guess bunnies are not good at subtlety. Something to remember if I ever again dare to read the hare.
Where we do clearly disagree is on the 2001 tax cuts. It is a nice talking point to say they “blew a hole in the budget” but the evidence just doesn’t support that. As per my prior link, tax revenues as a % of GDP remained fairly constant before and after the cuts, as reported by many economists. ( I note that I made a typo in my previous post when I said “tax rates” instead of “tax revenues”. Sorry about that – must have been eating the bunny’s spiked carrots). I do have a concern about the fairness of the current tax system, but that is another issue.
On a different point, CCE states that the budget did not pass in 2010 because of the filibuster. This is not quite correct – under Senate rules a budget resolution cannot be filibustered. Further, the budget reconciliation process is also not subject to a filibuster. Democrats could have used these tools to pass a budget with no Republican support. (Certain spending bills can be filibustered but not a formal budget resolution).
cce:
My original comment got eaten, but here’s a visualization of net tax rate by quartile:
As a percent of income,
which group benefits the most?
You also haven’t addressed where jobs get created (hint, not the job fairy), and have missed the point that that law & regulation are already set up to make things anti-competitive for the small business owner (compared to e.g. Walmart) and this would make things even more anticompetitive.
The small business owner is enriching his community through his efforts, being as they often work 80+ hours per week, probably per hour not earning more than most salaried professionals (probably less, when you fold in our benefit packages), and they are creating opportunity for people who don’t have a job.
I always find it interesting that “pro-AGW” (whatever that means) and “anti-free market” often run hand-in-hand.
Also, cce, you need to review what a subsidy is, but notice that Q1 in the above figure pays a net negative rate. If anybody is being “subsidized” it would be them, not Q5.
Here’s an CNN article circa Sept 29, 2010, when the budget is nominally supposed to be in place.
http://money.cnn.com/2010/09/29/news/economy/federal_budget_CR_passes/
It reads
So, somehow, the 2010 Congress was particularly unable or unwilling to even pass a formal budget resolution!
This is not about concerns over filibuster. The 2010 Congress just didn’t focus on the budget. The lack of focus started well back in the spring of 2010. They focused on other things. (Some of those were contentious and likely to be filibustered– but that has little to do with not being able to focus on getting out a budget.)
The health bill comes to mind as one of the “distractions”. Interestingly, a highly contentious bill like this gets through the gauntlet of filibusters, but they can’t get past “go” on the federal budget.
Blame the Republicans. It’s always their fault.
kim @ 4:24 AM
You are being way too cryptic. Nobody’s figured out what a huge clue your comment #73646 is to the source of the economic malaise afflicting the nation.
=================
Steve F: No matter how oddly you may choose to look at it, the net SS rate paid to the feds by the small business owner is 14% of his or her own salary. (emphasis added)
You are doing a Lucia here. While the total SS tax rate is 14%, the ability to deduct the 7% “self employed component” from income/business taxes as an expense above the total income line (e.g. on the first page) reduces the total tax load for both federal and state income tax.
The net effect on the total tax burden is that there is a reduction of income tax by (7%)X where X is the marginal tax rate. For someone in the 30% marginal tax rate area this would be a reduction of ~2%, add in another ~1% for state income taxes and you get that the person pays a 7% additional contribution for SS, but gets back 3% in income tax reduction for a net of 4% and an effective SS total tax rate of 11%
Max_OK points out that the drop in revenue due to short sighted tax policy is 6% (from 21% GDP to 15%) Since GDP is ~ 15 Trillion $US this is a difference of 900 Billion $US.
Mr. Wabbit, You really have to account for the impact of the global economic recession. Check tax receipts in 2006 -the last “good year” – and we were right back at normal post-war levels (the so called “Hauser law”).
Eli is absolutely right that the deduction for S-corps and proprietorships does reduce the amount you pay. He gets something right. New trend?
Eli Rabett (Comment#73668),
All of which is to say that salaries everywhere are taxed for SS purposes at the same rate. I was not disputing that. The only difference is where the deduction for company paid SS taxes shows up; at a C-corp, it goes against the corporation income. At small corporations and sole proprietorships, it goes against the individual’s personal income subject to tax.
cce,
.
The bigger reactions would be from all other parts of the economy, especially banks, real estate, and many large corporations, not to mention individuals carrying heavy credit card debt, all of which are negatively influenced by higher interest rates. Many small businesses have little or no debt, and do not generally finance operations (cash flow needs) via debt.
A point of history of US economics to Hunter and others. Less than 40 years ago a serious stance was taken to start reducing debt. It was done by a President and a Congress of the same party. After the party learned how unpopular it was, they spent more that the President requested in an attempt to reverse their unpopularity. The next elected President was of the other party, and by a series of first cutting government then putting on taxes convinced the American people that their spending cuts were what caused the recovery. However, the amount of debt by this next President grew far in excess of the President and party that actually did the cutting of government. So, if all the claims are correct, then the great destroyer of Communist Russia, and the creator of the American success was Jimmy Carter, who in 1977 started decreasing the debt increase by 4% the first year, 17% the following year, but then lost control of his party. However, at the rate of inflation, if Carter could have held to this and been re-elected, we would have nearly paid the national debt though cost reductions and inflation.
So, if you really beleive in controlling the debt and how you can create jobs by cutting spending, Jimmy Carter is your man, and the old Democrats your party (until they turn on you). But perhaps, you should look at the cost of success. Or look up stagflation.
This data can be found at the link provided by Hunter.
Re: Max_OK (Apr 11 22:02),
SS benefits increased as wages increased and were also adjusted for inflation. Any increase in wages as a result of inflation (probably most of the increase) should not have been included, but was. I think that’s been fixed now.
Treasury securities are an asset for an individual. They are not an asset for the issuer because they are also a liability for the issuer. The SS trust fund is an accounting fiction.
DeWitte,
.
Yes that is right. The obligations of the Federal Government to itself do not carry the same import as obligations to private bond holders. The ‘special notes’ issued to the trust fund in exchange for the funds collected for SS are probably a little better than toilet paper…. but not too much better. It is all pretty much a fiction, and can be changed by Congress at any moment. Ponzi scheme: a scheme to defraud investors by falsely stating that ….
Max_OK, Eli – Do you remember what was happening in the time frame 1995 – 2000? (bubble, Internet bubble that is). That is why the revenue number was at 21% of GDP in 2000 , and why the precipitous drop in 2001 (bursting bubble, retirements in shatters). Then came 9/11. The 15% of GDP revenue bottom in 2003-2004 in the chart you referenced is at the same time that the 2nd Bush tax cuts (2003) were implemented. Note the following recovery to historical average of 18% by 2005. I thought we all understood what a lag is here (especially with regards to taxes – and estate taxes at that).
And for those interested in what a what a real, measurable and meaningful hockey stick trend looks like:
http://en.wikipedia.org/wiki/File:Federal_debt_to_GDP_-_2000_to_2010.png.
Slicing at 2001-2007 is just making carrot juice with seeds in it.
Kim #73646, #73665
A booming bubble not bursting, defying deflation, and without fresh air. Long term is to long for it.
Kan @ 73738.
What a relief. I was beginning to think that nobody wanted a clue to the fundamental cause of the economic malaise loose in the land. My comment #73646 above was a quote from President Obama weeks after he assumed the office.
Capital doesn’t trust Obama, and the feeling is mutual.
=====================
SteveF and DeWitt seem to believe the Treasury would default on securities held in the Social Security Trust Fund before defaulting on securities held by private investors. Why they believe this is not clear, but I suspect it has to do with anti -Social Security ideology.
Would elected officials prefer to alienate the large number of voters covered by Social Security before alienating the smaller number of voters holding T-bonds? I doubt they would if they wanted to remain in office.
Oh, please, the effect of defaulting on externally held T-Bonds will not just be felt at the voting booth.
=================
A discussion of deficit reduction without taking into view that government spending is supposed to be counter-cyclical is, I think, missing the point a bit. Historical evidence is plenty that when the private sector is deep in debt and starts to deleverage, unless the government fills in the spending gap, depressions ensue. Depressions were also more frequent when we didn’t have a Federal Reserve. Richard Koo discusses the concept of balance sheet recessions at length for the modern examples in the link I posted upstream. Of course, it so happens that government (wrongly) spends in good times too, but that I think is a discussion for another time.
kim (Comment #73744)
Obama nailed the market bottom . You’d have doubled your money if you’d listened to the First Analyst.
Max_OK,
.
There is no such thing as ‘default’ on the special credits held by SS. The government can’t default on itself. SS and other entitlements can be (and will eventually be) modified to make them sustainable. Real T-bond investors (the ones who actually come up with money the Federal Government does not have… think China) will cut off the US government in a second if there is any question about the will of Congress to pay off bonds. This would instantly force Congress and the President to take exactly the kinds of actions they are trying their best to avoid.
The Federal Government can also just print money to pay debts (this has been tried before of course, and always comes out badly), but bond investors are plenty smart enough to see this is happening, and the market would hammer the Federal Government with unsustainable interest rates. Scams will not work, only painful and difficult actions will.
.
The painful and difficult actions include, of course, offending future SS recipients (as well as those who benefit from other entitlements), and offending taxpayers. Most politicians (think cowards) will do most anything to avoid addressing the reality of an unsustainable rate of growth in debt, since the various blocks of voters that keep those politicians in office have shown no interest in the kind of honest compromise that is needed. It seems we get the quality of government we deserve. Still, things which can’t be sustained won’t be, even if some politicians get voted out of office.
The bond market is a good indicator for the inflationary potential of the federal debt, assuming that the bond market has those mythical vigilantes. The Federal debt as a percentage of GDP is here . The historical treasury rates for US debt for times when the debt to GDP was higher is in Exhibit 30 here . The message appears to be that when there is a lot of slack in the employment picture, thereby creating a situation with low inflation potential, the market views government spending as being within bounds of responsible spending. T-bonds are still viewed as safe-havens as viewed by the inverse correlation between stocks and T-bonds over the last several years.
RB @ 11:11
Past performance is no guarantee of future results.
================
Re: Max_OK (Apr 13 09:23),
Who said anything about defaulting? The point is that SS was reducing the deficit until last year. Now it is increasing the deficit. It is effectively bankrupt. The existence of a trust fund holding federal notes (not really T-Bills, btw) does not change the fact that money now has to be borrowed from someone else or printed (borrowing from everybody holding dollar assets without their consent) to pay benefits.
Dewitt, so what ? The interest on my Treasury securities “has to be borrowed from someone else or printed.” The distinction between the Treasury securities held by the SS Trust Fund and those held by the public is meaningless.
RB said in Comment #73785, April 13th, 2011 at 11:52 am
“T-bonds are still viewed as safe-havens as viewed by the inverse correlation between stocks and T-bonds over the last several years”
———
That’s why investors are willing to accept lower interest rates on T-bonds than commercial bonds.
Rates are still relatively low, but are beginning to rise. Still, I’m not ready to shift much money from long- to short-term securities as a hedge against inflation.
Re: Max_OK (Apr 14 00:53),
Suppose that instead of treasury notes, the SS trust fund had bought gold from Fort Knox. Then the SS trust fund would have a real asset that could be sold to anyone. You can sell your T-bill to anyone on the open market. It’s a legal contract with the government. If you buy an annuity from an insurance company you have an enforceable contract with that company and you can usually cash out at any time. The SSA cannot sell the notes in their fund to anyone other than the federal government. They are no more assets than is an IOU you wrote to yourself.
Suppose you wrote a note saying: ” I promise to pay myself $1,000,000 on April 14, 2016.” Do you now have a million dollars in assets? No, you don’t. Nor does the SSA trust fund contain real assets. It’s an accounting fiction just like that IOU. If you borrow X dollars from a bank, does your net worth increase? No, it doesn’t because the X dollars in assets are matched by a liability to the bank. The SSA is part of the government. The assets in the trust fund are matched by a liability to return those assets. The two cancel.
Social Security is not a contract either. If I remember correctly, there was even a Supreme Court decision to that effect (Flemming v. Nestor 1960). You can’t cash out or obtain a lump sum. It does indeed closely resemble a Ponzi scheme. Early investors received a return far larger than their investment. Late investors are likely to receive far less than their investment.
Dewitt, the Social Security Trust Fund could have been used to buy gold, stocks, corporate bonds or other assets, but no matter what you do with capital, it’s always at risk.
I like the Trust Fund invested in Treasury Securities. I believe the risk is relatively low compared to the return. I’m happy the money is there for our government to borrow.
I am confident in the ability of our government to make good on its debts. Apparently, you have doubts that cause anxiety. I’m glad I’m me, not you.
Max_OK,
I would like that too… but they are not. They are “special notes” which can be sold to no one, which have no legal standing, and which can be changed at any moment by an act of Congress. Face it my friend, it is a Ponzi scheme. My parents did rather well by it, I admit, but they got in at the beginning…. I am going to get a vastly reduced return compared to my payments, and my kids will get much less than me. And they will be double hammered when taxes are raised on income to fund social security for my generation. It’s inter-generational theft with a nicer name…. young working families funding retirements for far wealthier retirees. You may have the stomach for it, but I do not.
Is Social Security a Ponzi Scheme? Not really, because the suckers (young workers) eventually end up with the assets of the crooks ( boomers). And since the number of boomers relative to young workers is large, that ain’t such a bad deal for the young workers.
It’s amazing how Treasury Securities, which are just “accounting fictions” because they aren’t backed by assets, are regarded as a safe havens by investors the world over.
I got some of these accounting fictions myself. I know they must be fictions because I can’t even see ’em.
If the special Treasury Securities (IOU’s) held by the Social Security Trust Fund were marketable like the regular Treasury Securities(IOU’s) held by the public, it would be good because …..
1. The Trust Fund could sell the securities, although I’m not sure why it would.
2. The market value of the securities would fluctuate … woops that could be good or bad.
3. Hmm…. must be another good reason.
Any bad reasons?
Max_OK,
.
It seems you see no difference between the Federal Government’s ‘debt’ with itself, and it’s debts with say, China, or an investor in London or Aukland. One represents an obligation the Government must pay in order to continue to finance it’s operations, while the other represents, well, political preferences, which can change at any time. As DeWitt pointed out, there is no contractual obligation to SS beneficiaries for amount of payment on date (or dates) certain, so the rules can be changed unilaterally by the Federal Government at any time. This has been upheld by the Supreme Court. A legally binding obligation most certainly does exist for real Treasuries.
.
If you can’t see this rather obvious difference, there is little I or anyone else can say to make it more obvious. Dream on.
SteveF, I can see you are contradicting yourself.
You imply the government may not honor its obligation on the Treasury Securities held in the Social Security Trust Fund. As you put it, “there is no contractual obligation to SS beneficiaries for amount of payment on date (or dates) certain, so the rules can be changed unilaterally by the Federal Government at any time.”
Yet in Comment #73784 you said “There is no such thing as ‘default’ on the special credits held by SS. The government can’t default on itself.”
But who’s perfect? Everyone probably contradicts himself once in a while.
“Legally binding” doesn’t mean you can squeeze blood out of a turnip ( or is that a beet?). Governments can and have failed to pay bond holders. But I have confidence our Federal government will make good on it’s obligations to honor Treasury Securities, both those held by the public and those held by the Social Security Trust Fund.
If the US treasury defaults on the SS trust fund, the treasury bond rating falls and the cost of borrowing increases hugely. If the US defaults on the SS obligations, why would any other bond holder retain trust?
Eli-
The US can just change the law on SS ‘obligations’ and not paying won’t be a default. It’s sort of like Eli1 setting up an IOU for Eli2’s Ferrari fund. Eli — who is both- Eli1 and Eli2 – can just change his mind and go on a trip to Hawaii instead. No default.
Eli Rabett said in Comment #73939) April 16th, 2011 at 5:56 pm
If the US treasury defaults on the SS trust fund, the treasury bond rating falls and the cost of borrowing increases hugely. If the US defaults on the SS obligations, why would any other bond holder retain trust?
————————-
Some posters in this thread suggest that while the government likely wouldn’t default outright on the Treasury securities in the SS Trust Fund, it might “change rules” to get around it’s obligation to redeem the bonds in a timely manner, and do so in a way that wouldn’t arouse doubt in the bond market about the quality of Treasury securities in general. Apparently, bond investors are seen as lacking intelligence.
What “rules” might the government change to avoid timely redemption of the securities in the SS trust fund? Well, I don’t recall anyone going into that in this thread. I suppose elected officials could reduce SS payments so much the Trust Fund wouldn’t have to be touched or touched much. But such drastic action likely would assure their defeat in the next election.
Max_OK,
I never said anything like that. What I said was that the obligation of the government to give money to retirees (via the SS Administration) can be changed unilaterally at any time. The Govenment can reduce or dissolve the SS system tomorrow if there are enough votes available in Congress, and so can (if desired) zero out all “obligations” of the SS administration. This wouldn’t likely bother investors in Treasures much at all; it actually might make them more confident the US government has the ability to pay future obligations. That is not ‘defaulting’ on anything. A real default on Treasures would make it impossible for the government to finance deficit spending…. and that is not going to happen any time soon.
.
SS benefits (and medicare benefits) will be reduced and perhaps taxes raised as much as needed to keep these entitlements afloat. The future levels of these benefits and the level of taxes used to support them are 100% political in nature; it will be probably be an ugly fight. It is nothing like the issue of paying or not paying negotiable Treasury obligations… those will always be paid.
.
I honestly remain astounded that you imagine otherwise.
Sorry for the long absense.
Carrick,
Do you think it was in the Dems “self interest” to not pass a budget? It takes days to override a filibuster even when there is no opposition and there were record numbers of filibusters in 2010. Nothing else can be considered during that time. If the minority party wants to make it impossible to conduct the business of the Senate, they can and they will.
The graph that you link excludes the payroll tax and capital gains. The payroll tax, as I am sure you are aware, applies to the first dollar of income, so it takes a big bite out of the spending ability of lower and middle class workers. For someone making $20,000, that 7% means a lot. But they get it back, so it shouldn’t count as tax, right? Only if the $2.5 trillion borrowed from social security is paid back in full, thus funding it until 2037 with no reduction in benefits or moving the retirement age. How likely is that? Not very.
As far as the definition of “subsidy” goes, raising the payroll tax to fully fund SS, while simultaneously cutting the top rates, and then spending the surplus payroll tax as if it were general revenue (as was done in the ’80s) is a subsidy for the people whose taxes were cut at the expense of those whose taxes were raised. The working poor and middle class give up present income based on the promise of being paid back, while the rich get the immediate benefit of lower taxes.
With respect to capital gains, by shifting so much income to capital gains, the very very rich manage to pay very low (historically) rates of taxation. This is how Warren Buffett has a lower effective rate than his secretary. Needless to say, the bottom quintiles do not have a lot of capital gains.
The best source of income data is here (although at this instant, it is down)
http://g-mond.parisschoolofeconomics.eu/topincomes/
It is safe to say that small business owners “create the jobs.” And the vast majority of small business owners do not make six digit (or higher figures). The guy who installed my rain gutters does not make $200,000. The mom and pop shops on main street that compete with Walmart do not, generally, make $200,000. Nobody in my family who has run a small businesses made or makes $200,000 (or equivalent). But the difference between someone who runs his own business and makes $50,000 and someone who does nothing is $50,000. The difference between that $50,000 and a senior partner in a law firm making $1 million is $950,000. The fact that someone works 80 hours a week, has to buy their own insurance, has to compete with corporations, or is really good people in general is irrelevent to the simple point that someone making $200,000, no matter who they are, is not struggling when compared to the vast, vast majority of the population, including their fellow small business owners.
SteveF,
Then you agree with me that the Fed has made money as easy as it can?
Brid,
An omnibus spending bill, which is what we are talking about, can be filibustered. A reconciliation bill cannot be filibustered, but the contents of which must be included in “reconciliation instructions” issued at the beginning of the year and not retroactively. The Dems could have sacrificed some part of their agenda to pass the spending bill before the lame duck session but they thought (incorrectly) that they were going to be able to squeeze it into the lame duck session. Again, they gave up the omnibus bill and cut a deal for another continuing resolution in exchange for passing the food safety bill with unanimous consent.
As for the legacy of supply side economics, revenue as a share of GDP reached 18.4% in ’87 and ’89. That was the highest it ever got after the Reagan tax cuts. The highest it got after the Bush tax cuts was 18.5% in 2007. Revenue was 18.4% or higher in ’95, ’96, ’97, ’98, ’99, and ’00. In 2000, revenues were 20.6%. You can claim that it was all due to the internet bubble, but the housing bubble was many many times larger and neither revenues nor employment nor economic growth ever achieved the levels of the ’90s.
If you want to look at just “on budget” (non payroll tax) revenue, then 1987 was the Reagan record at 13.8% and 2007 was the Bush II record at 13.9%. ’96, ’97, ’98, ’99, and ’00 matched or beat those numbers.
Not sure if you should include ’01 as a Clinton or a Bush year, but those revenues were also historically high.
cce,
Sure. To banks. And that does little that is economically relevant when many banks are in such poor financial shape (thanks mostly to vast holdings of non-performing mortgage instruments) that they don’t/can’t/won’t make loans to business and individuals under terms that reflect how cheaply the Fed loans money to them.
.
The parallels you draw between the ‘internet bubble’ and the ‘housing bubble’ are not very convincing. The scope was vastly different, the number of people directly influenced was vastly different, and economic damage done vastly different. The out-right theft of many billions (if not trillions) of dollars by people who refinanced property to live beyond their income (and who then defaulted when they realized their house was way under water) did terrible financial damage, damage which is (of course) continuing even now.
.
By the way I did get a smile out of:
An arrow found in the quiver of every true class warrior.
SteveF, this is getting comical. In your last post, you deny having implied the government may not honor its obligations on the SS Trust Fund, and then you turn around and imply it by saying “the obligation of the government to give money to retirees (via the SS Administration) can be changed unilaterally at any time.”
Max_OK–
I think the distinction is whether the feds actually don’t pay a bond holder (the SS administration) and whether the feds cuts benefits to seniors (who are not actually the SS administration itself.)
Congress using their legislative power could dissolve the SS administration if they wished. They could, through legislative power, transfer the ownership of bonds from the SS administration to some other governmental agency. They could do all sorts of things. But, barring unforeseen circumstances (like actually going bankrupt) the federal government will never officially not cover the bond.
Lucia,
.
Yup, that is correct. The obligations to Treasury investors and the ‘obligations’ to retirees are completely different in nature… one is a binding contract which can’t be unilaterally changed; living up to the other is a purely political choice.
.
Max_OK,
I agree, your refusal to acknowledge a difference between real Treasury obligations to investors and the fictitious SS ‘trust fund obligation’ is indeed comical.
CCE, yes I do think it was in their perceived interest to spread the responsibility for the budget with the Republicans, though probably not in the best interest of the American public. True reform is going to require cutting into steadily ballooning mandatory spending, especially Medicare and Medicaid.
Can you imagine what would happen to the Democratic Party if they cut into these without the strong cover of equal culpability from the Republican party?
Also, as Lucia pointed out, your argument fails because the Democrats have gotten far more controversial bills passed, including the health reform bill and the prior equally controversial $890 billion dollar stimulus bill. They also had twelve months total to pass an authorization bill, including two months after their defeat in the last elections, but chose to wait it out instead. No effort (as far as I can see) was ever made to develop a mutually acceptable spending bill that would have been filibuster proof.
In the past, the threat of a filibuster was enough to keep a bill off the floor until it became acceptable to both parties (the now alien idea of compromise is involved there someplace). Instead the Democratic leadership in the Senate chose to bring them to the floor for a vote, so they could get a formal tally of the number of filibusters. So it’s largely a political maneuver.
The initial decision to do this probably started with harsh criticism from Republicans over the use of the filibuster from Democrats to block undesirable court appointments, e.g., it was “payback”. But in actuality the number of filibusters doesn’t measure want you think it measures.
I’ll remind you that when Obama went into office, Barrack’s first words to Republicans interested in “working together” were “I won” and he has been harshly partisan, and unconcerned with any bipartisanship every since, including in his most recent speech (where the call for “bipartisanship” could easily be replaced with the phrase “you Republicans should capitulate on every issue”.) He has been a divider not the uniter he promised to be, and that has caused huge problems too, including to his own approval rating in the polls.
Just as an aside, how do you think jobs are created? And how to people get wealthier (a synonym for “better off”)?
Is it because of the US government actions (like the stimulus bill) or is it because of private enterprise?
The answer to those questions should affect to some degree how large the burden you want to place on the “wealthy” but the actual increase in tax rates discussed by Democrats including raising the SSA floor, doesn’t affect the wealthy nearly as much as it does the people whose income is sitting just above the floor…. it’s hardly a “progressive” measure.
Anyway idea that our tax system isn’t progressive or become less progressive is itself belied by the near zero tax rate now afforded to the lowest quintile and to the roughly 60% of total tax revenue being paid by the top 5% of income earners, with the top 0.1% pays about 20% of all tax revenues, though for reasons I’ve alluded to they actually have a lower effective tax rate than the rest of the 1% bracket (around 18.5% or so).
If you Democrats had b*lls, you’d be talking about a new tax bracket for the truly rich (the top 0.1%). Why haven’t we heard anything about this? The current proposed changes in the system actually threaten to “game the system” further, and improve it even more for the 0.1% at the expect of the rest of the 1% bracket (that is, the small business owners suffer at the expense of rich bankers and wealthy entrepreneurs).
The simplest fix would be to draw up a new bracket that skips over most small businessmen, and raises the tax raise for the 0.1% so they are paying their fair (“progressively higher”) tax rate.
cce
I think they misjudged. I think the Dems thought avoiding discussing and voting on the budget provisions they favored would help their re-election prospects and they’d be able to pass a budget after the elections. It turned out they lost seats anyway.
Wow. As much as days to override a filibuster?
This doesn’t show 2009-2010, but use of filibuster has a hockeystick shape:
Given recent trends, I’d hardly be surprised if it got used more in 2009-2010 than in previous years. Do you have the data?
Double post
Social Security a Ponzi scheme? No way
Professor Mitchell Zuckoff, author of a book on Ponzi, rebuts the myth that Social Security is a Ponzi scheme:
http://money.cnn.com/2009/01/06/news/economy/social.security.fortune/index.htm
I found the data on cloture votes:
http://www.senate.gov/pagelayout/reference/cloture_motions/clotureCounts.htm
Record motions for cloture (i.e. to end debate): 110th Congress 2007-2008
Record number of votes on cloture : 110th congress 2007-2008.
Record number of times vote on cloture succeeded (i.e. debate/filibuster closed off.): 111th congress 2009-2010
Record number of times vote on cloture failed (filibuster continues): 110th congress 2007-2008.
The page doesn’t break it down into single years. But it appears the 100th congress had more filibusters over all and more filibusters that could not be closed down than the 111th congress.
cce– Do you have year by year data?
Max_OK,
.
I don’t think appealing to the authority of a liberal journalist from Massachusetts is terribly effective.
.
But that said, I read his arguments. IMO, they are rubbish.
Argument 1: There is no deception. That is too funny to justify a serious comment.
Argument 2: Ponzi schemes always end, while SS is not ever going to end. Well, that depends a bit on what one means by “end”. Ignoring for a moment the reality that Congress can at any time simply “end” SS, let’s assume that SS continues indefinitely. The benefits to future retirees will (in real terms) be substantially reduced compared to today…. Future retirees are never going to receive benefits close to the time-leveraged value of the money they paid into the system. All early participants in SS (like my parents) received fabulous net returns on their “contributions”. All late participants will take a substantial loss on their “contributions”. That is close enough to the definition of the “end” of a Ponzi scheme for me.
SteveF said in Comment #73944) April 16th, 2011 at 11:28 pm
“The Govenment can reduce or dissolve the SS system tomorrow if there are enough votes available in Congress, and so can (if desired) zero out all “obligations†of the SS administration. This wouldn’t likely bother investors in Treasures much at all; it actually might make them more confident the US government has the ability to pay future obligations.”
—————-
What an Idea! I can raise my credit rating by failing to pay a loan.
I think I’lll let the bank reposes one of the cars, so I can get a lower interest rate on a second mortgage.
In reference to Journalism Professor Mitchell Zuckoff’s article rebutting the myth that Social Security is a Ponzi scheme, SteveF said in Comment #73966
“I don’t think appealing to the authority of a liberal journalist from Massachusetts is terribly effective.
But that said, I read his arguments. IMO, they are rubbish.
Argument 1: There is no deception. That is too funny to justify a serious comment.”
———
Translation: I am stumped by Professor Zuckoff’s first argument, but I’ll try to save face by being flippant.
Max_Ok–My impression is some people and businesses do improve their credit rating by restructuring loans, or even going bankrupt. It’s true that some creditors lose out, but future ones consider the now solvent person/business a better risk.
Yes. Sometimes, if you get all your past bills wiped out, sometimes banks will be more willing to lend you money than back when you still had the past obligations hanging over your head. It seems weird, but sometimes it’s true.
Max_OK,
You, and a lot of other people, including apparently Mr. Zuckoff, continue to suffer from serious misconceptions about the SS Trust Fund being anything more that an accounting fiction. That politicians (mainly left leaning) continue to actively promote these misconceptions, and continue to proclaim that the “trust fund is solvent until 2060” or some such date, as if it was a fund of available capital invested in real Treasury notes, stocks, or bonds (that is, a real fund), is as obvious a case of deception as I can imagine. That is why I did not think it was worth addressing the first argument offered by Mr. Zuckoff.
.
Perhaps you found my reply to Mr. Zuckoff’s second argument, (which, by the way, I thought did merit a serious comment), more convincing, since you made no mention of it.
.
With regard to your suggestion that reducing future retirement benefits is similar to defaulting on a car loan (your comment #37977): Congress has the authority to reduce benefits under social security at any time in the future, in any way that it sees fit. Future SS obligations under currently defined benefits can be reduced at any time. That is not in any way like a default on a loan. For example, Congress could tomorrow pass a law limiting SS benefits to exactly match current and future receipts from SS taxes. Congress could then pass a law that returns the notes held by the Trust Fund to the Treasury, and dissolve the Trust Fund. I am not suggesting that Congress will do this, but I am suggesting that Congress could legally do so, eliminate all future unfunded SS libilities, and never “default” on the SS notes. Failure to pay Treasury notes (that is, notes belonging to someone other than the US Government) would indeed be similar to your example of defaulting on a car loan, but that is not going to happen, and neither I nor anyone else on this long thread has suggested that it would.
.
What has been suggested is that some reduction in benefits is essentially inevitable, even if the exact form of that reduction is not yet known (greater age for receiving benefits, means testing benefits, reduced cost of living adjustments, etc.). The situation is more urgent for Medicare, since the unfunded liability is huge and growing much more rapidly.
.
One thing that I find odd in your comments is that you only address my comments as if you were writing to some third person, rather than to me. Very, very strange. I am not sure what to make of that.
.
By the way, I have found that sarcasm is a common debate tactic among those who classify themselves as liberals. It is both offensive and an ineffective.
Lucia,
So are you going to try it?
I was just kidding about the cars. Mine are paid for. However, maybe I could make a favorable impression on creditors by refusing to pay any more credit card bills.
I sometimes suspect some people would prefer to be offensive and ineffective to being inoffensive and effective. It’s odd, but it seems to be so.
Max_OK–
My cars are paid off. In my case failing to pay my bills would not improve my credit rating. Moreover, it wouldn’t do me any good because a lender would just sue and a court would enforce a debt. Since I have sufficient money to pay my debt obligations, I would have to pay. Meanwhile, lenders would learn that I have for some mysterious reason become unwilling to pay even though I have the money. That would make me a nuisance borrowers and it would reduce my credit rating.
It’s possible deciding to not pay your bills wouldn’t help your credit rating either.
But the fact of the matter is that in some cases when a person is currently under water and unable to pay bills, having their credit obligations wiped clean does improve their credit rating. The reason is that after the previous obligations are wiped clean potential lenders know they are first in line to be repaid if legal action is ever required (or even if legal action is not required). In contrast, before the previous obligations are wiped clean, potential lenders know they stand in line behind or shoulder to shoulder with lots of lenders and so are very likely to lose their shirts if they lend money.
So, lenders don’t lend money to people who have lots of debt obligations, but some might begin to lend money to those very same people after the previous debt obligations are wiped clean.
This happens with people and businesses. Lenders try to assess the likelihood a borrower will default on the load to that specific lender. They do consider past defaults in a negative light, but current debt obligations are even more important.
Lucia,
.
For sure, and that suggests to me that expressing their dislike for whomever they are trying to offend is more important than effectively presenting something of substance. Of course, it could also be that they have nothing of substance to say.
Max, you keep on putting your view forward in a way that you choose and dont pay SteveF any mind… his little control problem, needing to have it all his way and not respecting others or their opinions or expressions, are already destroying what was a good blog…
MikeC,
Thanks for yet another substantive comment.
… here stevie… have a tissue and a piece of chicken
Lucia said in #73987
“But the fact of the matter is that in some cases when a person is currently under water and unable to pay bills, having their credit obligations wiped clean does improve their credit rating.”
—–
No doubt, that can be true. But will that borrower get as low an interest rate as the borrower who has always honored his obligations?
What I’m hearing is if the government doesn’t honor it’s obligation to redeem the Treasury securities in the SS Trust Fund, prospective purchasers of regular Treasury securities will will think the government will be in a stronger position to honor those securities, and will pay a premium for them. Hmm…. ?
I guess as a bond buyer, I’m supposed to believe a government that would screw it’s elderly (a large voting block) would never screw it’s public bond holders (a much smaller voting block). Well, I ain’t as sharp as I used to be, but I’m not a sap.
The government has a more equitable way of reducing the real value of Treasury securities held by the SS Trust Fund as well as those held by the public. It’s called inflation. Changes in long-term Treasury bond prices (and yields) can reflect the expectation of inflation. Lately the prices are down a little and the yields are up a little, which would seem to indicate bond buyers may be thinking some inflation is on the way.
Max_Ok
Likely not. But the borrower has improved his credit rating by having previous debts erased but likely as not others will still not consider him a sterling risk. But… so? He was an even worse risk before.
No. What you are hearing is that if the US government dissolves the SS Trust Fund and decides not to give money to retirees it can then decide the US Treasury itself owns the bonds. In which case, the US Treasury paying itself is nothing more than a paperwork operation. They present the bond to themselves.
In this case, prospective lenders in China, Japan or elsewhere might very well think “Great! Now we don’t have to worry the US government will default on bonds to us.”
Well… if my neighbor asked me for money for his kids brain surgery, I might imagine he’d continue to spend his last penny on his kids medical care before paying me back. So, sure, a bond buyer might imagine that a government that is not willing to control benefits to the elderly will not repay bond buyers. That government might put payments to the elderly before repaying bonds.
In which case, heartless or not, the hard hearted, hard headed bond holder might very well think a government that places a higher priority on repaying foreign bonds is more likely to repay bonds than one that places a higher priority on generous benefits for the elderly.
Rampant inflation is often seen as inequitable. Run-away inflation tends to destroy economies which may be bad for everyone. Maybe that’s equitable, but it’s equitable in a rather bad way.
SteveF said in Comment #73984
“With regard to your suggestion that reducing future retirement benefits is similar to defaulting on a car loan (your comment #37977): Congress has the authority to reduce benefits under social security at any time in the future, in any way that it sees fit. Future SS obligations under currently defined benefits can be reduced at any time. That is not in any way like a default on a loan.”
——————————–
So Congress can do this without repercussions? The age distribution of the voting population must be different than I was told.
I think there might be repercussions if I had a $600 a month car payment, and informed the bank I was reducing it to $300.
Lucia,
Even rather modest inflation tends to transfer monetary value from entities that hold currency denominated fixed interest assets to those who hold currency denominated fixed interest debts. The biggest debtor of all (the Federal government) would reduce it’s outstanding obligations, as would all manner of debtors… like home owners with low interest rate mortgages. Investors who would lose the most would be conservative investors, while investors holding stocks and physical assets would be hurt the least. Of course the inevitable adjustment in interest rates to reflect underlying inflation would make excessive government deficits just as expensive as now.
Lucia,
No,inflation would be equitable between the holders of the two types of Treasuries, or just as equitable as a flat tax or sales tax.
Inflation is not equitable to everyone. It’s probably been a little more than equitable to me. Those 12% Treasuries were nice (you probably were still in diapers). I just wish I had bought more of them. Then there was the leverage on the financed real estate. But I think inflation hurt my elderly parents by eroding their savings.
Inflation does tend to transfer wealth from savers to borrowers, the former tending to be older than the latter. So what do you plan to do about it as you get older?
Max_OK,
Sure, you would be in default and the bank would send the repo man to get the car.
The political repercussions for reducing future SS benefits are uncertain. The people who will suffer the most are future retirees, not those presently at or very near retirement. I suspect those 20 to 50 years old will be a lot less upset about things like a gradual increase in retirement age or means tested benefit levels than by hefty increases in taxes between now and retirement. These people do represent a less important voting block than current retirees plus those near retirement (which is why actual cuts in current benefit levels are unlikely), but that is more because they don’t vote so often, not because they lack numbers. But if taxes go up too much, they will for sure be a lot more motivated to go to the voting booth and defend their income.
Lucia,
You must write in a very young way. People are always saying you must be young. Were you really in diapers in the mid 1970’s? 😉
SteveF, I think what you have just said in #73999 is true. But you may recall what I said earlier about the wealth of the boomer generation being passed on to those younger workers who will be bearing the burden of subsidizing their aging parents and grandparents. If the old folks aren’t subsidized, they will have less to leave to their children and grandchildren.
Eventually all the boomers will be dead, the age distribution of the population will be less distorted, and Social Security will not be faced with the problem it faces today. I likely will be gone before then, but hopefully you will still be around.
Max_OK,
.
I do not think that most people pass on much financial wealth, though some do of course. My parents certainly did not. Should my wife outlive me (which seems likely), she intends to give most of anything that is left to charities (I would be more inclinded to leave more of what remained to my kids.)
.
With regard to the baby boom generation distorting SS and Medicare burdens, that is of course true to some extent. But it is important to remember that current benefit levels are unsustainable (in a pay-as-you-go sense) even with a constant population 50+ years from now. There have been for the last 70 years lots of workers per retiree. That will never happen again. A reasonable estimate of the support ratio is:
{(retirement age) – 22)} / {lifespan – (retirement age)}
so if average lifespan in 2100 is 50 years, and retirement age remains at 67, then the support ratio is going to be (65 – 22)/(90-67) = 43/23 = 1.87 workers supporting each retired person. Which, assuming something similar to today’s SS benefit levels, requires about $750 per month in SS taxes for each worker. The average worker would have to make (in today’s dollars) over $80,000 subject to SS taxes at today’s tax rates, which seems to me unlikely… and if people were paying that much in SS taxes, their benefits would be considerably higher. Pushing the retirement age to 70 increases the support ratio to 2.4, and 72 makes the ratio ~2.8, which is probably sustainable.
Steve,
The financial services industry was responsible for about 40% of all profit last year and they’ve already paid back TARP. TARP, as you recall was originally intended to buy up all of those bad assets, but it was decided after the fact that lending money to the banks was a better idea. The banks’ balance sheets have been stablized, despite all of those bad assets still on their books which goes to show how much money they are capable of extracting from the economy while simulaneously providing little or no service to said economy. But I digress. If they want to get rid of those assets, the only way that’s going to happen is if they find buyers for those houses, which requires people going back to work, which requires businesses with credit.
Bubbles. It has been said that the prosperity of the ’90s should be dismissed because of the Internet bubble was inflating income and thus inflating tax revenues. This was used to explain why the Bush tax cuts failed to produce revenues and prosperity seen in the ’90s. Well, if you are going to talk about bubbles, you shouldn’t ignore the granddaddy of all bubbles.
With respect to Walmart, Carrick was talking about how “small business owners” have it rough because they “compete with corporations” and “have to pay for their own insurance” which is supposed to explain why $200,000 isn’t a lot of money. Whether you approve of Walmart or not (I shop there all the time) it’s the ultimate example of small business owners competing with a large corporation.
Carrick,
There is no such thing as a filibuster proof bill to the Senate Republicans. They were filibustering bills that went on to pass 97 to nothing. Nor can you pass just anything using reconciliation — only specific items that reduce the deficit over a 10 year budget window. Anything else is subject to the Bird rule which requires a 60 vote majority.
As for Obama’s alleged partisanship, that is a fantasy. Obama’s poll numbers are no lower than Clinton’s or Reagan’s at this point in their presidencies (actually higher than Reagan’s, about the same as Clintons). The polls also show that liberals an independents welcome compromise, whereas conservatives consider it capitulation. The real world result is seen in the increasing pandering of Republicans to the ideological extremes of their party just to avoid a primary challenge. i.e. Republicans-in-name-only. No tax break or loophole can be elminiated for fear of breaking Grover Norquists “no new taxes” pledge. It is absurdity in motion.
No liberal would have loaded the stimulus bill with $300 billion in tax cuts if they didn’t want Republican votes. Given the choice, no liberal would have created a healthcare law like Obamacare which was designed with the express purpose of gaining Republican votes in the Senate. It failed to get one Republican vote despite hundreds of Republican sponsered amendments, not to mention the fact that it was based on decades old plans advanced by conservatives. No liberal would have extended the Bush tax cuts for the rich for another 2 years. Not surprisingly, Republicans folded very quickly when that was on the table. And I know what would happen to Democrats if they voted to cut Medicare without “strong cover of equal culpability from the Republican party” because they did it last year. Remember the “$500 billion in cuts to Medicare” contained within Obamacare?
The negative tax burden of the lowest quintile is largely the result of the earned income tax credit, a conservative concept originally championed by Milton Friedman. Negative tax is even part of the conservative “FairTax” fantasy.
Jobs are created by clever entrepreneurs. If lower taxes help, then good. If higher government spending helps, then good. If a social safety net helps then good. But the level of taxation should match the size of the government that the people want. People want Medicare. They want Medicaid. They want Social Security. These things, along with the military and interest on the debt are what most add to the government’s balance sheet, and the public, no matter what people like to imagine, are not going to support dismantling the safety net to maintain what are historically low tax rates. Conservatives need to stop drinking supply side coolaid and start looking for solutions that actually work in the real world. And given the response to Obama’s speech, their first instinct is to cry like babies when they’re called out. Contrast this supposedly partisan rhetoric to Boehner when Obamacare was passed. He took to the floor and literally screamed “Like hell you can’t!” A little more humility, and a little less mock outrage. Please.
lucia,
The chart that you link are the filibusters. The Mr Smith Goes to Washington filibuster is largely a thing of the past. The minority doesn’t have to do anything, but the majority has to have 60 votes on hand at all times to break a filibuster. The 111th Senate overrode 63 filibusters, each one taking at least 1 full day (plus up to 30 hours of debate). The only other Congress that came close was the 110th Congress with 61, also controlled by Democrats. It’s delay for delay’s sake. The rise is the result of an increasing ideological divide, but until recently has never been used to bring the Senate to a halt.
“As for Obama’s alleged partisanship, that is a fantasy”
The public leader of the Democratic Party doesn’t get to his or her position in life without being partisan, FYI.
What news do you watch, cce, that this info has been blocked from you?
Andrew
cce
There is no such thing as a filibuster proof bill ever. But you claimed:
It’s clear the 2009-2010 congress did not have a record number of filibusters.I wanted to know if your previous claim was correct and asked you if you had a source. I’d like to know whether the 2010 congress had a record number of filibusters as you claimed.
Now you are adding more claims
Which bill did the Republicans filibuster that went on to pass 97 to nothing?
Not quite. They are motions for cloture which force any filibusters or percieved filibuster or even just normal debate the person who wants a vote for cloture wishes to to end. Still, it’s the closest thing to showing the number of filibusters, since proposals to end debate could at least hypothetically be made to end an actual filibuster.
What the graphs suggests is your claim about record numbers of filibusters appears to be without foundation. That is unless you have a specific breakdown for 2010 rather than 2009-2010.
This is silly. The majority has to have 60 votes to end filibuster if a filibuster is happening. But filibusters don’t just “happen” without anyone doing anything. If the minority doesn’t trying to extend debate for ever, there is no filibuster. The notion that filibusters happen while the minority “does nothing” is just silly.
(Mind you, the majority move for cloture and vote for it anytime. They usually won’t but they could if they wanted to.)
No s**t Sherlock. And if cloture is not reached, you actually have a filibuster go on. That means debate can go one forever rather than 1 full day plus 30 hours of debate.
Look: You argued the reason the Dem controlled congress didn’t pass a budget was risk of filibuster. This is silly. The requirement of 1 day and 30 hours required after a successful vote for cloture is hardly the reason the House and Senate would not vote on a freakin’ budget.
Filibuster doesn’t even apply in the House, But even in the senate, if they wanted to vote on the budget, they would have worked on the budget, if it had been filibustered, they could have voted for cloture, gotten cloture and passed a budget.
No one is claiming filibuster doesn’t slow things down. It does. But that’s doesn’t mean the Senate couldn’t work on a budget. They wanted to use their time and energy on other things and left the budget for later. That’s what the Reid decided to do. It was a mis-calculation on his part. The Democrats still lost seats, the Republicans gained power to tweak the budget in the direction they preferred and the remaining Democrats did what they could to delay the bill they didn’t like.
Do politicians try to block bills they don’t like? Yes. Do they do everything they can to delay them? Yes. Does this include filibusters? Yes. Has the use of filibuster increased? Yes.
Congressional Reps are politicians. They play politics. That holds for both Dem’s and Republicans.
cce:
If you actually believe this tripe, there is no hope you and I will ever agree on anything regarding this point. Yes he doesn’t remain locked stepped with the far-left socialists within his party, but the idea that he isn’t hyperpartisan is completely risible.
He’s where he is now because he’s already “hit bottom”.
That took him roughly six months to do.
As to how his poll number don’t make him look partisan: it actually says the opposite!
Link to full survey.
And to chart of approval ratings by category.
71% of Democrats approve of him, 35% independents and 14% Republicans. (And he’s 1% below Reagan at this point, but his approval rating relative to other presidents is at best a non sequitur.)
When you make claims like this, you should link the poll. I don’t doubt there are Republicans who don’t want compromise, I think it’s funny that you think you’re being objective while claiming there aren’t Democrats who don’t want compromise either. (Just listen to MSNBC on any night they are playing news instead of prison gak.)
It’s funny how people who are otherwise quantitative, just believe what they want to believe when it comes to politics.
But I never said there was anything wrong with people in the bottom quartile earning a negative income tax rate. I never said there was anything wrong with the progressive tax system, or the top 0.1% paying a higher percentage burden than the rest of us.
I was focussing on the top 0.1%, who actually have a lower tax rate than the 0.1-1% group. These are the ones that Eli said I shouldn’t have sympathy for, while conflating everybody else who is slightly above average in income level into that same group.
There are studies that address this. It depends on the type of “entrepreneur”. If it is somebody who buys up companies and chops them up, then no, he’s not creating jobs, he’s profit taking and destroying jobs and economic productivity in the process. If he’s financing a new startup or original R&D chances are he’s in the category where he’s creating new jobs. (Most jobs though come from people who are simple small businessmen not “clever entrepreneurs”, as studies of where job creation occurs demonstrate.)
But we can’t afford it at the level we are currently funding it. It is bankrupting us. “Want” and “can have” aren’t the same thing.
I note again you make claims you don’t support with polling number with what percentage “want” Medicaid at a level that we can’t afford.
From a purely statistical perspective, there are equal numbers of crazy people in both wings of the political bell curve. If you haven’t figured that out yet, take another good look around the room 😉
http://media.photobucket.com/image/political%20bell%20curve/MaxxTx/BellCurve.jpg?o=1
When SteveF says:
“You, and a lot of other people, including apparently Mr. Zuckoff, continue to suffer from serious misconceptions about the SS Trust Fund being anything more that an accounting fiction. That politicians (mainly left leaning) continue to actively promote these misconceptions, and continue to proclaim that the “trust fund is solvent until 2060″ or some such date, as if it was a fund of available capital invested in real Treasury notes, stocks, or bonds (that is, a real fund), is as obvious a case of deception as I can imagine. That is why I did not think it was worth addressing the first argument offered by Mr. Zuckoff.”
I think he captures the true nature of the problem we have vis a vis SS and Medicare future funding. I have heard members of the ruling intelligentsia in this country and even some right of center commentators talk about the “Trust Funds” as if they really have assets in them and thus the days of reckoning are into the more distant future. If they were totally honest they would merely consider the SS and Medicare programs as a pay-as-you-go funding and also point to the fact that with the economic slow-down we currently are paying more out of the SS fund then is going in this year and perhaps next year.
I suspect that the funding misconception is somehow related to the trust funds representing a promise/obligation of the government to provide those funds in the future to SS and Medicare recipients. That there is an obligation for the government to make these payments has been determined by the US Supreme Court to not involve an legal obligation. Congress could vote tomorrow to stop paying SS/Medicare obligations and it would be perfectly legal if not very popular with certain parts of the population.
We even had people from all sides of the political spectrum marveling at the Federal surpluses run in the Clinton years and forgetting that the we had surpluses only because the SS incomes where higher than the outgoes for that period of time.
I truly believe that those who would deny these financial issues with these Federal funds think that by kicking the can down the road that we can wait for an imminent crises that will be solved by scaring the voters into raising the taxing rates. The problem with that strategy is that increasing tax rates dramatically has a major chilling effect on the economy and that effect will reduce the tax revenues that might be expected- given everything else being equal. It is also why I cringe when I hear Obama talk about government spending on programs as “investments”.
SteveF said in Comment #74004
“There have been for the last 70 years lots of workers per retiree. That will never happen again. A reasonable estimate of the support ratio is:
{(retirement age) – 22)} / {lifespan – (retirement age)}
so if average lifespan in 2100 is 50 years, and retirement age remains at 67, then the support ratio is going to be (65 – 22)/(90-67) = 43/23 = 1.87 workers supporting each retired person.”
________
SteveF, the subject of dependency should include children as well as retirees, as discussed in Age Dependency and Social Security Solvency, a CRS Report to Congress:
http://aging.senate.gov/crs/ss4.pdf
As can be seen in Figure 1 of the Report, the total number of dependents consists of children(under age 19) and older persons (age 65 and older) The total number of dependents per 100 persons of working age declined from about 95 in 1960 to 66 in 2010, and is expected to rise to about 86 in the year 2080. So the total dependency ratio will be a little lower than it was when the baby boomers were children.
The number of older persons per 100 persons of working age rose from about 17 in 1960 to 22 in 2010, and is expected to rise to 43 in 2080. That means about 2.3 persons of working age for each person 65 and older, which is higher than your 1.87 estimate.
If it is no more costly for the working age population to support retirees than support children, given the numbers in Figure 1, it might appear that providing support for boomers as they age will be less burdensome than it was when they were children. But I doubt supporting children is as costly as supporting retirees. I haven’t finished reading the Report, so I don’t know if it makes cost comparisons.
Max_ok–
That’s a big if. Continue reading . We spend more on old dependendants relative to young ones. See page 9:
If we want to control costs, we need to get the per-capita amount spent on the elderly in line with what we spend on the young dependents rather than continuuing to spend much more per elderly person than per child.
Kid’s don’t earn enough income to set up their own homes. Maybe the elderly who didn’t save enough can reduce their cost of living with no suffering to themselves by sharing housing with their children. If they babysit, we’ll get a double benefit! 🙂
Lucia,
I didn’t mean government cost alone. But I still think it cost less to support a child from birth to under age 20 than a retiree from say ages 65 to 85. However, most retirees have some assets to leave to those supporting them, so that should be deducted from the expense of supporting them if you are comparing costs.
I agree the extended family has it’s benefits. It’s just not as much a part of our culture as it was a long time ago.
Max_ok-
Huh? The amount the federal government spends in transfer payments to the elderly is the amount the federal government spends in transfer payments to the elderly. The fact that the elderly might spend even more out of their own private assets doesn’t reduce the cost of the SS budget nor does it reduce the amount workers poney up to cover the costs of the SS budget.
Of course, we could reduce transfer payments to the elderly by means testing. That would leave levies on workers.
“A long time ago” == “Before Social Security”.
Lucia,
Are you suggesting Social Security caused the demise of the extended family? Hmmm… I’ll have to think about that one. I suppose it gave many aging parents more financial independence than they would have had otherwise, and I suspect most of their adult children are glad of it.
Like I said, I didn’t mean government cost alone. With or without government, it cost workers to support children and retirees.
Max_OK,
Caused? I make no particular claims about cause.
But when you said “long ago” during what time frame do you think older parents stopped living with their kids? My father’s widowed maternal grandmother lived with her daughter. My fathers widower paternal grandfather lived with his some and daughter in law. My mother’s widowed maternal grandmother lived with her daughter. I don’t know what my mother’s paternal grandparents did.
My mother and father’s parents had SSN and did not move in with any of their kids. It seems to me that the transition away from extended families and creation of SSN income for the elderly were to some extent contemporaneous. This is not to say there is a cause and effect relationship, but on the other hand, I wouldn’t be surprised if there was some cause and effect relationship.
Lucia,
My parents, grandparents, and great grandparents didn’t live with any of their adult children, but most lived fairy close to each other. My generation( siblings and cousins) is very scattered geographically. Job opportunities encourage mobility.
Social Security doesn’t prevent aging parents from living with their adult children or other relatives, but it does provide more means for independent living if desired. Social Security lessens the economic necessity of the extended family.
Most of my immediate ancestors were farmers who had large families because children were an economic asset on the farm (cheap labor). No relatives from my generation are farmers. It has become hard for a family to make a living by farming.
That reminds me of one of my favorite jokes:
An old farmer wins a multi-millon dollar lottery, and is interviewed by a local newspaper. The reporter asks the farmer what he plans to do now that he’s wealthy. The old man considers the question, and finally replies ” I guess I’ll just keep farming until the money runs out.”
Relatively few families farm for a living anymore, and children are a financial drain rather than an asset. I believe that’s one reason, perhaps the main reason, couples haven’t been having so many kids. I guess they weren’t thinking about the future of Social Security.
MaxOK
Sure. And in that sense, SS may have contributed to the decline of the extended family. It might not be the only contributor, but it part it likely is.
Whether SS did or did not contribute to the decline of the extended family, and whether one considers the decline good or bad, providing the choice for the elderly to live alone in large houses in which they raised their kids or to move to Florida far away from their kids can be expensive. My parents divorced. One is still in her 4 bedroom home; Popsie Wopsie is now in an assisted living community, but had moved to Florida. These are expensive choices relative the ones made by my parent’s grandparents.
Maybe future generations will want to continue to pay taxes to transfer money into the hands of the elderly so they elderly can make these choices, or maybe they will want to transfer less and limit transfer payments to an amount that merely permits an 80 year old grandmother to live nicely in her daughter’s mother-in-law suit. (Honestly. You think I want my mother or mother-in-law living with me? Yikes! But if she had no money, we’d move her in.)
Max_OK,
For sure, the last part is correct. Having just last year finished assisting/helping my father through the last stages of his life, I can tell you for certain that expenditures in the last few years (and even more, in the last few months) of life are much larger than any time before that. By comparison, children are quite inexpensive.
.
As much as I loved my father, I believe that the money spent extending the last year or so of his life was probably not well spent. Life is hard (as most people know), and sometimes unfair (as most everyone knows), but there is no need for society to make it even more so via Federal funding.
Below is a link to an August 2010 CRS Report to Congress, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues
http://aging.senate.gov/crs/ss2.pdf
The legal analysis in this Report says Congress can determine who is eligible to receive benefits from the Social Security Trust Fund and how these benefits are to be paid.
It does not say Congress can regard the Treasury securities held in the Trust Fund as an “accounting fiction” or decide to not use the these securities to pay benefits, as may have been implied elsewhere in this thread.
Some have claimed the government has a legal obligation to honor regular Treasury securities but not the special Treasury securities held in the Social Security Trust Fund. Try to imagine our government at war with a country that owned regular Treasury bonds, and paying off the enemy, while refusing to honor its commitment to its own citizens.
SteveF said in Comment #74054
As much as I loved my father, I believe that the money spent extending the last year or so of his life was probably not well spent.
_______
I wondered about that with my mother. It made me feel bad. I never talked about it with her or anyone else in the family.
Max_OK,
.
Exactly what else do you expect this document to say?
Good grief, it is just politics! As I (and several others) have said several times before, the Congress has the authority to change SS benefits as it sees fit, up or down, by any amount, at any time, without restriction. Congress has the authority to zero out unfunded SS obligations and dissolve the Trust Fund at any time. The existence of the SS Trust Fund (and all the special Treasury notes it holds) is completely irrelevant and inconsequential in light of this legal reality, except to the extent that politicians must deal with the ire of those who’s benefits (present or future) they choose to reduce as they finesse the issue of unfunded liabilities.
.
I suspect that further discussion with you on the subject of the SS Trust Fund will only waste your time and everyone else’s. I bid you well and good night.
Widows and orphans
Stricken with coalminers’ quest.
Ponzi jumped the shark.
=================
Max_OK
Implied? That the trust fund is an accounting fiction and future Congresses could vote to dissolve it has been stated flat out on this thread. People are saying this flat out because it happens to be a absolutely correct statement. The trust fund is an accounting fiction and future congresses could vote to change anything about SS they wish to change.
The only “repercussions” would be whether voters would re-elect those members of congress who push for changes. If future voters support the changes they will re-elect congressional reps who push for them. If they dislike the changes, they won’t vote for them.
My prediction: If the federal government ends up on the brink of insolvency and taxes go sky high to support SS benefits workers can’t afford, voters will re-elect congressional reps to reduce SS benefits. Unlike Greece, no one is going to come to our rescue, so the alternative would be for the US to default on loan obligations. That wouldn’t be good…
SteveF said in Comment #74059
Exactly what else do you expect this document to say? Good grief, it is just politics!
_____
SteveF, the Congressional Research Service is known for being fair and non-partisan.
Regardless of what authority Congress may or may not have, the notion it would “dissolve” the Social Security Trust Fund is ludicrous.
In Comment #7395 you implied regular Treasury securities, which are held by the public and foreign governments, are sounder investments than the special Treasury securities in the Trust Fund. You said “The obligations to Treasury investors and the ‘obligations’ to retirees are completely different in nature… one is a binding contract which can’t be unilaterally changed; living up to the other is a purely political choice.”
Do you honestly believe Congress would honor the Treasury securities held by an enemy government during wartime, yet not honor those in the Social Security Trust Fund?
Max_OK
Well… at least you seem to have moved off the claim that it absolutely can’t be done. But why do you think the idea that Congress might dissolve the Social Security Trust Fund– or do something more or less equivalent is “ludicrous”?
They might honor securities held by an enemy government during wartime but not honor those in the SST Trust Fund. Or, they might fail to honor both. The former would depend on how they thought other foreign governments and potential lenders would react to their failing to honor their debt obligations to a country with whom we are currently at war. I would imagine that what a future gov’t at war with a government that holds lots of TBills would consider is passing a bill saying it is delaying payment and will pay the proceeds to the bond holders after a peace treaty is signed.
I don’t know how other bond holders or potential future lenders would react to this, but bond holders main concern is. Whether they will be repaid whether other people get repaid is data. But I suspect that most countries are aware that if you, as a country first lend country A money and then you as a country do something like Bomb Pearl Harbor, there is a possibility that your loan will not be repaid promptly.
Likewise, individual lenders are aware that if they lend money to country A who then gets themselves involved in endless expensive wars that bankrupt country A, the lender also risks never being repaid. No matter who you lend to, there is at least some possibility of default.
As for the future congress changing SS in some way– whether by saying they’ve dissolved the trust fund, “restructured it” or what not:If future voters don’t support SS at levels “promised” by legislation passed by past voters, new bills will be proposed and passed. This is not “ludicrous”. It’s the way representative democracy works.
lucia said in Comment #74064
“That the trust fund is an accounting fiction and future Congresses could vote to dissolve it has been stated flat out on this thread. People are saying this flat out because it happens to be a absolutely correct statement. The trust fund is an accounting fiction and future congresses could vote to change anything about SS they wish to change.”
——————–
The special Treasury securities in the Social Security Trust Fund are no more an “accounting fiction” than the regular Treasury securities held by the public and foreign governments. Both types of securities are backed only by our government’s promise to pay.
Apparently, bond investors worldwide have confidence in our government’s ability to make good on its promise to pay. Despite the S&P statement yesterday, the price of 10-year Treasury notes rose. I was a little surprised at that.
Do you think the balance in your checking account is an accounting fiction? I doubt the bank has enough money in their vault to cover the sum of all checking account balances.
Lucia said in #74068
Well… at least you seem to have moved off the claim that it absolutely can’t be done. But why do you think the idea that Congress might dissolve the Social Security Trust Fund– or do something more or less equivalent is “ludicrousâ€
——
Lucia, I don’t recall making that claim. There aren’t many things that I think “absolutely can’t be done” or absolute can’t happen.
I think it’s ludicrous to suggest the unlikely is likely. I do think its unlikely Congress will dissolve the Trust Fund.
Re: Max_OK (Apr 19 09:14),
You clearly don’t understand the term ‘accounting fiction’.
[my emphasis] copied from the Wikipedia article Social Security Trust Fund
“but only in a bookkeeping sense” is the definition of an accounting fiction. The increase in SS taxes above the level needed to pay benefits was just that, a tax increase, and a regressive one at that. It allowed the government to defer some borrowing. That deferral has ended. The accounting fiction of the Trust Fund allows payment of full benefits without changing the law. That’s all.
Max-OK–
If you are going to ‘rebutt’ things people say by posting snide sounding sentences ending with ? and then following with hmm…. (#73310, 73992, #73864)) and also by appearing to use sarcasm (#73863), people are going to interpret your response as implying that you think what they said is untrue. If that’s not what you mean to communicate, you need to break yourself of that habit.
If all you mean us to understand you to be saying is that you think it’s unlikely Congress will dissolve the Trust Fund ever, ever ever, you could certainly have said that more directly earlier.
I think will continue to treat the “trust fund” in ways that make it clear the word was never more than an accounting fiction used as a rhetorical tool.
Will the retain the word “Trust Fund”? Possibly. But retirees can’t just draw from that fund at will. The “money” in the trust fund will just “stay right there” for “future retirees”. Congress can maintain the fictional trustfund by having the trustfund will “redeem” its bond and immediately buy new ones. In the process, the Treasury forks over nothing yet defaults on nothing.
Sort of like if I write myself a check and immediately deposit in my checking account. It’s an accounting trick.
Whether the call the “SS Trust Fund” a “Trust Fund” or not, Congress will modify the level of benefits to retirees sometime in the next 30 years. They absolutely will. They will have to do so.
Max_OK
I think me writing a check to myself, tearing up an iou to myself and then depositing the check back into my own checking account would be an accounting fiction.
Whether the bank keeps enough money in a vault to cover redemptions in the event that every depositor tried to withdraw their money on the same day is an entirely different issue. But if you want to argue by red herring… go right ahead.
I think as Brad DeLong and Paul Krugman and many others have pointed out (with numbers attached), we’re worrying about the wrong beast here. Social Security is not in that bad a shape. It’s Medicare and Medicaid that are going to bite us in the seat of the pants.
You want to fix Social Security? Raise the retirement age to 69 (67 for those over 45 today), raise the cap on Social Security earning by 20%. And it’s done.
Heck, Ronald Reagan ‘saved’ Social Security back in the 80s with heavy Democratic support. It’s the easy fix.
Re: Tom Fuller (Apr 19 11:27),
If you raise the cap on earnings without raising the maximum benefit by a similar amount, you’re further damaging the illusion that SS is insurance. But if you do raise the maximum benefit, you’re doing the same thing as raising taxes above that needed to pay benefits, deferring the problem to a later date.
Medicare/Medicaid is indeed in far worse shape, > $70E12 unfunded liability. But if we can’t fix the relatively easy problem (or in many cases even admit there is a problem) of OASI (I should put the I in scare quotes), how are we ever going to deal with the far harder problem of Medicare/Medicaid? The rapid increase in medical costs dates to the introduction of Medicare, btw. As I remember, there’s a visible break point in the curve (I should go find a link, but…).
test: x²
HI Dewitt, yes, there is a conundrum, but really, SS is not the core of it. I’m personally not laboring under the delusion that the I in SSI stands for insurance, regardless of the label. It’s been a PAYGO program from the beginning. But the fix is simple, and creating a monster out of it just distracts from the real problem, which as you point out is an order of magnitude worse than Social Security.
Maybe Lucia can get Good Time Charlie to guest post. 😉
http://www.foxnews.com/us/2011/04/19/charles-manson-reportedly-breaks-20-year-silence-talk-global-warming/
Andrew
DeWitt Payne said Comment #74072) April 19th, 2011 at 10:22 am
–
Re: Max_OK (Apr 19 09:14),
The special Treasury securities in the Social Security Trust Fund are no more an “accounting fiction†than the regular Treasury securities held by the public and foreign governments.
You clearly don’t understand the term ‘accounting fiction’.
The Office of Management and Budget has described the distinction as follows:
The Office of Management and Budget has described the distinction as follows:
These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense…. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)
———
DeWitt, this OMB statement doesn’t label the Trust Fund an “accounting fiction,” and its description of of the Fund’s Treasury securities could be just as well applied to the regular Treasury securities held by the public and foreign governments.
Re: Max_OK (Apr 19 13:37),
Treasury certificates held by individuals and foreign governments can be sold on the open market at any time. That means they are assets in the true sense of the word. The certificates held in the Trust Fund can’t and so aren’t.
Now you’re just nitpicking a distinction without a difference. How is “but only in a bookkeeping sense” different from an “accounting fiction”? This is not a rhetorical question. I expect an answer.
Speaking of answers, when you use snark to make an assertion (“DeWitt, if you believe inflation has risen only one-half as fast as the Consumer Price Index, I want to shop where you shop.”) and you are proven wrong, you really should concede the point and not just drop the issue.
lucia said in comment #74073 April 19th, 2011 at 10:44 am
Max-OK–
If you are going to ‘rebutt’ things people say by posting snide sounding sentences ending with ? and then following with hmm…. (#73310, 73992, #73864)) and also by appearing to use sarcasm (#73863), people are going to interpret your response as implying that you think what they said is untrue. If that’s not what you mean to communicate, you need to break yourself of that habit.
————-
Lucia, I do think some of the things people say are untrue, and that is what I intend to communicate through sarcasm. Thank you for pointing out sarcasm can be misinterpreted. It’s not my intention to be misinterpreted. I will try to be more direct, starting right now.
As I have said before, I don’t think the Treasury securities in the Trust Fund are any more an “accounting fiction” than the Treasury securities held by the public and foreign governments. If you or anyone else thinks that’s because I don’t understand what “accounting fiction” means, please give me a definition.
Tom Fuller,
.
Yes, Medicare costs are the real issue, because they are unlimited. SS benefits are defined and can be redefined at any time (delayed retirement age, increased tax base, reduced cost of living increases, etc.). So long as Medicare is a system where the beneficiary and care provider decide on treatment choices and someone else pays the bills, the system is doomed to increase in cost without limit.
.
Somehow, economic incentives need to be restored; people who receive Medicare benefits have to make a sacrifice for an expensive care option that is in parallel with the sacrifice the principle payers (that is, tax payers) make as a result of expensive treatment options.
.
The reason I loath Mr. Obama’s health care program is not because I want people to go without health care, it is because the program suffers from exactly the same counterproductive incentives as Medicare. It continues the absurd disconnect between who pays the cost and who receives the benefits. If you want to fix Medicare, give every beneficiary (in cash!) exactly how much the system costs today, and let them choose what to do with it: purchase their own insurance, put it in the bank and self insure, or take a yearly trip to Tahiti. Yes, you will have to allow people who make stupid choices to suffer the consequences of those stupid choices. Too bad. Once beneficiaries must weigh costs and benefits in a personal sense the “Medicare problem’ will disappear. An added benefit: all health care costs will automatically come under control.
.
Consider how much corrective eye surgery (a self-paid procedure) costs today versus 15 years ago, compared to how much Medicare covered treatments cost today versus 15 years ago. The nature of the problem is clear, but the obvious solution is politically incorrect. Sometimes politically incorrect is the only rational choice.
“Heck, Ronald Reagan ‘saved’ Social Security back in the 80s with heavy Democratic support. It’s the easy fix.”
I think the point is better put that we have a government program that is in constant need of fixing and does not deliver what was promised. Even a simpler approach is to raise the retirement age to 75 or 80. Raising taxes is not without consequences for the general economy, but that point gets lost fast on people who see no differences between private and government “investments”. SS has effectively loosened what was once considered by many a family obligation for caring for elders. It has given some the illusion that they need not save on their own and that they will live on SS – and many do but at a much lower standard than they expected. There is a lot more wrong with SS (and Medicare) than can be fixed by raising the retirement age or tax rates.
MaxOK–
Well… and rhetorical questions! That’s why I have a rule against them. (Enforced lax-ly. And they are permitted if you answer them. But basically, trying to make points with sarcasms and rhetorical questions usually just results in confusion.)
Of course the former is an accounting fiction and the later is not. An IOU from the feds to the feds whose terms can be modified unilaterally by the feds is an accounting fiction.
I could create a similar accounting fiction at home by setting up a “retirement fund” vs “vacation fund”. Then I could have “lucia” write an IOU to the “retirement” fund and give it to the “vacation fund”. I could claim the IOU was backed by the full faith and credit of Lucia, but when push came to shove… HOW precisely does lucia’s retirement fund sue lucia? Or get a judgement? Answer: Can’t be done. Plus, “Lucia’s retirement funds” willingness to accept “lucia’s IOU” is entirely up to lucia. I could tell myself all sorts of stories about how of course I could never, ever, ever default. And of course I will win the lottery, or work until I’m 90 to cover the IOU’s for the retirement fund or go out on the street and future young people to give me money so I can cover my IOU’s etc. And I might buy my own story– and do so forever. But it’s still an accounting fiction.
In contrast the Fed’s debt to, say China will have the Chinese knocking at our door. Their willingness to lend isn’t up to Congress etc. It’s more like my asking my neighbor or a bank to lend me money. The neighbor or the bank is both going to assess my credit worthiness and come knocking at my door if I default. And they are going to yap.
And btw: That neighbor would perfectly well understand the difference between him lending me money for my “vacation fund” which I spent and my frittering it away and never repaying vs. his lending himself money on his “vacation fund’ which he frittered away.
DeWitt Payne (Comment #74084) April 19th, 2011 at 1:55 pm
Re: Max_OK (Apr 19 13:37),
Treasury certificates held by individuals and foreign governments can be sold on the open market at any time. That means they are assets in the true sense of the word. The certificates held in the Trust Fund can’t and so aren’t.
——-
You are wrong. The Treasury securities in the Trust fund are assets in the true sense of the word. Whether an asset can be bought or sold on the open market doesn’t determine whether it’s a true asset. If that were the case, Yellowstone National Park would not be a true asset.
I think you missed the following in the Wikipedia article on the Social Security Trust Fund:
At a Senate hearing in July 2001, Federal Reserve Chairman Alan Greenspan was asked whether the trust fund investments are “real†or merely an accounting device. He responded, “The crucial question: Are they ultimate claims on real resources? And the answer is yes.â€
I said: Treasury securities in the Trust Fund are any more an “accounting fiction†than the Treasury securities held by the public and foreign governments.
Lucia said: Of course the former is an accounting fiction and the later is not. An IOU from the feds to the feds whose terms can be modified unilaterally by the feds is an accounting fiction.
I think Lucia is wrong because I think the feds also can modify the terms on the regular Treasury securities held public and foreign governments.
Max_OK–
If Yellowstone National Park literally cannot be sold, then it is not a true asset.
Greenspan either a) lied or b) equivocated. Whatever they are, future Congresses can, through their power to enact legislation, decided to do something like “transfer ownership” back to the treasury or cover those in some way that has nothing whatsoever to do with paying SS benefits.
I hadn’t checked in here for some time so just noticed CCE’s response to me:
“A reconciliation bill cannot be filibustered, but the contents of which must be included in “reconciliation instructions†issued at the beginning of the year and not retroactively.”
This is not correct. A budget resolution and associated reconciliation instructions does not have to be issued at the beginning of the year. In fact, in April 2010 the Democrat-controlled senate and the White House made a conscious decision to not include reconciliation instructions in their budget resolution. You can speculate why but the fact is that the Democrats could have passed the budget without a filibuster. See here, for example, http://thehill.com/blogs/on-the-money/budget/93135-conrad-reconciliation-language-hasnt-been-requested
(BTW, is is the Byrd Rule, not the “Bird Rule”).
Re: Max_OK (Apr 19 14:44),
You won’t answer legitimate questions that you appear to find inconvenient or concede points you have lost. That makes you a troll in my book. Bye. *plonk*
Max_OK–
I said more than that.
DeWitt #74095,
I second the motion.
lucia (Comment #74096) April 19th, 2011 at 3:41 pm
Max_OK–
I said more than that
——
Yes, you did. If I distorted or misrepresented your post by quoting only part of what you said, please explain.
DeWitt Payne (Comment #74095) April 19th, 2011 at 3:29 pm
Re: Max_OK (Apr 19 14:44),
You won’t answer legitimate questions that you appear to find inconvenient or concede points you have lost. That makes you a troll in my book. Bye. *plonk*
—————
I’m a troll ? DeWitt, I’m not getting into a name calling match with you.
I’m sorry, but I do not answer all questions, and sometimes don’t even answer relevant questions. There is only one of me, but three who are disagreeing with me, so I have to be selective.
I didn’t answer your question from #74084 (“How is “but only in a bookkeeping sense†different from an “accounting fictionâ€?) because I though it was a result of you ignoring or not taking the time to understand my point about your OMB quote applying to regular Treasury securities as well as the special Treasury securities in the Social Security Trust Fund.
Below is your quote from OMB:
“They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”
It’s clear to me that statement also is true for regular Treasuries held by the public and foreign governments. If you disagree, please explain why.
lucia said in Comment #74092
If Yellowstone National Park literally cannot be sold, then it is not a true asset.
——-
If the rules were changed Yellowstone could be sold.
If the rules were changed the special Treasury securities in the SS Trust fund could be sold.
I believe you agree that rules can be changed.
The Trust Fund at one time did hold regular Treasury securities. I don’t know the reason for the change.
Max_OK–
Sure, if rules were changed, SS trustfund securities could be sold. The money raised from the sale could also be used for something other than SS. It’s the notion that the money represented by those bonds must be spent on SS is the part that’s the accounting fiction. You don’t see to be groking this concept.
Lucia,
I understand the concept, I just don’t think it’s likely enough to worry about.
I can understand labeling unsecured debt (e.g. regular Treasury bonds) an accounting fiction, since it is not backed by assets. But I don’t understand applying the label only to unsecured debt that is not marketable.
I no longer have U.S. savings bonds, but if I did I wouldn’t be concerned over the fact these bonds are unsecured and non-marketable debt, which I believe meets your definition of “accounting fiction.” I wouldn’t fear the government, rather than paying me, would spend my money on something else.
I know Social Security is underfunded for the future, and I hope elected officials will have the courage to make it financially sound. The obvious solutions are raising the retirement age, reducing the benefits, and increasing the contributions. Perhaps these measures can be balanced in a way to overcome voter objections.
I think I have worn out my welcome on this thread. Thank you for your patience.
Max_Ok-
I think the chance that they will change SS rules within 30 years is nearly 100%. The chance for substantial modifications of medicare and medicaid is even higher. 🙂
I haven’t made the marketable/non-marketable distinction. I distinguish by who owns the debt. If the US govt owns it’s own debt, that’s an account fiction. It remains an accounting fiction until such time that sell the debt and money is owned to a second party.
The method the US government used to create the accounting fiction is to concoct the notion of an ‘unmarketable’ bond, which only they own and, according to which, they own themselves money. But yes, if the changed the rules and and sold those bonds, then they would get money from a 2nd party and would owe money to the 2nd party, and than the debt would not be a an accounting fiction.
Well… yes. I think people all agree on this. But you spent an awful lot of time trying to explain that the trust fund is not a marketing fiction, and appearing to contradict people when they said Congress could do any of these things and likely would.
I think they will do all of the above. One reason they must is that the “Trust Fund” is an accounting fiction.
The trust fund is a pile of IOUs. The “special issue” bonds are debt like any other debt. The idea that this practice is the equivalent of an asset portfolio is delusional. Greenspan’s answer quoted above was accurate — the find consists solely of a legal claim on (government) assets, however, it is a claim which Congress is free to amend or eliminate.
The best analysis of SS was by Dave Barry who said that the “trust fund” concept only means that the federal government writes down the SS deficit figures “on an entirely separate piece of paper” from the other stuff.
It is no longer possible to make SS “fiscally sound” only to kick the can down the road and make the reckoning worse (for people too young to vote this year and as yet unborn). The statist welfare model is over. The sooner we accept that, the better. Why people who mindlessly cling to old, demonstrably failed policies and ideologies call themselves “progressive” is a mystery to me.
A lot of the discussion of these government programs involving “trust funds”, by even the prevailing intelligentsia, who should, if they got beyond their biases for more government know better, is disingenuous at best and does not attempt to level with a rather uninformed general public on these matters.
I have been called on using the term unfunded liabilities for the SS and Medicare funds because that person doing the calling was arguing what I have already pointed out here and that is that the US government obligations to these funds can change at any time so in fact the payments are not obligations in the long term sense. That is correct and that should be made crystal clear to the public who might otherwise be making retirement plans based on some assumed permanency of these future payments or what payments into the system are required to keep the funds financially sound. I find many intellectuals appear to want to have the arguments all ways. They want to avoid talking about the existence of unfunded liabilities and at the same time talk of this wonderful government program that keeps our seniors happy and healthy. They hand wave any reoccurring financing problems away by suggesting increases in the payments into the system and increasing the retirement age.
The SS system has rewarded those who were the earlier recipients of the SS benefits, and with the track we are currently on, will present negative returns for the people who have paid into the system and will be attempting to collect from the system in the mid-term future. It rewards those who live the longest and penalizes those who die prematurely – with all others factors equal. The SS system has always been a Ponzi scheme that has all the problems that those schemes present. It might be a transparent Ponzi scheme but not one that is readily pointed to by the advocates of these systems or understood by the general public.
The SS system was a positive for those who wanted more government when the moneys going into the fund were larger than those coming out for benefits and the surplus covered-over a reasonably significant part the annual deficits being run by the government. With no changes to the system in the not too distant future that will change and the SS system will make the deficits look worse and big spending advocates look worse at the same time. I wonder how they are considering that development. Most seem willing to apply what they do so irresponsibly for most future government obligations and that is simply be content to “muddle” through when the time comes.
lucia said in Comment #74111
I haven’t made the marketable/non-marketable distinction. I distinguish by who owns the debt. If the US govt owns it’s own debt, that’s an account fiction. It remains an accounting fiction until such time that sell the debt and money is owned to a second party.
The method the US government used to create the accounting fiction is to concoct the notion of an ‘unmarketable’ bond, which only they own and, according to which, they own themselves money.
___________
You believe the Trust Fund is an “accounting fiction” because the Federal government owes ones of it’s parts( the Social Security Administration) the balance in the Fund. If by fiction, you mean the Fund is not real, I would disagree. Real tax dollars or real dollars borrowed from the public will go to the Fund when redemptions of the unmarketable Treasury securities exceed purchases of these securities.
The same would be true if the securities in the Fund were marketable Treasuries. Redemptions would be paid from tax dollars or further borrowing.
Unlike marketable Treasury securities, the special issues held in the Trust Fund can be redeemed at face value any time, which gives the Fund the same flexibility as holding cash, and does not expose the fund to fluctuations in the price of marketable issues.
If Congress regards the Trust Fund as an accounting fiction, something that doesn’t exist, I don’t know why they would bother changing the rules regarding it. If the Fund isn’t real, the changes wouldn’t be real either.
Max_OK.
The federal government will certainly perpetuate the accounting fiction of ‘redeeming’ the bonds.
Congress likes to create accounting fictions and use metaphors. That’s why they will bother to change the rules.
I hate to step into the debate so far down the road, but I think I was the first person on this thread to use the term “accounting fiction” before fleeing the scene. So why is the Trust Fund an accounting fiction? I have a very simple test : if you were to tear up the assets in the trust fund, are the overall unified finances of the Federal Government any better or any worse than before? The answer is simple – there is no substantive change.
Any accountant will tell you that loans between affiliated entities lack economic substance and must be disregarded when preparing financial statements (what the accountants call “eliminated in consolidation”). A corporation is not permitted to finance its defined benefit pension plan by simply adding IOUs. Even if ERISA permitted it, accounting rules would force the accountants to ignore the IOUs for consolidated reporting and for calculating the net unfunded benefit obligation. The government should be no different.
brid,
The Federal government is not a corporation. The government’s Treasury bonds are unsecured debt. Corporate bonds usually are secured debt. I am willing to pay more for the government’s unsecured bonds because I am more confident I will be repaid. I will buy secured corporate bonds (in mutually funds only). I will not knowingly buy unsecured corporate bonds.
If you tore up all the Treasury notes held in the SS Trust Fund, meaning the note no longer existed, then the government would no longer have the obligation to pay off the note. I think that would improve the governments finances for the future.
brid (Comment #74131),
.
Of course (Did someone say ‘Enron’?). Which is why Federal tax documents for businesses ask about affiliated entities.
.
Some folks deal with reality rationally, some do not. Accounting fictions are a common political smokescreen. What is prohibited for business is common in politics. If someone does not want to deal with deceitful politicians, then push for anarchy. Was the increase in social security taxes starting in the 1980’s a scam? Of course; and it was all used to fund a host of other government programs. Was the tax regressive and unfair? Sure, at least some people think so. Perhaps we can dig Ronald Regan and congressional leaders from that period out of their graves and desecrate their corpses if that would make some feel better.
.
But feeling better will not close the Federal budget deficit, not make payments on the existing (huge) government debt, and in fact, will accomplish nothing. The harsh reality us that the Federal Government has been for a very long time spending much, much more than tax revenues can support. This must change. Not a year from now…. now.
.
Resolving the existing giant deficit will be an ugly food fight, with big-time winners and big time losers; that is the nature of politics in any democracy with a social safety net. Contact your congressional representatives to protect your interests.
Seeing as to how the Ryan plan exempts those over 55 from any change in Medicare, it is pretty obvious that both parties will vie with each other in vote buying. After all, seniors vote in greater numbers. If the ’40s are any guide , it will be re-discovered that tax increases are a faster way of resolving the deficit than cutting spending.
Max_OK,
You are missing the point of what unified (“consolidated” in corporate accounting speak) government obligations are.
brid said in Comment #74137
Max_OK,
You are missing the point of what unified (“consolidated†in corporate accounting speak) government obligations are.
______
Please edify me.
I’m also looking for a recognized definition of “accounting fiction.” I haven’t been able to find a definition in any online Accounting Dictionaries. I’m beginning to think it means whatever anyone wants it to mean.
I can give an example of what I think is an accounting fiction: valuing a property today at it’s 2005 market value of $500,000, when in truth it’s now worth only $400,000.
Lucia,
In Comment #74130 you said:
“The federal government will certainly perpetuate the accounting fiction of ‘redeeming’ the bonds.”
“Congress likes to create accounting fictions and use metaphors. That’s why they will bother to change the rules.”
_______________
“Accounting fiction” implies the special Treasury securities that make up the Social Security Trust Fund are not real, and therefore the Fund doesn’t actually exist. If the Fund is an accounting fiction, then the national debt isn’t entirely real, since the government’s obligation to pay off the special securities is included in the national debt. While I wish this debt were less than real, I believe it is entirely real.
If you are concerned about the government’s ability to repay the Trust Fund’s securities without increasing the national debt, I have good news. The government can issue marketable Treasuries to raise money to redeem the Fund’s securities. Replacing one kind of security with another doesn’t add to the national debt. I suspect many people aren’t aware that the redemptions can be debt neutral.
Lucia, I forget to address the following analogy you presented in Comment #74088.
You said ‘An IOU from the feds to the feds whose terms can be modified unilaterally by the feds is an accounting fiction. I could create a similar accounting fiction at home by setting up a “retirement fund†vs “vacation fundâ€. Then I could have “lucia†write an IOU to the “retirement†fund and give it to the “vacation fundâ€. I could claim the IOU was backed by the full faith and credit of Lucia, but when push came to shove… HOW precisely does lucia’s retirement fund sue lucia?’
_____
Of course you couldn’t sue yourself. But the Federal government and the U.S. population it represents is more like an extended family than an individual person.
Suppose In a large extended family a couple of income-earning live-in aunts were loaning money to the patriarch or matriarch to help pay for child rearing with the understanding the loans would be repaid when the aunts reached ages 65. Sure, the money is owed within the family, but it is no less a loan. Depending on the agreement, the aunts could sue to get their money.
Years ago I wrote a ‘letter to the editor’ which pointed out that the Trust Fund was an accounting fiction. A few retirees were so angry about my letter that they found my name in the phone directory and called my home to insult me. Hysteria and rational thought are usually mutually exclusive. In that light, the content of this thread is not surprising.
Max_OK–
The federal government is not an extended family. A loan from itself to itself is an accounting fiction.
The aunts are not the patriarch or matriarch. These loans are not accounting fictions. If the aunts are wise, they will insist on paperwork to prove their loans in court, particularly if they need to collect after the death of the patriachs.
(BTW: Your hypothetical seems pretty weird. If the aunts are wise, they will likely realize that helping a cash strapped patriarch or matriarch for child rearing of whoever’s kid this is likely to result in default. Out of curiosity, whose kid is this? Are the aunts living with their sibling? Or their parents? Are the aunts expecting the not-dead-yet 85 yo parents to start repaying the loan when the aunts hit 65? Or are they expecting their cash-strapped unemployed crack-smoking sister/brother to pay? Out of curiosity, are the live-in-with whoever aunts paying rent? )
““Accounting fiction†implies the special Treasury securities that make up the Social Security Trust Fund are not real, and therefore the Fund doesn’t actually exist. If the Fund is an accounting fiction, then the national debt isn’t entirely real, since the government’s obligation to pay off the special securities is included in the national debt. While I wish this debt were less than real, I believe it is entirely real.”
The fiction part is rather easy to comprehend if one is in the mood to be real about this matter. A trust fund implies that real assets are available for use in the future to pay-off promised benefits. Politicians, and unfortunately intellectuals, use the term trust fund to mislead the public into a false sense of security about how the government will be paying out benefits in the future.
What would a fair poll of the public reveal on this matter? If the public were confused would most politicians and intellectuals bother to straighten them out on the matter? Would most of the public understand that payments into SS in the past have been spent by the government and the government used those revenues to make the annual deficts otherwise appear lower than it actually was? Would most of the public understand that payments into the system have been on the basis much like a pay-as-you-go system with exception that for in years past the payments into the system were larger than required to met current pay outs and thus it is even worse than a pay-as-you-go system and certainly much worse than an asset funded entity like the “trust Fund” term implies?
Would the most of the public understand that their claims on the “savings” that they invested in the SS fund are at the whim of future politicians and in turn on future economic conditions? Look at the crowd that waves away all the funding problems by suggesting a rise in the retirement eligible age and increased payments into the system. Does most of the public understand that all that process means is that they will be paying more into the system and getting less out of it than their more fortunate parents, grandparents and great grandparents? Do they understand that the way the system is set up that all the extra surplus funds that go into the system will be spent immediately by the government and not put into a true asset fund or even a Gore like lockbox? Do they know the difference between the point in time that the surpluses into the system go negative and when the “accounting fiction” of the trust fund runs out of special government securities?
Do you see any MSM sources attempting to educate the general public on these matters in any serious way other than quoting their favorite economists who are good at obscuring the facts noted above?
And as June O’Neill, former Director of the Congressional Budget Office said about the
Social Security trust fund; “It holds no real assets. Consequently, it does not generate funds to pay future benefits. These so-called trust fund ‘assets’ simply reflect the accumulated sum of funds transferred from Social Security over the years to finance other government operations.”
The borrowing idea is reinforced by adding annual interest to the entitlement trusts just as they would if these were real trust funds. However, the way this annual interest is added is without money involved. The
government simply hands the entitlement fund more nonmarketable bonds, increasing the public’s indebtedness.
By the way, Max, the government debt obligations, outside the special Treasury securities are purchased by entities outside the government. The special securities are entities totally within the government. The funds of government programs like SS cannot legally be directly spent for other purposes and thus the government had to come up with “accounting fiction” of special Treasury securities and a fictitious “Trust Fund”.
Kenneth,
I have made this point before, but it is worth repeating.
Our 14.3 trillion dollar national debt is not fiction. Included in that total is 2.6 trillion dollars in special Treasury securities held in the Social Security Trust Fund. If the Trust Fund was fictional debt, then our national debt would be 11.7 trillion dollars. But the Fund is real debt, as is the other debt included in the 14.3 trillion.
As needed, the money for redeeming the special Treasury securities in order to pay Social Security recipients can be raised by issuing marketable Treasury securities, which of course would not add to the national debt, since essentially it’s a switch from one kind of security to another of equal value.
Trust Fund data are available at
http://www.ssa.gov/cgi-bin/investheld.cgi
“As needed, the money for redeeming the special Treasury securities in order to pay Social Security recipients can be raised by issuing marketable Treasury securities, which of course would not add to the national debt, since essentially it’s a switch from one kind of security to another of equal value.”
In order to make future payments to SS recipients based on the anticipated payments into and out of the SS system we have something that is called unfunded liabilities. Those liabilities are the ones that can require future government expenditures to be primarily for trust fund obligations (assuming the government does not renege on the obligation – which it legally can) and little else. That would appear to be a big deal, and particularly so for those that want bigger government.
I think you are missing the point that the accounting system does not say explicitly what these future liabilities are or at least make them perfectly clear to the public. Early in the game an accounting sytem of a Ponzi scheme that did not look very far into the future would not cause any alarm either. A proper accounting would not only attempt to measure and report those liabilities it would clearly sound the alarm about the overwhelming future draw on funds required to keep the system going.
A transparent government (which we have heard sooo much about lately) would not take your tact, or that of so many politicians and intellectuals, of attempting to obscure future problems, but rather point to the hard facts of the matter. It is not sufficient to merely account for current deficiencies and deficits in the system by putting numbers on a paper and then blithly stating that we merely need to convert intra-governmental debt to real debt. That conversion has consequences and the numbers required for that conversion loom very large in the not so distance future.
Kenneth,
Fatal to the argument the Trust Fund is an “accounting fiction,” is the fact its holdings of special Treasury securities can be redeemed for cash by the government issuing marketable Treasury securities, which does not increase the national debt since the special securities are already a part of this debt. I can’t emphasize this enough since the notion the fund is not real, but just an “accounting fiction” distracts from serious discussion of Social Security reform, as does the Ponzi scheme mischaracterization.
In Comment #74209 you bring up unfunded liabilities, which is the real issue facing Social Security in the years ahead. The Trust Fund eventually will be depleted, if changes aren’t made to the program, and our working population’s payroll contributions will not be large enough to support the growing number of retirees. Our elected officials must sell the voting public on a plan that will make Social Security viable for the future. Unfortunately, they don’t seem to be making progress.
Can we tell the difference?
“is the fact its holdings of special Treasury securities can be redeemed for cash by the government issuing marketable Treasury securities” Max_OK #74214
“A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” (http://www.sec.gov/answers/ponzi.htm)
For heavens sake, Kan, you should be able to tell the difference.
Here’s a simple example: I owe Peter a dollar, he wants the dollar back, so I borrow a dollar from Paul to pay Peter. I still owe a dollar. That doesn’t remotely resemble a Ponzi scheme.
If we would have just elected Big Al for president when we had the chance… and we’d have solved Global Warming. 😉
Al Gore: [ interrupting ] Jim. May I just say that in my plan, the “lock-box” would be used only for Social Security and Medicare. It would have two different locks. Now, one of the keys to the “lockbox” would be kept by the President; the other key would be sealed in a small, metal container and placed under the bumper of the Senate Majority Leader’s car.
http://snltranscripts.jt.org/00/00adebate.phtml
Andrew
“Fatal to the argument the Trust Fund is an “accounting fiction,†is the fact its holdings of special Treasury securities can be redeemed for cash by the government issuing marketable Treasury securities, which does not increase the national debt since the special securities are already a part of this debt. I can’t emphasize this enough since the notion the fund is not real, but just an “accounting fiction†distracts from serious discussion of Social Security reform, as does the Ponzi scheme mischaracterization.”
Max, you seem not to get the point that the Trust Fund does not contain assets but rather intra government IOUs and that there is no legal obligation for the government to continue redeeming claims on the fund. The special securities in the Trust Fund were set up to avoid taking the SS (and other trust fund) surplus revenues directly, which, as I understand it, would have been illegal.
The special securities issue does not change the actual cash flow from what it would be if we merely were on a pay-as-you-go system. The exception to pay-as-you-go in the current system is that the SS funds in the recent past were in surplus and those funds were spent for other government activities. If there were no special securities it would not change one iota what the government has to borrow to keep the system afloat.
Besides a means of getting around a legal issues, the special securities might well have been thought to give the claimants on the system and currently paying into it some confidence of a long term commitment of the government to pay out at the promised rate, but as we know there is no long term commitment that cannot be changed by congress – as it has in the past and will no doubt need to be changed in the future.
The SS (and Medicare) system is very much built on the principles of a (transparent, but probably not well understood by the public) Ponzi scheme whereby the initial money coming in can easily cover the amounts going to the claimants, but later those payments become more difficult because of the change in the ratio of those contributing to the fund and those making claims. Obviously there is one big difference with a private Ponzi scheme in that the government can force the participants to continue to contribute to the fund and that a government Ponzi cannot be adjudicated as illegal.
My point in all this discussion was from the beginning and continues to be pointing to the obfuscations that politicians and intellectuals use to put these systems in a favorable light and the fact that little is done by the MSM to educate the public. We can argue all day about what is an accounting fiction but the facts are that these government programs do not do what is promised and cost much more than was advertised when they were introduced by the government. Below I provide some links that present some facts about SS and Medicare and where we are headed with regards to financing.
http://aging.senate.gov/crs/ss6.pdf
http://www.ncpa.org/pub/ba662
http://www.cms.gov/ReportsTrustFunds/downloads/tr2009.pdf
Table 1 in the first link shows the $2.6 trillion in the special securities in the SS fund in 2010. That amount does not in itself show that all things staying the same the $2.6 trillion will shrink to nothing by 2037 and in the meantime the expenditures minus the revenues will require the government to financed nearly $4 trillion over a period of 20 years for SS, and with a large part of that occurring in a 10 year period.
The second link also shows that if nothing changes the general revenue contribution to SS and Medicare will consume nearly 50% by the year 1930 and reach 74% and 89%, respectively, by 2060 and 2080.
The second link shows some rather improbable and economic stagnating tax rates that would be required to carry the SS and Medicare funding with a balanced budget. Most people with some familiarity with economics know that tax increases, even at lower levels, never produce the revenues that would be expected because they reduce economic activity. An increase of the size above would have a major negative impact on the economy. Such is the conundrum of these large government programs and the promises made.
Can Higher Taxes Solve the Prob¬lem? The CBO also found that if federal income tax rates are adjusted to allow the government to continue its current level of activity and balance its budget:
The lowest marginal income tax rate of 10 percent would have to rise to 26 percent.
The 25 percent marginal tax rate would increase to 66 percent.
The current highest marginal tax rate (35 percent) would rise to 92 percent!
Additionally, the top corporate income tax rate of 35 percent would increase to 92 percent.
Re: Kenneth Fritsch (Apr 22 10:20),
It also allows the SS to continue to pay normal benefits even after payouts exceed revenue, which would also be illegal. If nothing else changes, SS benefits would have to be reduced when the Trust Fund reaches zero.
Another way of kicking the can down the road would be to open immigration. That would almost certainly lower the median age of the population and increase the ratio of workers to retired. For a while. Faster economic growth would also help, but raising taxes will work against that. Raising the cap on earnings taxed would bring tax rates for high earners back to levels last seen in the 1970’s, not exactly boom time. Todays WSJ has an article (paywalled) on the subject.
Max_OK – If you believe what you have said, then I am not sure you know how Treasury Securities work. They do not get face value upon their sale (ever). The real price (the money you will get from the sale) is discounted, based on future expectations.
To get a dollar in cash today to pay Peter, you have to sell more than a dollars worth of future payout to Paul. In a nutshell, you will owe a dollar plus change to Paul.
So, you paid Peter with Paul’s investment, and in your example, you will need to somehow find other investors to have enough money to pay Paul back.
Ken, the Treasury does not sell bonds and bills at a discount from face value. You may be thinking of Treasury bills, the short-term issues having a maturity of 52 weeks or less.
Kenneth Fritsch said in Comment #74231
“Max, you seem not to get the point that the Trust Fund does not contain assets but rather intra government IOUs and that there is no legal obligation for the government to continue redeeming claims on the fund.”
—————————————
Ken, I understand the point you are trying to make. You are telling me the U.S. government’s promise to make good on the money it borrowed from the Social Security Trust Fund has no value as an asset because the government can break that promise anytime it’s elected officials like. And I’m telling you I don’t consider that possibility likely enough to cause me concern.
I hope, however, most Americans are concerned the government will break it’s promise, and vote for politicians who vow to keep the government committed to honoring its obligation to the Trust Fund.
__________
Ken, you also said “the SS (and Medicare) system is very much built on the principles of a (transparent, but probably not well understood by the public) Ponzi scheme ……”
No, Social Security is not built upon the principles of a Ponzi scheme.
A Ponzi scheme is a criminal plan to defraud gullible greedy people of their money through deception. Needless to say, the millions of Americans receiving Social Security benefits are not crooks and the millions paying into the system are not greedy saps.
A Ponzi scheme depends on an unsustainable progression. Social Security can go on forever as long as the money going into the program balances the money going out.
There is superficial resemblance between Social Security and a Ponzi scheme in that in both money from later participants goes to pay earlier participants, but the lack of necessary funding to sustain SS benefits is a result of a failure to account for an aging population, not a criminal scheme.
For more information, see
https://www.socialsecurity.gov/history/ponzi.htm
Kan, in #74309 I inadvertently addressed you as Ken. I apologize for the mix up.
Max_OK
You used the term Treasury Securities. This term covers Notes, Bills, Bonds and (currently) TIPS. The present value of all of them (for liquidity purposes) are calculated with a discount factor based on future expectations. Fundamentally, all of them require the US. Government to pay back to the investor at some future date more than the investor paid for the instrument. This is called debt.
.
You suggest that the liquidity of the SS Trust is a one dollar for one dollar arrangement based on these instruments. If you believe this to be true, then you do not understand them.
.
“A Ponzi scheme depends on an unsustainable progression.”
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It is only unsustainable because eventually you will run out of new money to bring into the system to pay out the already promised money.
.
“Social Security can go on forever as long as the money going into the program balances the money going out.”
.
To prevent SS from becoming a true Ponzi Scheme, by your definition, it must change.
There are 4 basic corrective actions:
1) Reduce the number of recipients by raising the minimum age.
2) Reduce the payout to match the incoming revenue.
3) Increase the buy in (taxes) for the dwindling number of new investors.
4) Increase the number of new investors (increased immigration).
If none of these four things occur and very soon, what will you have? An unsustainable progression.
No worries about the name.
Kan in #7425
Kan, the Treasury Direct site doesn’t seem to agree with you. In answer to the question “How Much Do I Pay?” the site says
“Treasury Bills are issued at a discount from face value and are paid at their par (face amount) at maturity. The purchase price is listed on the auction results press release and is expressed as a price per hundred dollars.
On the other hand, Treasury Notes, Treasury Bonds, and Treasury Inflation-Protected Securities (TIPS) are issued with a stated interest rate applied to the par amount and have semiannual interest payments. In some cases, you may have to pay accrued interest. In the case of TIPS, the interest payments and the final payment at maturity are based on the inflation-adjusted principal value of the security.”
If you know a way to pay less than face amounts for Notes,Bonds, and TIPs at future Treasury auctions, I would like to hear about it. I’m sure the Treasury would too.
Regarding your “If none of these four things occur and very soon, what will you have? An unsustainable progression.”
You failed to take into account future changes in the age-distribution of the population. The baby-boom was followed by a “birth dirth,” and the latter will be a smaller retirement group relative to the working population. Of course that’s thinking way ahead.
Max, your comments are a prime example of the obfuscation to which I refer in my posts on this thread.
You say that the SS system is sustainable by it changing the rules and using the powers of government to put more money into the fund. The changing rules make the deal worse for those who “invest” in the system later. You seem to want to concentrate on the fact that government can legally run what would be deemed an illegal Ponzi scheme outside of government. The SS system was running within a year of going broke in 1982 before it was “fixed”. The system was not sustainable then nor is it into the intermediate future.
You wave off the proposition that the government can change the rules at any time for redeeming claims on the system by saying it will not happen. The government said it had no obligation to come the aid of the Fannie Mae and Freddie Mac and investors bet otherwise (lower interest rates) and they were correct. Many younger people in the US show in polling to think that SS will not be there for them. That would be better if they truly believed that and planned for their retirements with that in mind. We have many future retirees and current ones, for that matter, who have not saved sufficiently for their retirements on the belief that SS would provide more than it does. SS has discouraged savings and family obligations. I judge SS and Medicare to be major government program failures and would be prime candidates to be phased out completely in a rational world.
And, of course when speaking of unfunded liabilities we have the far bigger problem of Medicare and some very large ones with state operated pension and health programs. What has been promised for the future would require taxation that will stagnate the economy and thus we have an even a larger problem with sustainability then the hand waving of just increase the funding provides.
“You failed to take into account future changes in the age-distribution of the population. The baby-boom was followed by a “birth dirth,†and the latter will be a smaller retirement group relative to the working population. Of course that’s thinking way ahead.”
And you failed to note the effect of changes in the immigration (legal and otherwise) of younger workers into the system. By the way, all these changes are included in the estimation of when the SS fund will go to zero and the intermediate scenario projection is around 2037. Without added funds, the pay-as-you-go basis goes to something around 75% of the promised payments which, of course, is a Ponzi-like bad deal for the later “investors”.
Max_OK
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1) The auction of T bills sets the discount price based on future expectations. The variable is the discount itself.
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2) For the other 3 instruments, the variable is how many can be sold to raise the desired dollar amount. Thus, the fixed interest rate that is applied must be set to an enticing enough interest rate to attract the desired revenue. However, the more enticing the more costly for the Government. This is just an inverse discount mechanism. (to see the real discount mechanism at work for these 3 instrument look at the secondary markets. Then look at bond hedge funds)
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Again, in both cases it is not as you say: I can pay Peter one dollar, by borrowing one dollar from Paul. It is a case of, I pay can Peter one dollar, by borrowing one dollar + interest from Paul.
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Birth dirth? I did not ignore it. It has been balanced out by immigration rates (see point my point 4).
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http://www.censusscope.org/us/chart_age.html
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The other unknown variable with this has always been, and will continue to be, the future life expectancy (see my point 1). Thus, you currently have a fairly steady state of population but an increasing length of pay out time. This will keep the current SS system as an unsustainable progression unless one of the very unpopular changes (my points 1-4) are made.
Kenneth,
I should deplore the efforts of anti-Social Security and anti-Medicare ideologues to foment generational warfare between retirees and young workers. But the fear-mongering rhetoric likely will backfire on those ideologues by assuring defeat of candidates who suggest the programs should be discontinued.
So please continue with the rhetoric.
If you have a change of heart and soften your position, you might consider means to build automatic solvency into these programs.
Kan said in Comment #74371
For the other 3 instruments, the variable is how many can be sold to raise the desired dollar amount. Thus, the fixed interest rate that is applied must be set to an enticing enough interest rate to attract the desired revenue.
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Kan, the Treasury doesn’t set the interest rates on the notes, bonds, and TIPs it issues to borrow money. The rates are determined by competitive bidding in auctions. Buyers submit bids on the rates they are willing to accept. Otherwise, the Treasury auctions wouldn’t be called auctions.
Sorry, Max I can only see that eventually with the promised benefits there is no way that they can be maintained, once the Ponzi like features of the system are realized, and it is further realized that maintaining those payments will slow the economy to a halt.
You should not worry about those very few, like myself, who would prefer these systems were phased out and are not very influential with voting public, but rather by those who would deny that system is not sustainable and throw out the concept of a trust fund for the unwitting voters to trust in and who would attack those who would want to change the system even a little bit as doing away with it.
Ken, I know Social Security and Medicare are not sustainable at current benefit levels, and I know the future solvency of these programs will require reducing benefits and increasing contributions. Both remedies are unpopular with most voters, and that’s why elected officials are reluctant to act. But the longer we wait, the more painful the remedies.
Since people are living longer, I favor gradually raising the retirement age for full Social Security benefits and Medicare coverage because this would both reduce payout and increase tax contributions.
We do not agree on the Trust Fund, but I think that’s a side issue.